There has been a spike in rent roll sales as the large real estate players steadily acquire smaller agencies. The crown in the jewel of the agencies is the rent roll.
Those smaller agencies looking to sell should be aware of the traps. In particular, the amount of funds retained to ensure the landlords under contract to the seller can be readily transferred to the buyer.
Retention amounts can vary from 15% to 25%. Obviously, the buyer will push for a higher retention amount to reduce the purchase price if the sellers fails to bring across enough landlords to equal to business valuation. This is because it is based on the value of earnings from the rent roll.
The retention period is also a issue to watch and again buyers will push for a longer period say 3 months and the seller will push for a shorter retention period, say 1 month.
The agreements are complex and there can be significant adjustments to cover different scenarios.
Ideally, the agreement should have multiple settlement dates to allow the seller to bring across as many landlords as possible. However, this will add additional complication in the drafting of the agreements and add to the legal costs of overseeing each completion date and each retention amount release date.
Many of the transactions will have banks lending money to the purchaser to complete the sale. Macquarie Bank Limited is a major player in this area and is frequently used to value rent rolls as it has extensive experience in providing finance to buyers.
Often the principal/s of the seller will be engaged by the buyer in its sales team and the transaction will be explained to landlords as a merger or reorganization of the seller’s business to give the landlords a sense of continuity and the comfort of dealing with the same person or team.
Michael West
