Tag Archives: how to hire a broker

Lease Negotiations: Leave the Gloves off and Come together

February 17, 2014 By in Archives Tags: , , , 7 Comments
Leave the Gloves off

Leave the Gloves off

When preparing for lease negotiations, leave the gloves at home, roll up your sleeves, and take the positive offense approach. Consider the following steps to keep lease negotiations on an even playing field that produces the best results for both sides.

1. Write down what you want to achieve from the negotiation, including the financial and non-financial objectives. Know the few points that you are going to have to go to the mat for, and be open with the other side if they are giving you something that has little value to you.

For example, if you are considering a lease decide if getting a lot of free rent is more important than an increase in tenant improvement dollars. Tenant representative brokers have models that can give an objective analysis.

2. List your strong and vulnerable points so that you can be prepared to leverage or hone these to your advantage during the lease negotiation process. Taking stock of your strong points will help to keep them front and center when it comes time to step into the arena of negotiations. Keeping track of your vulnerable points will also help you to maintain your balance so that any conversation coming from the other side that attempts to highlight those point will be met with a well prepared strategy.

For example, if you are not considering to move for the right deal, you have little leverage with your landlord at the time of lease renewal. Take inventory of other tenants in the building and learn about what terms the new tenants are paying.

3. Conduct research to gauge competing properties. Being well prepared for any negotiation is to have a solid second (or third) alternative – then make a list of what would have to happen to make them your top choice. It is that type of confidence that will result in a “win”.

As an example, think about any purchase that you make online, whether it be something as small as a book, collecting data from different online vendors can aid in saving you money when it comes to making the final purchase.

4. Rely on a strong team to support you during the negotiation process. Having agents to speak on your behalf allows you to proceed knowing you have a team with specific knowledge in your corner. When choosing an agent, ask how their representation process yields results. Also, ask the agent what tactics do they have up their sleeve to effectively advocating on your behalf.

Download Prepared to Win/Win Worksheet and find out how other blog subscribers are effectively using this simple form to get what they want.

Some other great articles to read:

How standard commission agreements work for the broker but not always for the client – Part I

The allowance that disappeared – where did it go?

Image Credits: Gorilla & Kangaroo Boxer

7 Questions to ask your future landlord

February 3, 2014 By in Archives Tags: , , , , ,

There are 7 questions that a tenant can ask to get a feel for the success of their next real estate deal, yet rarely are any of them asked! The tenant and landlord’s dance through the proposal process is one that is contained to RFP (Request for Proposal) responses and the agents negotiating terms on behalf of the principals. Often, once the lease is signed, it is the first time that a tenant actually meets his landlord. That is one hell of an arranged marriage!

During the great recession, the world for landlords was turned upside down. As a result, form leases that had not been rewritten in 20 years had now been completely overhauled. Leases are much longer now than they used to be and the time and cost to negotiate and approve the documents has increased considerably. In”25 Years of Commercial Leasing: What a Long Strange, Cyclical Trip it has been,” a group of commercial lease transaction lawyers in California point out this new complication.

Page 12 of the article states, “The 10 years preceding the birth of the Real Property Law Section, the State Bar of California saw commercial leases expand from a typical six-page office lease, manually typed with carbon paper, to a 30-page lease with a dramatically increased focus on detail and an attempt to alleviate the unknowns and “what ifs.”  After further review, the article goes on to detail how landlords have shifted to having an attorney on retainer draft leases that are more and more complex as a form of protection from certain issues that may arise with the tenant long after the lease has been signed.

After examining the above text, it would appear that the best landlord tenant relationship is one where the lease is negotiated, then put away, and never pulled-out again. But to have such a relationship with your landlord, you must have a great amount of trust. In Dr. Stephen Covey’s book, Speed of Trust, he addresses this type of trust:

“When trust goes up, speed will also go up and cost will go down.”

The inverse is also true.

“When trust goes down, speed will go down and costs will go up.”

