At RockStep Capital, we take a strategic, data-informed approach to managing our investments. But when it comes to exiting a commercial property, there’s also an art to the timing. Selling a property isn’t just a transaction. It’s the final act in a long, complex performance, and you want to make sure the curtain falls at just the right moment.
Over the years, we’ve sold properties that have produced significant returns and others we’ve let go of a bit too soon. The key is understanding the lifecycle of each asset, knowing when its value has peaked, and being willing to make a move that aligns with both the financials and the broader market environment.
Timing a sale is rarely about instinct alone. It requires a deliberate assessment of market conditions, tenant stability, capital improvements, and funding timelines. This ongoing analysis is not only essential for maximizing investor returns, but it’s also fundamental to preserving the integrity of our long-term strategy.
To start, “exiting a property” means selling it. But the real process begins well before the deal closes. You have to clean up the accounts receivable. You want to make sure that repairs are done. You want to maximize your leases.
For example, if a new tenant is not yet contributing to the net operating income, you want to finish the lease with that tenant before you sell the property to get credit for that income. You want to capture all that so that you can return as much money as possible to your investors.
Knowing when to sell depends on a mix of factors. Key indicators include:
These signs suggest that timing is both a strategic and structural issue.
When properties undergo redevelopment, timing becomes even more nuanced. If you're undertaking a redevelopment of a property, it's essential to complete the redevelopment and ensure that the tenants are settled and paying rent. Should a tenant leave during that process, you'll try to replace that tenant with a viable tenant, which can happen quickly or drag out.
To ensure we’re on the right track, we periodically test selling the property and ask ourselves, can we increase value by making a change? If the answer is yes, then we defer a decision to sell. Working with brokers is essential in this phase. We will do what is called a BOV, a “broker opinion of value”. This gives us a clearer idea of timing and price.
Deciding when to exit is never purely instinctual. I would say it's a combination of instinctual and data-driven thinking. We rely heavily on experienced brokers who have access to big data.
They know what's trading, they know how buyers perceive the market. While instinct may inform the conversation, you want to test the market about when is the right time to sell on a regular basis. Data usually leads the way.
Emotions can cloud judgment, especially when you're attached to a project. That's a tough one. Sometimes you believe you can improve a property, particularly if it's not fully occupied. But reality often tells a different story. Absorption is slower than you would like or slower than planned.
This forces a hard question: should you continue to wait, or is it time to let go? Sometimes it's a tough call.
Financial conditions are critical influencers. The lower the interest rates, the higher the value of commercial real estate and shopping centers as well. When interest rates fall, it may trigger a stronger desire to sell a property because buyers have a higher probability of achieving their target returns.
Cap rates work in a similar way. As cap rates fall, i.e., values rise, it triggers more discussion about selling a property. Conversely, if cap rates are rising, it may be wise to hold.
In addition to financial metrics, local market dynamics help shape the decision. We always consider whether the market is vibrant, steady, or on the rise. We also take the “pulse” of the local community by determining whether the population is growing, remaining relatively constant, or declining. If the population is declining, it becomes harder to sell.
The quality of tenants is equally important. Sometimes, your tenant role is such that you may be penalized due to it. To offset this, we might incentivize early lease renewals to improve the Weighted Average Lease Term (WALT). The longer the weighted average lease from the WALT, the lower the cap rate you're going to get.
Timing an exit while a property is performing well can be tricky.
For example, if you told your investors that you were really going to hold it for five years, and within three months after you bought it, you could sell it and make a small gain, that would be a tough issue. But when the gain is substantial, you would take it.
For investors, it is essential to assess the risk of reinvestment. This refers to the risk you face once a property you are invested in has been sold. You get the cash, and now you’ve got to figure out where you put that money to generate the same kind of returns, if not higher. Realistically, it might be a while before you can find the right investment opportunity to put your money back in, and this delay could impact the overall performance of your portfolio, even if just in the short term.
When marketing a property for sale, there are a few features that buyers consistently prioritize:
At RockStep Capital, we believe that exiting a commercial property is not a decision you can rush. It involves detailed analysis, strategic judgment, and a constant awareness of shifting market dynamics. We are now regularly assessing whether we should consider selling within the next year, more frequently than we have in the past.
Ultimately, a successful exit lies in the sweet spot between current performance and future uncertainty. You need to weigh market signals, property conditions, tenant health, and financial forecasts. Exiting too soon could leave money on the table, while waiting too long could erode your returns.
You also have to consider global factors. There’s more geopolitical and political risk than there’s ever been. That’s why, as a company, not only do we look at retail, we’ve got to look at the world at large.
Selling a property isn't just a final step. It is a culmination of years of effort and vision. By preparing diligently, consulting with experts, and timing the market wisely, you can close the chapter with confidence and write a profitable new one.