Why We Buy With More Than One Exit in Mind

WRITTEN by Haydn Zeis

When we buy a property, we have a primary business plan. But, a lot WILL change over five to seven years, and we want more than one way to exit the investment. Commerce Parkway in Fund II is a good example of why that matters.

We purchased the approximately 54,000-square-foot office property in Dublin, Ohio, for about $82 per square foot. It sits in one of Columbus’s nicest suburbs, surrounded by attractive buildings, city hall, a large park, and housing.

When we purchased the building, it was about 80% occupied. The seller handled the leasing himself, and we saw an opportunity to bring occupancy to 92% through a more active leasing effort. We ultimately reached 100% and maintained essentially full occupancy for about five years.

Our original plan was to increase occupancy, grow rents, collect cash flow, and sell in years five to seven. But we also identified the possibility of converting the property into 36 office condominiums and selling the units individually.

At the time, the condo route didn’t offer enough of a premium to justify the additional work. With interest rates around 3.5% to 4.5%, we estimated a sale of the entire property based on its income might bring roughly $105 per square foot. Individual condo sales might bring around $120 per square foot. It was an option, but there wasn’t enough room between the two to make it our preferred exit.

Over time, that changed.

We steadily increased rents, but rising interest rates also pushed cap rates higher, putting pressure on what an investor would pay for the property’s income. Meanwhile, the local market for office condos strengthened, and individual sales at approximately $160 per square foot became realistic.

The two potential exits had moved in different directions, which is one of the reasons we like to have multiple strategies. 

We decided to pursue the condo conversion. That came with a learning curve, so we interviewed attorneys and selected one whose practice focuses on condominium work. He guided the process and connected us with the surveyors, architects, and other professionals needed to complete it.

About six weeks into sales, we have sold six units and have four more under contract. Buyers include an investor, a doctor, a nonprofit sports organization, and a massage business. For businesses buying their own space, ownership gives them more control over where they operate.

The sales process will take time. Some units have longer leases that may affect their appeal to buyers, and those units may require a different pricing approach. We still have work ahead of us.

But the reason we had this choice goes back to the purchase. We recognized another viable exit before we needed it.

We couldn’t predict exactly where interest rates or the condo market would go. What we could do was buy a property that gave us flexibility. At Commerce Parkway, that flexibility helped us respond to higher interest rates and pursue the exit we believed made the most sense for our investors.

That is why multiple exit strategies matter. A business plan should give an investment direction while leaving room to respond when the market changes.