In an industry that is primarily concerned about being faster, bigger, and cheaper, trust is a critical component to any landlord/tenant relationship. But when decisions are made based upon responses to RFPs, how does a tenant know if they are entering into a relationship with a good guy? We suggest that you preface all of your RFPs to your future landlord with the following statement and ask these 7 questions.

First, clarify your expectations by making this statement. “Smoots, Tannerbottom and Felderhosen PLLC envisions a “collaborative/partnership” during the negotiation, upfit, and occupancy of its new office. Please provide the following information with that in mind.

1. Assume that it is three years from now, the tenant chose your building, negotiated a lease, performed tenant improvements and has been a tenant for over two years, and you are looking back over the last three years, what would have to happen for the landlord to feel good about your progress? This is the greatest of all open-ended questions. You will know if the respondent is serious about having you as a tenant as well as their plan for you as their tenant.

2. Please describe the ownership structure of “respondent” and the key personnel who would be involved in the negotiation of agreements and the completion of the project. This question addresses the issue of how they will deliver results and keep commitments.

3. Provide examples of comparable projects completed by “respondent”. This question will give you insight into not only their capability, but also their humility.

4. Confirm that “respondent” be willing to work on an “open book” basis with agreed return criteria at the outset. This gets right to the issue of landlord transparency.

5. Please indicate how respondent expects to access and utilize capital to complete the project (including expansion). Anyone in the debt market knows the value of understanding a landlord’s access to capital.

6. Demonstrate financial capability to complete this project. All landlords had a tough time during the great recession, therefore the respondent should have a very clear idea of how they are going to answer this question.

7. Please share your vision for the neighborhood in which your site is located. I like this question because a landlord who knows and cares about the neighborhood in which it is located, is socially conscious and cares about the relationships with its tenants. Also, this is a great question to raise awareness on soft issues such as transportation, proposed access improvements, crime statistics, and the availability of nearby workforce housing.

 

Why going it alone is a great idea

January 27, 2014 By in Archives Tags: , , , , Leave a comment

Atlas Statue at Rockefeller CenterIf the alternative is to have someone with little to no commercial real estate experience manage a transaction, going at it alone is a great idea. Just as many of us would never dream of diagnosing and attempting to treat a medical condition on our own without consulting a doctor, buying or leasing commercial property without the insight of an expert in the field can prove to be equally disastrous.

In a 2009 article by the Harvard Business Review, “What every leader should know about real estate” the author, Mahlon Apgar IV, points out that real estate is taken for granted by company managers and that the most efficient companies team with real estate service providers. The decisions that surround commercial real estate are complex and time-consuming. Often executives do not understand all that is involved, so the decision is then delegated to inexperienced managers. Apgar points out that real estate is generally taken for granted by those managers and that the wisest companies decide to team up with real estate service firms that have salaried professionals or “relationship executives”. These “relationship executives” salaries are not maximized entirely on the size on the transaction but also on the satisfaction of the client. Therefore aligning the incentive of the real estate professional with that of their clients.

Here at The Strategic Tenant Advocate, we contend that such delegation of important real estate issues should be avoided. Whether you’re just now beginning in the real estate game, or you already have a bevy of transactions under your belt, there are quite a few reasons why going it alone is a great idea, if you are prepared and experienced.

  • There’s little room for instinct or rookies in a commercial real estate deal. As many before us have proved – and many more after us surely will continue to prove – making high-dollar decisions based on nothing more than your gut is the equivalent of taking an uneducated stab in the dark. When it works out, it’s dumb luck. When it doesn’t, it’s just dumb.
  • Real estate intelligence is contingent upon information that you likely aren’t privy to, or that you might not maximize even if you were. Having great real estate IQ involves not only being on the pulse of the market, but also having the ability to plan for your needs in the future, understand your alternatives, asking the tough questions from the others involved in the transaction, and ability to come-up with creative solutions.
  • By trying to master the ins and outs of commercial real estate on your own, you run the risk of becoming the archetypal jack of all trades and the master of none. Commercial real estate is a full-time job that leaves little room for other pursuits. Pursuits such as the primary duty of running your company.

