Key takeaways
- Start with what the owner needs: income, liquidity, simplicity, or growth. The property decision follows.
- Holding has a cost. Taxes, insurance, maintenance, debt, and the owner's time count against the income.
- Vacancy changes the math. An empty building sells to a different buyer, at a different price, than a leased one.
- Debt maturity is a deadline. A refinance at today's rates can force the decision.
Start with the objective
A sale, lease, hold, refinance, or redevelopment only makes sense against the objective behind it. An owner may need liquidity, steady income, simpler management, a clean exit for an estate, or a bigger long-term payoff. Name it first.
Signals that point each way
| Path | Signals in favor | Watch out for |
|---|---|---|
| Sell | Need for liquidity; management burden; strong buyer demand; a better use for the capital; estate or partnership change | Tax on the gain; selling into weak demand; leaving value for the next owner |
| Hold | Stable tenants on long leases; low-cost or no debt; rising area demand; no better use for the capital | Deferred maintenance; lease rollover; debt maturity |
| Re-lease | Vacancy in a building that's still functional for current users; market rents support the cost of leasing | Downtime, tenant improvements, and commissions before income starts |
| Refinance | Strong NOI; need for capital without selling | Today's rates and DSCR limits may size the loan below the current balance |
| Reposition or redevelop | Zoning or location supports a higher use; the current use is obsolete | Entitlement risk, construction cost, absorption, and time |
Put a number on holding
| Annual holding cost (vacant building) | Amount |
|---|---|
| Property taxes | $14,000 |
| Insurance | $11,000 |
| Utilities, lawn, security | $4,800 |
| Repairs and upkeep | $6,000 |
| Total carry before debt | $35,800 |
Illustrative example. Hypothetical numbers chosen to show the math. Your numbers will differ.
If leasing the building would take twelve months plus build-out time, the carry during that period is part of the leasing decision. If a sale is likely to take six to nine months, it's part of the selling decision too.
Questions to answer before deciding
- What would the property sell for today, as-is, and to whom?
- What would it rent for, and what would it cost to get it leased?
- What does zoning allow, and is there a higher-value use?
- When does the debt mature, and what would a refinance produce?
- What are the tax consequences of a sale, and would a 1031 exchange fit?
- How much time and attention does the owner want to give this asset?
A Broker Opinion of Value answers the first two. Your CPA answers the tax question. The rest is the conversation I have with owners before anything is listed.
Common questions
Should I sell my commercial property now or wait?
It depends on your objective, the property's income and condition, debt maturity, and buyer demand. Compare the net proceeds of selling now against the income and likely value of holding, after the cost of holding.
Is it better to sell a commercial building vacant or leased?
It depends on the buyer pool. Investors usually pay more for stable leased income. Owner-users often want vacant space they can occupy. Know which buyer you're selling to.
What is a Broker Opinion of Value?
A broker's estimate of a property's likely sale price or value range, based on comparable sales, income, condition, and market conditions. It's not an appraisal.
General information, not legal, tax, accounting, or investment advice. Examples marked illustrative use hypothetical numbers.