Broker Fee for Multifamily Portfolio

[Sas S.]

Hi,

I know this is a question that doesn't have a simple answer, but I'm trying to find out what a "reasonable" broker fee (from the Seller's perspective) would be for a large multifamily portfolio.

Assume about a dozen Class A properties valued at about $330 million in the South. What would a reasonable fee be if this were marketed and sold as a portfolio to one buyer?

A range of values is fine...I'm just hoping to get some context.

Thanks!
Pano

[Joel Owens]

It really depends. That deal size finding one buyer that will take all properties is involved. They might like certain properties and not others for various reasons.

Those types of deals can take a bunch of time and involvement to close. Before quoting a commission price I would have to see what the seller is trying to get CAP wise out of the properties and compare that to the market. I would have to know how far off the asking cap is they are wanting and how many basis points the cap is moving each month and in what direction.

I would also have to have an iron clad listing contract that could not be terminated early and give me the adequate time to sell the property as the marketing costs could be very high to take it on.

Usually the big commercial brokerages use a tiered system where if we have both sides it is one price and if their is a co-op the total fee is higher.

That big of a size maybe 2% total as a package but if the properties get sold individually then total commission percentages go up as more work is involved and time. It's all about the negotiation between the listing broker and the seller and what works for both parties in such a large transaction.

[Sas S.]

Joel,

Thanks for your reply.

I know this depends on a lot of factors, but 2% seems high...that would be $6.6 million in commissions for 6-9 months of work. In my experience, commissions for an individual property (~$35 million) are well below 1%, so I'd expect a further discount for a portfolio sale.

Assume seller cap rate expectations for the market are reasonable and values are generally trending upwards as NOI improves...but cap rates are relatively stable. Good quality product in secondary markets.

My gut tells me 20bps - 40bps ($660k - $1.32mm), plus expenses, but this is very wide range and is just a hunch on my part. Would you consider that to be low for the amount of work involved?

Thanks again.

[Joel Owens]

For class A you have the location and then the buildings themselves.

A class A building in the suburbs will not be coveted as a trophy asset like in the urban core for big institutional buyers as part of their overall portfolio.

So even for class A the caps go higher in the secondary and tertiary markets compared to urban core.

The rates vary really all across the country by deal size and type of product to market. Yes when the deals are larger commissions go down but so does the buyer pool so you have to work harder to find the right buyer. At your rates if the listing broker doesn't double end it and has to share the commission is minimal for that deal size.

If they can sell 10 buildings of 20 million properties in the same time frame and get a higher commission the income is greater. Example 20 million at 2% is 400k by 10 is 4 million in commission.

I would think if a broker were to take such a proposal for that low a rate they would need to have the seller invested into the marketing of the property.

So I would set up an agreement to where the seller spends the money to market the property and then I would rebate the cost at closing off of the commission. This way the seller is loyal to the broker, committed to selling, and has skin in the game. If the seller has nothing to lose then putting out a bunch of money on a big sale for a listing broker doesn't make sense. It takes awhile to sell such a property. Everyone in the transaction wants a return on their time invested in a deal. I couldn't allocate a large chunk of time to marketing such a property without knowing the sellers were 100% committed contractually.

Every piece of business I take whether it is a buyer or a seller I go in 100%. If the seller or buyers is not 100% as part of a team to accomplish a goal then I cannot work with them. I believe to truly work well together and be successful everyone has to be committed and all in.

[Joel Owens]

Don't get me wrong in that I would love to have on my resume that I sold and marketed a 300 million plus portfolio. That would certainly be an honor of the highest caliber.

[Sas S.]

Thanks Joel. This info was very helpul and much appreciated.

[Keith Schneider]

Sas S. Congratulations on your listing. I hope that you make your full commission and have a great smile on your face! Now hopefully all you have to do is find a buyer and determine the selling points of the property, demographics, economic, and hopefully comps of other like properties in the region, and my hope for you is no snags, smooth, though this is rare! If you want to continue this conversation why not email me at [url][email protected]