We have found that working with a capable, qualified real estate broker can save up to 15% on your facility costs and is your best bet to making the kind of sound decisions that will make you look incredibly smart.

8 Tips for Hiring the Right Broker

May 13, 2013 By in Archives Tags: , , , , , ,

These are the hard questions that any and all individuals and companies with real estate needs should be asking of their real estate professionals.

1. The R-Factor
Credit here to Dan Sullivan and his “Strategic Coach” method of training entrepreneurs; our first question is adapted from one of Dan’s core methods for teaching people to set goals and be effective in their lives.To test whether a firm’s foals are aligned with yours and how seriously it is listening to your goals and objectives, ask this question:

Assume that is it a year from now, and you and I are meeting and looking back at the progress made on this transaction, what will have to have happen for you to feel good?

If the broker’s answer doesn’t encompass the goals and objectives you have outlined for your transaction, you’re talking to the wrong person. At Cardinal, we have asked the question hundreds of times. We take the responses our clients give and make them a part of our Key Performance Indicators by which we are graded at the end of the deal.

2. Driven by Process, or Instinct?
Ask for samples of deliverables from past transactions that you would hope to see during your transaction — things like market reports, financial projections and spreadsheets, analyses of terms.  Ask to see due diligence checklists for leases, purchases and sale negotiations.  If a broker can’t provide basic process documents, you’re likely dealing with a hipshooter who believes real estate is still a “gut” business. Ask to see their “playbook”; and if they do not have one, ask for examples of best practices.

3. Teamwork
If you’re being offered a team to work on your transaction, ask exactly what each member’s area of expertise and responsibilities are. The team should be a well-rounded mix of aptitudes that makes sense to you. If the transaction involves real estate outside the local market, ask how the firm will handle out-of-market resources. Does the broker ever refer deals outside of their company or network?  If not, why?  You want the top team working on your transaction, regardless of whose business cards they carry.

4. Real Results
How does your potential broker measure results? Ask this as an open-ended question and note carefully whether “client satisfaction” is mentioned. If you ask the potential broker how he or she will measure results in your transaction, is there any reference to your goals and objectives?

Next, drill down: What is the broker’s plan for achieving your goals? How are they going to help you determine how much space you need? How will they find the buyer for your challenging asset? Will they just shop you around to the usual suspects, or do they have some creative ideas about how to achieve your goals that come from outside the normal playbook?

5. Doing the Details

Ask detailed questions that demand specific answers. Something like, “How can you help us reduce facility expenses?” should yield a set of specific answers and (even better) examples of how the broker has helped past clients achieve this goal. Their answer will give you a good idea of whether the potential broker regards details as things that get in the way of the deal or critical steps that must be worked through regardless of the time it takes.

6. Negotiation 101
Drill in on negotiating tactics, skills and experience. Ask for an example of a situation where the broker’s negotiating skills reversed a deal that was going down the tubes and turned it into a win. What are their goals in a negotiation?

7. Listen & Learn
As we saw during the real estate executive focus group, not being listened to is a top complaint of clients. Ask your potential broker if they survey their clients. How often? What are the results?

After you’re done with the interview, think back on the time the potential broker took with you and how respectful they were of your objectives and agenda for the meeting. If they weren’t paying close attention, there’s less than zero reason to think that will change once you’re signed as a client.

8. Pay for Performance?
Finally, we come to the bottom line: Is the firm willing to put its fee on the line for your satisfaction? Ask about the “pig in the poke” and get “the elephant out of the room” – the reality that the brokerage’s interests aren’t necessarily aligned with yours. Will they acknowledge that fact and discuss it without becoming defensive? Tell the potential broker that you expect some portion of their fee to be put at risk until you’ve met your objectives at the end of the transaction.

Anticipate pushback on this demand; national brokerage firms generally reserve this mechanism for their largest clients. But stick to your guns. To see a list of suggested mechanisms for linking fees to objectives both quantifiable and soft, visit the Cardinal Partners resources page on our website: www.cardinal-partners.com. And watch closely how your potential broker acts when you open this avenue of negotiation; see what their behavior says about Point 6 above.