Baron Realty - Apartment Buildings in Montreal, Toronto, Canada

Exiting An Apartment Building Partnership

Joint ventures have always existed, and they are making a comeback now that the market is uncertain: not taking the risk alone may be worth taking less of the profit in the long term.

The following two are the most common partnerships do we usually see in apartment building transactions and our advice on how to handle the sale process for each:

Inherited partnerships

These are joint-ventures that have been structured by the previous generation (usually family) and inherited by children (usually cousins). Delicate by nature due to family dynamics, they are most of the time ran successfully by only one or two of the second generation, while the rest of the family becomes “passive” in the partnership. These can run smoothly as long as there is trust in the family structure, and as long as all parties are in agreement about keeping the asset. Once a sale discussion takes place, it is rare that all family members would be 100% on board with selling the asset, or in agreement with the ultimate price that should be achieved. The active partner usually seeks control over the sale process as they feel more qualified to do so; the rest of the partners would either grant this control, resist or insist in being involved on some level; the last two options rendering the sale process lengthy and harder to navigate.


Sweat / Equity

Type partnerships; apartment buildings rarely run themselves. In this type of partnership, an experienced managing partner invests together with an equity partner. The equity partner’s share of investment is usually much larger, but they are “silent” in the day-to-day operations and management such as selecting tenants, administering rent increases, addressing building code requirements, awarding building contracts, etc. Where we see complications is when the sweat partner is tired of running the building and wants to cash in on the profits; while the silent partner does not want to sell (why would they? They are passively accumulating wealth).

The sale process can be complex even for an ultimate owner (where the owner can pull the trigger on any decisions), let alone for a partnership. Here are some elements to consider for an easier exit:


Inherited Partnerships

If you are the active partner, take the time to explain the day-to-day operations of managing the building, building expenses, Gross vs NOI, how assessment is different than value etc.; get more than one quote for work you need to do in order to prepare the building for sale (such as environmental testing) and discuss the best option with your family. Do this way in advance of an actual sale; family can usually “sense” when the others may want out (or may need to cash in their equity). It is generally not a good idea to offer to “buy them out” unless the family dynamics are so strong that there is no doubt of fair pricing; but this is rarely possible irrespective since the active partner almost never feels they should be paying “market price” for a building they have managed for years. It is important to for all to remember that only the then-current market “makes the price” – not the owners, nor the broker, nor the appraiser, and not even the last comparable sale.  We find that every 3-4 months, the market becomes different, the players change (larger buyers may have changed strategy in the product they buy ex: older vs newer assets; smaller players may have already tied up deals and are short on capital for the next year or so, etc). Only by exposing the asset to the then-active buyers can a fair price be achieved. Most families select a bid-date process, because this ensures they get the best offer; the sale process is longer, but we believe worth it the peace of mind of every partner.

Sweat / Equity

Create a clear exit structure up front. Avoid agreeing to the shot-gun clause, which is usually only beneficial for the partner with more cash (this is usually the silent partner). A good exit strategy is to agree in the original partnership agreement the property will be marketed at the end of a 5-year or 10-year loan and sold if a return reaches a certain minimum pre-determined threshold. As well, when structuring such arrangements, ensure that the sweat partner has the latitude to run the building the way they see fit since requiring the input from the silent partner adds stress and delays. For example, making a decision to spend on a major extermination is time-sensitive and may not be able to wait for agreement from the silent partner. A tenant board case may need the involvement of a lawyer and therefore incur legal fees for the partnership, etc. When preparing the building for sale, re-involve the silent partner in agreement on quotations; even though they may not have been involved in the past they may appreciate “knowing what’s going on” towards the end.

Always keep an exit strategy when setting up a partnership; and in the cases of inherited partnerships, a good practice could be to confirm keeping status quo every couple of years; this way, the non-active partners can feel involved in the decision to sell, whenever it may come.

Baron Realty specializes in matching buyers and sellers of apartment buildings. Ramona works in partnership with Mikael Kurkdjian and a team of real estate professionals to bring the best boutique-brokerage services to the apartment transactional space in Ontario and Quebec.


Work with Baron Realty. Reach out today!


Baron Realty - Real Estate Agents in Montreal and Toronto

All-Cash Offers: Here’s What You Need to Know

Have you ever had an all-cash offer for your building, and did it make you wonder if the price offered equated to a discount on the asset’s market value, or if it was simply a fair price with few conditions?

Why would a Buyer commit itself to an offer with no-financing? Unless the Buyer is a trusted institution whose financing is not in question, the motivation to submit an all-cash offer has to do with securing the asset from competing interests, and/or solidifying the Buyer’s credibility to close the transaction.

However, sometimes the all-cash offer is simply used as a negotiating tactic by entities who have no control over the funds, or who simply try to raise the money after they put the property under contract.

How do you protect yourself from accepting an all-cash offer that is not really “all-cash”? Is it better to take an all-cash offer with a quick closing, or an offer with a financing condition (provided there is proof of sufficient down payment)?

A few elements to consider:

Know the Buyer

Ask yourself, who is the Buyer? Is the buyer a REIT or a reputable institution that has closed on thousands of units in the last few years? If so, there is less reason to be cautious.

Ask for proof of funds

Is the money available in cash (liquid) or is it in assets that need to be (re)financed? If the latter, there is no real guarantee nor secure timeline; even if the asset is financeable, the owner may not like the rate they get; or worse, there may not be enough equity in the existing asset to pull out. We once had a buyer assert that a $30M asset of theirs would serve as collateral for their potential acquisition loan. We did out due diligence though and noted it was carrying $28M in debt – leaving no room for additional leverage.

