Start with the decision you need to make
Off-market commercial real estate investment brings an owner and a qualified buyer together through a private process. The process can provide discretion and a focused negotiation. Its usefulness depends on the quality of the information, the suitability of the buyer, the owner's objectives, and the discipline of the underwriting.
Use these ten chapters in sequence for a first acquisition, or start with the issue that could change your decision. Each chapter introduces a question, identifies what to verify, and links to an existing Skyline Properties guide or specialist resource for deeper analysis. The asset-type chapters help translate the same underwriting framework into different property and ownership structures.
Keep a written distinction between a verified property fact, an underwriting assumption, and a condition still to be resolved. A useful investment memo makes all three visible. The same discipline helps an owner compare offers without treating headline price as the only measure of an outcome.
Understand the off-market process
An off-market transaction is negotiated without a broad public listing campaign. It may involve one buyer or a limited group approached privately. Confidentiality describes the process; it does not establish a discount, guarantee a closing, or replace price discovery.
Begin with a specific acquisition mandate: geography, property type, equity capacity, financing needs, occupancy, and intended hold period. Owners should define the information that can be shared, the principals authorized to receive it, and the conditions for expanding the buyer pool. The useful first question is whether the buyer's plan fits the owner's priorities.
Questions to resolve
- Who can authorize a sale and approve disclosure?
- Which buyers can fund this asset and execute the proposed plan?
- What evidence will show whether the private process is producing a credible price?
Build a defensible valuation
Price per square foot is a comparison tool, not a complete valuation. Two neighboring buildings can have different lease duration, vacancy, physical condition, tax exposure, and usable floor area. A credible price range explains those differences before applying a market multiple.
Reconcile the rent roll to collections and operating statements. Separate recurring expenses from unusual items, and distinguish in-place income from a stabilized forecast. Compare completed transactions with a similar economic interest and business plan. A fee-simple sale, ground lease, and leasehold acquisition do not convey the same rights.
Questions to resolve
- What income is collected today rather than projected?
- Which capital costs sit outside reported operating expenses?
- Are the comparison sales similar in use, condition, timing, and property rights?
Connect cap rates to financing and risk
A capitalization rate relates a property's annual net operating income to its price. It does not measure the investor's complete return. Debt costs, leasing expenditures, capital improvements, and the eventual sale can change the outcome even when the entry cap rate appears attractive.
Keep the income definition consistent across comparisons. Underwrite financing separately and run scenarios for lower income, higher operating costs, and a less favorable exit valuation. Use current lender terms rather than assuming the capital available for an earlier sale is available for today's acquisition.
Questions to resolve
- Is the quoted cap rate based on in-place or stabilized income?
- How much cash remains after debt service and capital spending?
- Does the acquisition still work if refinancing proceeds are lower than expected?
Verify the property before committing capital
A private introduction is the beginning of diligence. Public records, seller documents, physical inspections, and professional reports answer different questions. A recorded owner name does not by itself establish the authority of the person negotiating, and a certificate of occupancy does not establish that every present use complies.
Create a document list and assign each open question to the appropriate reviewer. Reconcile title, leases, arrears, service contracts, taxes, permits, violations, insurance, environmental conditions, and building systems. Record missing information and its effect on price or execution before deadlines expire.
Questions to resolve
- Which documents support each material underwriting assumption?
- What requires legal, engineering, environmental, or zoning review?
- Which unresolved items could prevent financing or closing?
Underwrite multifamily income at the apartment level
A building-wide rent figure can conceal differences in apartment status, collections, concessions, and lease history. Multifamily analysis should connect each unit's documented condition and tenancy to the income included in the model. Market rent estimates are different from collectible in-place income.
Review leases and payment histories alongside the applicable regulatory records with qualified advisers. Inspect occupied and vacant space as access permits, identify recurring repairs, and budget building-wide work separately. Test the acquisition using the rents and operating costs supported by the documents rather than assuming every unit can be repriced.
Questions to resolve
- What supports the rent and tenancy assumptions for each apartment?
