Off market does not equal below market

On the heels of my last post about auctions, I believe it is appropriate to discuss the proverbial term “off market” also referred to as pocket or whisper listings. 

I am often called upon by rookie investors to the hotel sector with aspirations to locate off-market opportunities, clearly with the misconception of obtaining a bargain. The reaction in my head is always the same: “Yeah, sure, so am I.” I often chuckle when I receive a notification trumpeting an unsolicited off-market listing from an investor, seller, broker or some other third party. Really? If a property is off market, then why is it for sale with the widespread announcement of availability? In my opinion, that defies the meaning of an off-market deal.

While there is diminutive likelihood of an off-market opportunity resulting in below-market pricing, in many situations the process can provide an entry into a desirable prospect that will lead to less competition. Off-market opportunities tend to surface through relationships with property owners and/or attorneys that represent a venture desirous of a quiet disposition process free of awareness by employees, competitors and the press.

Much depends on the state of the market. Five years ago, no one wanted to buy anything; in today’s world, off-market hotel transactions typically result in at least market — and in many cases premium — pricing due to a purchaser having exclusivity. An off-market acquisition opportunity by no means infers a chance to purchase a hotel at a below-market price. If anything, a premium price offering makes it worth a seller’s while to take the risk of not formally going to market.