Question the motives of your all-cash offer

If this a competitive bid environment and this is your only all-cash offer, be particularly careful. Some buyers intentionally lock up a property to eliminate the other buyers, then come back and ask for renegotiations, or VTBs, or (most commonly) price reductions weeks later when the other buyers have cooled off and the vendor it too caught up in closing the deal.

Question the buyer’s track record, and their acquisition team

The market has changed substantially in the last few years. If the Buyer has a large portfolio, but has not transacted in the last 2-3 years, it is unlikely that they will be as familiar with the timelines, requirements and transparency of the current market. New standards such as environmental tests or structural inspections may scare them off weeks or months after an accepted offer.

Find out about the buyer’s conditions and delays

More importantly, all cash offers (if the cash is truly available), should include a substantial deposit delivered within 5 business days. Otherwise, question the availability of cash. If an all-cash offer misses putting the stated deposit within the timeframe provided, you can be certain that there will be additional delays. Long closing delays signal the need to raise funds.

Find out if the buyer is raising money

Is this a real all-cash offer, or will the buyer, upon acceptance, begin to pray that he can raise the capital in time? A long-closing date will be the first signal of this (which is of course, just the normal timeframe for business for a reputable but bureaucratic institution, but not so for private funds that should be immediately ready to deploy their capital).

In today’s market, financing, environmental, and inspection periods are taking increasingly long. The temptation to take the “simple” offer – the all-cash-minimal-conditions deal can be great. It’s clear through that caution needs to be advised to steer the boat past the Siren Song, and towards a successful transaction.

Baron Realty specializes in matching buyers and sellers of apartment buildings. Ramona works in partnership with Mikael Kurkdjian and a team of real estate professionals to bring the best boutique-brokerage services to the apartment transactional space in Ontario and Quebec.

Work with Us Today. Reach Out Now!
Baron Realty - Brokers in Montreal and Toronto - Commercial and multi-familial

How to Avoid Killing your Net Operating Income: Apartment Buildings

The NOI (or net Operating income) is what the buyers use to determine the maximum price they would pay for an apartment building. The higher the NOI, the higher the price, as per formula (GROSS INCOME (rent and ancillary) – ALL EXPENSES = NET OPERATING INCOME). It is basically the cash in the owner’s pocket at the end of the day. NOI is “normalized” by buyers, especially the sophisticated ones, therefore private-ownership savings may not be applicable to boost NOI (i.e. an owner who takes care of its own janitorial will not have that expense removed from the calculation of NOI by any purchaser, rather this expense will be included at market rates or, at the buyers’ standard operating expense rate in the case of sophisticated buyers).

In today’s market, what are some of the expenses that could seriously hurt NOI?

Building Insurance

We have seen this go up quite a bit in the last year or so, mostly because of the replacement cost which is part of any standard insurance (should building need to be reconstructed, and founded in the reality that construction costs have risen substantially over the last 5 years). Shopping around ahead of your policy renewal is key. Here are some numbers for perspective: A client of ours was able to reduce the insurance bill from $18K to approximately $10K per annum ahead of renewal, by switching insurance companies. Total value-add: $160,000 increase in asset value! There are still insurance companies out there that will surprise with a much lower rate, and when it comes to selling or refinancing, a few thousand dollars in expenses will make a huge difference in returns/loan available.

Ancillary revenue miss

Many times an owner does not maximize the potential for additional revenues such as parking, storage, and others. We had a client who did not have parking agreements with the tenants and was charging the same amount for indoor as for outdoor parking, losing $30/spot per month in potential revenue. Based on our calculation for the NOI impact, this translated as an approximate $600,000 in building value! This was great news for the buyer, but what’s surprising is that the ownership group did not even realize the impact was going to be “significant” on what they considered a minor variance.

Retail revenue miss or not actualized

Having a retail component in an apartment building completely changes the underwriting of the asset. Key differentiator is the inability to obtain a CMHC insured loan; however, even leaving this aspect aside, not actualizing retail revenue can render the building unsellable (or sellable only at a significant discount). Even if you have “enough” revenue from the apartments, do not keep the retail empty if you are planning to sell or refinance in the next 12 months.

High expenses from old equipment

You may be on the fence regarding spending thousands of dollars on a new furnace, but how much asset-value are you losing by keeping your existing one? As the energy costs seem to approach infinity, your NOI will reflect heat loss from an inefficient furnace, old windows, and improper roof. A hard winter will have a significant impact for the asset value the following year as buyers typically review expenses for the last 6-12 months in their underwriting.

A market underwriting of your building can help identify missed revenue sources and other NOI killers.

Before Accepting an Offer

  • Ask about the buyer’s track record of closing transactions
  • Request to see Proof of Funds for down-payment (assume 30-40% of price)
  • Re-evaluate conditions and delays
  • Find out if the buyer has to raise money to make the deal happen
  • Clarify if the buyer can renege on the deal without consequence to them after your selling power was “on hold” during their conditional period
  • Know that if your offer falls-thru this will raise a question mark in the mind of other buyers and potentially impact the sell-ability of the asset.

We only work with proven buyers, who generally can put forward offers that are not conditional on financing.

Baron Realty specializes in matching buyers and sellers of apartment buildings. Ramona works in partnership with Mikael Kurkdjian and a team of real estate professionals to bring the best boutique-brokerage services to the apartment transactional space in Ontario and Quebec.

Work With Our Team of Experienced Brokers. Contact Us Now!



Baron Realty / Immobilier Baron
400 – 6500 Transcanadienne
Pointe-Claire, Québec H9R 0A5
Telephone: 514 932 9000

Fax : 514 221 2221


Baron Realty, Brokerage
303-225 Duncan Mill Road
Toronto, Ontario M3B 3K9
Telephone: 416 301 3931


Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam 


Get latest news & update