With the uncertainty that permeates the media these days, many may be wondering if now is a good time to sell their commercial real estate.

After all, interest rates are roughly double what they were just a year ago, rabid investor appetites have moderated, world turmoil persists and there is again some rumbling that the economy could recede later this year.

Remember, you heard it here first in January: I believe we’ll avoid a recession, but I digress. To the question of the day. Is now a good time to sell? My answer is — it depends. Allow me to expand.

In the universe of sellers there exist three types: equity, nonequity and distress. Daylight appears between the market price of a property and any debt owed in an equity situation. The reverse is the case in a nonequity circumstance. However, not all nonequity sellers are in distress, and some distress sellers still have equity.

Equity seller

A property owner with equity views his situation as an “I don’t have to sell” situation. However, is his equity earning the type of return it should?

I spoke to a private investor last week. He has owned and operated an industrial property since he bought it in 1998. He owes very little, which means he’s sitting on a large pool of equity. He’s facing a maturing mortgage. He can refinance the underlying debt, pull out some cash and the property still will provide income after the mortgage is serviced. But is that the right move?

With the rampant appreciation experienced since he acquired the property and only moderate rent growth, the return on his equity is skimpy.

When I explained what sort of return could be achieved by selling today and redeploying his equity via a tax-deferred exchange, he was intrigued. He can’t sell for early 2022 pricing but he won’t have to buy at 2022 pricing either. So there’s a trade-off. Sellers who occupy buildings with their companies generally are guided by business motivations versus real estate market conditions.

Specifically, if more space is needed and the building will become excess, a decision to sell might be made. Because the proceeds will be funneled into the next buy — less emphasis is placed on extracting the highest dollar amount — there’s more certainty of close.

Nonequity seller

Those that purchased in late 2021 and early 2022 with 90% Small Business Administration financing could presently be nonequity owners.

With the price softening this year coupled with maximum leverage from last year, chances are no equity remains.

An aggressive loan repayment or a rampant run-up in pricing can remedy the imbalance. Given this scenario, I’d suggest holding onto the property unless some distress appeared.

A seller in distress

In the nonequity example above, should a loan repayment be required, distress emerges. Now this owner may find his only recourse is to sell and at the best price attainable.

Certainly, refinancing the debt could be an option but with no equity, lender alternatives will be limited to nonexistent. Because this is a forced sale, of sorts, market conditions are secondary.

The seller must do the best he can under the circumstances.

Allen C. Buchanan is a principal and commercial real estate broker at Lee & Associates, Orange. He can be reached at 714-564-7104 or abuchanan@lee-associates.com.