Landlords: You “NEED” Tenants…and Vice Versa!

On many occasions, I’ve written about the perspective of some one-sided landlords who blatantly disregard the needs of their tenants in the name of greed and selfishness.  Some tenants, too, can be just as selfish.  Such tenants often miss the opportunity to build profitable relationships with their landlords. Good tenant advisors constantly counsel landlords that, to be truly successful, they must care about their tenants’ success, and not just view tenants merely as rent payors. 

Tenants have a similar interest in seeing their landlords succeed. This doesn’t mean that landlords and tenants should run each other’s companies. It does mean that both landlords and tenants should view each other as more than mere transactional opponents.

Landlords and tenants would do well to consider themselves as interdependent partners.  A tenant without a building to rent would have no place to conduct its business, and would likely be forced to divert capital from investment in itself to real estate ownership.  And, a landlord without tenants would own a lot of empty buildings.

I find it amazing when over-zealous brokers get tenants worked-up by suggesting that landlords should not be entitled to profit when they complete lease deals or renegotiate leases. Writing as a tenant advisor, I must ask those brokers how silly it is to assume that anyone would engage in a business endeavor without a profit motive.  Everyone is entitled to profit! 

The issue isn’t one of whether a landlord is entitled to generate profit, but more of HOW landlords generate profit, how much they generate, and are they transparent in doing so?!  Don’t get me wrong.  As a tenant advisor, I don’t advocate over paying for anything, let alone rent.  And, neither am I suggesting that tenants should consider themselves as the funding sources for commercial landlords’ profits.

Interestingly, landlords are not perceived as a group that garners anyone’s pity. However, given current global economic condition, and those of credit and real estate markets, if there ever was a time when landlords deserved anyone’s sympathy, now would be that time.  The government and the business communities must recognize the challenges commercial landlords currently experience, along with the ongoing struggles that most of them will endure over the next few years.  If not, the tenants we advisors and brokers represent may have fewer stable leasing opportunities, and therefore, those tenants could encounter much bigger problems! 

Given the above, tenants are now in a great position to negotiate very aggressively to secure favorable terms, either on acquisitions or on lease renegotiations. How they do that, and with which landlords, will make all the difference in the world.  However, aggressive negotiations don’t mean stupid negotiations!

Should Real Estate Brokers Be Responsible to Validate Tenants’ Risk and Creditworthiness?

In today’s tumultuous economic times, landlords need to accurately determine the creditworthiness and risk profile of new and existing tenants.  Whose responsibility is it to make such a determination…the landlord or the tenant’s broker?

In previous blog posts I’ve discussed the issue of landlords seeking to pay commissions at rates and on terms deemed to be less than favorable by many brokers, especially when those landlords perceive tenants as not being creditworthy.  A reader commented that, as part of the reason for receiving commissions, commercial real estate brokers should be responsible for evaluating the creditworthiness of the tenants they represent.  At first, I was a bit surprised by that one.  Given that this particular reader was from an institutional type of commercial landlord, I understood his mindset, nonetheless. 

The reader’s desire was to secure third-party analyses of the creditworthiness of prospective tenants for his buildings. However, his idea of forcing that responsibility onto commercial real estate brokers is a dangerous one.  Real estate brokers as credit analysts?  Moreover, I saw his comment as a landlord’s desire to transfer its obligations and risk to another party.  Of course, if a broker were to take on such a responsibility, you can bet your hat that a landlord would also place the liability of accuracy on the broker, too!

So, should commercial real estate brokers be responsible to validate their tenants’ creditworthiness?  Here’s a better question: 

Are commercial real estate brokers QUALIFIED to evaluate their tenants’ creditworthiness, financial viability, risk, and ability to perform under their leases?

Credit analysis is not an easy task, especially when it comes to privately-held and private equity owned portfolio companies.  But, brokers as credit analysts?  Placing such an important component of deal making as risk analysis in the hands of commercial real estate brokers would be an extremely dangerous move for all involved, and would not likely minimize risk for landlord or tenant.

There exists an entire industry dedicated to analyzing companies and their ability to sustain and perform their financial obligations.  Perhaps landlords should rely on these qualified independent third parties to analyze the credit of prospective tenants.  Those experts are versed and capable of conducting such risk based assessments and properly reporting their results.

New insurance based third-party analysis and credit guarantee products are beginning to emerge in the marketplace as a means of evaluating tenant creditworthiness.  These combination services and products promise to provide commercial landlords with the qualified risk analysis they desire along with alternatives to security deposits and guarantees.

Demanding third party credit and risk analyses can be a slippery slope for landlords, as tenants may demand similar analyses of landlord creditworthiness.  This could pose particular challenges for landlords, given the financial struggles that many landlords are experiencing in the current economic climate. 

So, should landlords be entitled to accurate assessments of tenants’ risk before entering into transactions?  You bet! With an entire financial services industry dedicated to risk analysis, should commercial brokers provide such services?  Absolutely not!

What do you think?

The Imploding Commercial Real Estate Brokerage Industry in 2010

“Too big to fail!”  “Been around too long!”  “Too entrenched in the market!” Where have we heard these terms before?  The commercial real estate brokerage industry is in for a drastic change in 2010! 

