It’s easy to oversimplify buying power. In LA’s commercial real estate market, you’ll often find people reducing it to how much capital a buyer can deploy. But that’s only part of the picture. A more thorough analysis of buying power addresses other influences, including timing, flexibility, and market savvy. And these nuances illustrate that some of the most impactful advantages in investment are easy to miss when the investor is purely fixating on price.
Opening Up New Possibilities Through Zoning
In LA, zoning is always changing. A property’s potential reflects the evolution of community planning, density bonuses, and adaptive reuse allowances. Taking a commercial property at face value is easy. But buyers who look at a property predictively, using data analysis and community discussion, find more buying power in their planning than those who simply value the same property “as-is.” By leveraging a building’s underutilized zoning or potential for future development, you can justify stronger positions at the negotiation table, even with a more modest income in the here and now.
Understanding the Seller’s Incentives
Sometimes, understanding the reasons why a commercial property is being sold can give you a rare insight that increases your buying power. Examples of seller motivation that could give you flexibility in the deal include:
- Estate sales
- Increasing operating costs
- Partnership dissolutions
- Upcoming loan maturities
Commercial properties are often long-term investments in the LA market. If someone’s selling, understanding their incentive can be just as beneficial as market comps.
Taking Your Strategy Off-Market
Sometimes, properties trade quietly before a formal listing, allowing buyers to avoid bidding wars and white-knuckle timelines. We call these off-market properties. While an off-market property won’t change your capital, it can give your buying power a welcome boost by reducing (and possibly even eliminating) competition and allowing space for a more concerted deal structure. In several of the city’s submarkets, some of the best-aligned deals never touch the open market at all. It’s worth noting that JohnHart is one of the few brokerages with regular access to off-market properties.
Orchestrating Loan Terms in Your Favor
Size matters when it comes to loans. But don’t overlook the power of loan terms. Longer interest-only periods, flexible prepayment terms, existing debt assumption, and seller carrybacks can save a deal. Familiarize yourself with the commercial property types that lenders are currently favoring. Then, make sure to contact your lender early on to gain leverage well before the negotiation phase of the process.
Get to Know LA’s Submarkets
Amidst its urban sprawl, LA harbors numerous submarkets, each with its own dynamics that can underscore a hidden value where less-informed investors only see risk. Demand, vacancy, and rental patterns can shift dramatically in mere blocks, especially in regions like Downtown, South Bay, the Valley, the Westside, and other infill areas that are on the rise. Seizing on this insight can feed stronger negotiating positions and build confidence in atypical opportunities during the underwriting process.
The Power of a Plan
A plan matters when it comes to commercial property investment. Therefore, buyers can amplify their buying power by proving they have what it takes to follow a plan to completion. From tenant improvements to operational efficiency, proving your foresight and follow-through can inspire sellers to be more flexible about terms, even if their financial offer isn’t the highest.
The True Ingredients of Buying Power
Commercial real estate would be simpler if buying power were just a matter of who could spend the most. But other factors are at play in almost every deal. By understanding the factors that influence value hidden just beneath the surface, you can align timing, structure, and strategy to your advantage.
