Is my building worth more vacant or with a tenant?

Whether your building is worth more vacant or with a tenant truly depends on the circumstances. A deciding factor is the quality of the tenant and strength of the lease. A creditworthy long- term lease can boost your value significantly, but on the flip side a weak tenant or an expiring lease can drop you value. In some scenarios, a vacant building can sell for a premium especially when dealing with owner- users adn developers. Depending on your specific situation a leased building or vacant building can either hurt or benefit your property’s value, a professional assessment is ideal at understanding what your situation is.

Why would an empty building sell for more than an occupied one in Manhattan?

In Manhattan its common to see empty buildings sell for more than occupied properties because buyers typically price their properties on potential, rather than current income. Developers, converters, and owner- users would much rather work with a vacant clean slate building than have to worry about buyout costs, rent- stabilized tenants not willing to relocate, or below- market leases, all factors that suppress value.

I have an expiring lease — should I renew it or sell before the tenant leaves?

This varies depending on your goals. A building with a fresh lease tenant in place can often attract a broader pool of buyers as the predictable income makes financing more feasible. Selling a vacant building can limit your buyer pool, in some cases, especially Manhattan, it can work in your favor as it appeals to developers who are looking to work on a clean slate. A professional assessment is ideal at understanding what situation you are in

My tenant is paying below-market rent — how does that affect my sale price?

When determining your building's sale price, it is important to look at the income it generates. If your tenants are paying below- market rent, a buyer will factor that gap into their offer. Although some buyers will factor in eventually bringing these rents to market, they will discount on the basis of time, cost, and risks getting there.

If I sell vacant, how do I deal with carrying costs while the building is empty?

Whether or not the building has tenants, bills still exist. From mortgage payments, property taxes, insurance, maintenance and utilities; its important you are well prepared before heading into a sale. The best way to prepare is to have a clear and strict time line before you vacant, understanding your asking price, having your building market- ready, and working with a broker who moves quickly will ensure a smooth transaction. In some cases, offering short-term leases can also help offset carrying costs while gearing up for a sale, without complicating the transaction with long- term leases.

Does the user premium apply in all NYC boroughs, or just Manhattan?

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What building types benefit most from the vacancy premium?

The biggest premiums are generally seen in the multifamily buildings, where vacant units or buildings attract condo conversions, the most lucrative repositioning strategies in New York City. Industrial and retail buildings in high demand areas such as parts of Brooklyna and Queens can attract premiums, since owner- users and developers want to redevelop on a clean slate and not worry about existing tenants.

Can I test the market with a listing before deciding whether to renew my tenant's lease?

Absolutely, and that is one of the smartest ways to go about it. Listing your building before committing to a lease renewal will give you a sense of what the market will look like as well as gauge buyer interest. When listing, if you receive strong offers that is a good indicator to continue with the transaction. If the market responds undesirably, you have the option to renew the leases and potentially visit a sale further down the road.

Edge case: My tenant has a below-market lease with 8 years remaining — is selling now even worth it?

While this may be a tough position to be in, selling isn’t off the table. Being tied to a long- term below- market lease will reflect poorly on your sale price because buyers are factoring that into their offer. On the flip side, there may be some buyers who underwrite the long- term upside and are willing to wait it out. In some cases, it’s much more beneficial to hold on to your property and sell later when the lease expires where you can either re-tenant or sell vacant. It's important to get a side- by- side analysis of both scenarios and see what makes more sense.

Edge case: My building has a ground floor retail tenant and upper floors vacant — how does that affect my strategy?

This is a common scenario in New York City. The rental tenant on the ground floor may provide some income to offset the carrying costs of your vacant floors, but that also means you're not fully vacant. This in turn can draw away developers who are looking for that clean slate project.