Bid Strategy

Bid Strategy

Framework for determining bid pricing in the context of competitive dynamics and return targets.

Bid Range Construction

Low Bid (Floor)

• Return at fund's maximum acceptable return threshold
• Assumes conservative underwriting (higher vacancy, lower rent growth)
• Represents "steal" pricing -- unlikely to win but worth trying

Target Bid

• Return at fund's target return for this strategy
• Uses base-case underwriting assumptions
• Represents fair value given the fund's view

Walk-Away (Ceiling)

• Return at fund's minimum acceptable threshold
• Assumes most optimistic reasonable scenario
• Above this price, the deal doesn't pencil under any defensible assumption set

Competitive Positioning Factors

• Widely marketed process: Expect aggressive bidding; may need to bid at or above target
• Off-market / limited process: More pricing power; bid at or near low end
• Broker relationship: Reputation and certainty of close can offset price by 2-5%
• Timing: Seller urgency increases negotiating leverage
• Deal complexity: Fewer capable buyers = less competition
• Financing contingency: Non-contingent bid commands premium (25-50bp cap rate compression)

Sensitivity Variables (ranked by impact)

1. Exit cap rate (+/- 25-50bp moves value 3-7%)
2. Market rent growth (+/- 100bp moves IRR 100-200bp)
3. Vacancy assumption (+/- 200bp moves NOI 2-4%)
4. Capex / TI/LC (+/- 20% moves IRR 50-100bp)
5. Interest rate (+/- 100bp moves levered IRR 150-300bp)