Tag Archives: tenant

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.

Signing a Lease? 7 Things to Expect from Potential Landlord

January 17, 2014 By in Archives Tags: , , , , 1 Comment

Often, tenants are unsure of the items that a potential landlord may be looking for. The below list should help you get prepared.

1)   Rental Application. Every landlord will require a tenant to complete a comprehensive rental application. Landlords need to understand whom they are leasing to. Landlords will need to run a credit check to verify the tenant is in good credit standing with other credit agencies, because in reality the landlord is lending you the space for a period of time. All landlords should run a credit check in order to protect their investment.

2)   Two Years of Tax Returns, Income statements, and Balance Sheets. Many landlords want to see the past history of a tenant. This can only be done by looking at the tenant’s past income statements and balance sheets and compare those with what was given to the Internal Revenue Service – also known as their tax return.

3) Current Financial Statements. Landlords will also want to review the “most up to date” balance sheet and income statement of a client to make sure the tenant is performing in an acceptable matter.

4) Articles of Incorporation. Landlords would want to see the Articles of Incorporation should the company be incorporated. The landlord wants to make sure it is a viable entity and can enter into a lease.

5)  A visit from your landlord to your current property. Many landlords like to swing by a client current office to get an idea of how he or she might treat the property. It’s important to make sure the tenant’s “current” property is in a neat and tidy fashion in order to give the landlord the necessary comfort level that you will take care of his or her property as well.

6) Potential references. Some landlords will require references should the company financial not be as strong as they would like them to be. If you are unable to provide references, this might be considered a potential red flag to the new landlord.

7)  Conversation with your current landlord. Many landlords will contact your current landlord to verify your payment history. This can be a tricky situation because if your current landlord would prefer you out of “his” property, he or she may provide inaccurate information. Most landlords complete their due diligence before entering into a lease. Landlords would prefer to have a tenant that they feel comfortable with, than to sign a lease with a tenant who could be a potential nightmare for years to come. As a tenant, it is important to live up to your obligations when you say you will live up to them.

I heard of a story where a tenant and landlord come to an agreement and the next step was for the landlord to cash the tenant first month rent and security deposit. The tenant kept stalling and asking the landlord to wait until some specific contingency had expired; the tenant kept moving the date where the landlord could cash the check, which inevitably frustrated the landlord enough to where he canceled the lease. The tenant was in a world of hurt after that circumstance. We believe the reason the tenant did not want the check cashed was that the company was cash poor until a specific date, however no one ever confided in the landlord to tell him the real situation and because of that lack of communication, the company lost the space which dramatically affected its future business operations.

Being prepared and knowing what to expect will greatly speed up the negotiations and everyone will win.

“Signing a Lease? 7 Things to Expect from Potential Landlord” is original content from Mr. Randy Mason, CCIM, SIOR of Commercial Realty Specialists and was posted in the Commercial Property Executive on January 15, 2014.. The Strategic Tenant Advocate has permission to use the article.

Mr. Mason is the Managing Partner for Commercial Realty Specialists. With more than twenty-six years of real estate brokerage experience, Mr. Mason specializes in leasing and selling of office and industrial properties throughout the Orange county Marketplace. He specializes in representing the tenant and buyer side of the transaction, which has allowed him to focus on his client’s needs by being their fiduciary.

Please check out Mr. Mason’s website by clicking HERE.

Taking the Fast Track with Commercial Lease Transactions

May 17, 2013 By in Archives Tags: , , , , , ,

Too often it seems that the true opportunities for great landlord/tenant relations get lost in lease negotiations. However, if all parties work together to “fast track” commercial lease contracts, the benefits lead to:

  • Significantly lower legal fees: If you choose your attorney carefully, “reasonable” attorney fees when negotiating office leases range from $3,500 to $10,000, according to  Kevin Hein, a partner with the Faegre & Benson law firm in Denver. Industrial leases are typically less.
  • Working relationships: Lease negotiations are like the “speed dates” common in the 90’s. You will get to know what it’s like being married to your landlord. Brokers and attorneys often neglect the fact that this dating period sets the tenant up for a long-term relationship with a landlord that is important to your company’s success. How you allow your attorney and broker to act, says a lot to the landlord about what type of relationship he will have with you after the lease is signed.*

Certain steps can be taken to fast track commercial lease contracts for  “win-win” results:

Use your leverage: First, have a detailed Letter of Intent (LOI) that provides business terms and key legal terms you truly care about. It is critical to push to have it executed by both parties before lease negotiations begin. Get it signed before the lease is delivered. We ask that the client’s attorney review the document to ensure that he will not need to renegotiate what has been agreed to during the “dating phase”.

Do not spend attorney fees on a landlord’s onerous lease: A landlord who is serious about tenant service, will uncomplicate matters and engender trust by using a simple lease. Landlords with the reputation of having modern leases and professionals who listen to the tenant’s concerns reap the benefits of having strong broker relationships. If a landlord gives you an onerous lease, do not let your attorney spend hours marking it up. Go back to the landlord and tell him why you feel she is setting herself up for a long and costly negotiation.

A little preparation goes a long way: Hold a pre-negotiation call and invite everyone—attorneys, principals, and brokers—to attend the call. This is rarely done on small deals, but it is extremely helpful. Use this as an opportunity to establish expectations for attorney turnaround time, legal budgets, approval processes and a goal for lease execution.

Develop a partnership framework that involves working with other stakeholders, such as the landlord’s broker and asset manager. They have a vested interest in getting the deal done with you. Having these allies in your corner helps fast track commercial lease contracts. Do not be shy in going direct to the landlord’s broker to ask for recommendations for getting around sticking points. You may be surprised at how helpful he will be.

* As a landlord, when I have to negotiate with an abusive broker or attorney, I think: “What a fool! Why burn bridges when your client will need so much help from the landlord once the deal is done?” Short-term posturing from brokers can establish bad working relationships for a long time.

For more information and to ensure all bases are covered, refer to the Prepared to Win-Win checklist that is available by emailing us at jculbertson@cardinal-partners.com

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.