- Are collections consistent with the reported rent roll?
- What capital work is needed during the intended ownership period?
Separate the income streams in mixed-use property
A mixed-use building combines risks that should be evaluated separately. A commercial tenant may account for a large share of total income while the residential portion carries a different lease structure and operating profile. A single blended rent or expense assumption can hide that concentration.
Model the commercial and residential components independently before combining them. Review tenant credit, lease expiry, renewal rights, reimbursement provisions, and the cost of re-leasing the storefront. Check whether shared systems, access, insurance, and building work create obligations that affect both uses.
Questions to resolve
- How much income depends on the largest tenant?
- Who pays for shared systems and recurring building expenses?
- What vacancy period and leasing costs would follow a commercial tenant's departure?
Distinguish the fee interest from the leasehold
A ground lease separates land ownership from a tenant's contractual right to use the property for a defined term. The owner's leased-fee interest and the tenant's leasehold have different cash flows, financing considerations, and exit risks. A headline ground rent is only one part of the agreement.
Read the rent schedule together with reset provisions, remaining term, assignment rights, lender protections, default remedies, and improvement ownership. Model contractual increases and reset scenarios over the relevant investment horizon. Counsel and lenders should assess the actual document before either party assumes the proposed structure is financeable.
Questions to resolve
- How is ground rent calculated at each increase or reset?
- What rights protect the leasehold lender after a default?
- What happens to improvements when the term expires?
Screen office conversions for physical feasibility
An office acquisition is not automatically a residential conversion opportunity. Floor depth, window access, structural layout, vertical circulation, building systems, and existing tenancies can materially affect the usable residential area and the schedule. A low acquisition basis alone does not resolve those constraints.
Obtain an architectural test fit and a documented review of permissible use before underwriting a unit count. Include tenant termination or expiry, construction, carrying costs, financing, and lease-up in the business plan. Confirm current program requirements and timing with the relevant agencies and advisers before including any tax benefit in the model.
Questions to resolve
- What residential layout does a qualified architect support?
- When can the building actually be delivered for construction?
- Which eligibility assumptions and incentives have been independently confirmed?
Confirm which development rights can be used
Unused floor area is not the same as a ready-to-build project. Development potential depends on zoning, lot configuration, existing restrictions, access, building envelopes, and the legal arrangements needed to use or transfer rights. A seller's area calculation is an input to review, not an entitlement determination.
Have zoning counsel and the architect reconcile the survey, title documents, existing floor area, and applicable district rules. Identify easements, landmark issues, recorded agreements, approvals, and neighboring interests that could constrain the plan. Price the usable, supportable development opportunity rather than treating every theoretical square foot as equivalent.
Questions to resolve
- Which documents establish the rights being acquired?
- What approvals or agreements are necessary to use them?
- How do design constraints change the feasible project area and cost?
Turn an accepted offer into an executable sale
An offer's value depends on more than its price. Financing conditions, diligence scope, deposit terms, timing, authority, and the buyer's ability to perform influence the likelihood of a closing. A higher headline bid may introduce execution risks that the owner needs to understand.
Compare proposals on the same terms and require supporting information appropriate to the deal. Organize the diligence package early, maintain a written issues list, and have counsel document the agreement. Set a communication cadence that keeps decision-makers available when questions arise. A private process still needs disciplined milestones and a credible alternative if the selected buyer cannot proceed.
Questions to resolve
- What evidence supports the buyer's equity and financing plan?
- Which conditions remain before signing and closing?
- Who is responsible for resolving each issue and by what date?
Bring the analysis back to the property
A purchase or sale should be supported by the specific leases, financial records, physical conditions, and agreements affecting the asset. This guide provides an educational framework. Current legal requirements, tax treatment, financing terms, and program eligibility require property-specific review with the appropriate advisers.
For examples of the firm's work, explore Skyline Properties case studies. For a confidential discussion about a property or acquisition mandate, contact Robert Khodadadian and the Skyline Properties team.
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