Commercial real estate brokerage companies have been consolidating for years, at the upper size range, right on through to mid-level and small firms.  The last ten years have seen large national brokerage companies swallow-up established brands.  Some of those include  ”include CBRE’s acquisitions of Insignia/ESG,  Trammell Crow, and others, and JLL’s acquisition of The Staubach Company and others.  One recent notable acquisition saw FirstService acquire certain GVA affiliated offices.  Others are in the making.

Despite those strategic acquisitions, the current economic crisis appears to be accelerating change in the commercial real estate brokerage industry. Some small and mid-sized companies are failing.  Some of them are closing their doors and others are being acquired, with their brokers moving to larger companies one way or the other.

The rumors have again begun to swirl about some of the largest commercial real estate brokerage companies in the nation being in irreparable financial distress.  Those companies that have been around forever, that until recently have been considered too big and too entrenched in the national market to fail may, in fact, close their doors and / or be absorbed into larger more stable motherships.

One of the largest and most prominent internationally known brokerage companies, one which once was the gold standard in commercial real estate brokerage, is rumored to be imploding from within.  It has been suggested that this particular company may have only months before its current life support systems are terminated.  Another equally well-known industry behemoth came close last year to defaulting on its debt, which ranged in the hundreds of millions of dollars.  There’s more to come!  2010 promises to be an interesting year in the commercial real estate brokerage business.

The world has changed.  It always does. Sometimes faster than others. And now, the commercial real estate brokerage industry, a business that has remained relatively static for many years, is changing, too.

Will this change be good for the commercial real estate industry?  How will this inevitable evolution affect commercial tenants, buyers, landlords, and investors?   Will it prove positive?  How will individual brokers and their companies (old and new) maintain continuity of service and properly protect their clients?  Some have suggested that the big commercial brokerage companies could become too big to be effective in serving all but the very largest of companies…will that be the case?  How will these changes affect those of us who will still be standing?

What do you think?

Talk About a Broker Creating a Conflict of Interest!

In a recent commercial real estate transaction, two brokers became embroiled in claims of unprofessionalism, unethical behavior, and conflicts-of-interest. What’s your opinion?

A local broker represented a national company in offering that company’s single tenant building for a short term sublease. The sublandlord’s broker placed the space on the market, publicized the offering, and arranged appointments for prospective subtenants and brokers to visit the building.

The sublandlord’s broker hadn’t read the lease and was unaware of its details, despite the building having been on the market for over a year.  He hadn’t contacted the building owner to discuss a potential sublease. Therefore, he had no insight into the owner’s objectives and any associated obstacles the sublandlord might encounter, and was unable to answer basic questions about his offering.

Another broker, representing a tenant, contacted the sublandlord’s broker about the building. The tenant was interested in leasing a large portion of the building, but only for a longer term than the sublandlord could offer.  The sublandlord’s broker confirmed that he had no ability to offer a longer term. He claimed not to know who the owner was, stated that he did not represent the owner, and disclosed that he had never spoken with the owner.

Given the above, the tenant instructed its broker to contact the owner directly to assess the possibility of a long term direct lease between owner and tenant. Under that scenario, the owner would have to terminate a portion of the sublandlord’s lease and enter into a new lease with the tenant.

The owner confirmed that it negotiated transactions without engaging brokers to represent it and confirmed that it was not represented by a broker on the building in question. The owner advised the tenant’s broker to deal with the sublandlord’s broker if the tenant was interested in a sublease and to deal with the owner if the tenant wanted a direct lease for a longer term than what the sublandlord offered.

The sublandlord’s broker became enraged that the tenant’s broker contacted the owner directly, and made claims about the tenant’s broker’s actions being unprofessional and unethical. Then, the sublandlord’s broker demanded that the tenant’s broker deal only with the sublandlord’s broker on all transactions, including: A) a sublease; B) a combination sublease and follow-up direct lease, or; C) a direct lease with the owner.

Remember that the sublandlord’s broker did not represent the owner, but only represented the sublandlord. Yet, the sublandlord’s broker, who had a fiduciary responsibility to protect the sublandlord’s interests and accused the tenant’s broker of unethical behavior, untruthfully claimed to have authority to represent both the sublandlord and the owner.  If this were true, the sublandlord’s broker would have been involved in an obvious and blatant conflict of interest. Moreover, the suggestion by the sublandlord’s broker that the tenant’s broker should only deal through the sublandlord’s broker for all transactions at the building was merely a move designed to restrain the tenant’s ability to deal directly with the owner and achieve the best deal. Sound a bit like a restraint of trade?

My observations:

• The sublandlord’s broker created a conflict-of-interest by insisting that the tenant’s broker not deal with the owner for a direct lease, when the sublandlord’s broker only had authority to represent the sublandlord

• The sublandlord’s broker misrepresented his authority to represent both sublandlord and owner

• The sublandlord’s broker did less than a professional job of representing the sublandlord by not having read the lease; by not being aware of the terms of that lease before marketing the sublandlord’s property; by engaging in presentations and deal discussions with insufficient knowledge; and by not being aware of the owner’s objectives and any associated obstacles, or any opportunities that could be achieved on behalf of the sublandlord

• The sublandlord’s broker was only authorized to negotiate a sublease or assignment, a transaction in which the tenant was not interested. Since the tenant sought a transaction that could only be entered into by the owner, the tenant’s broker acted rightfully in the best interests of its tenant by contacting the owner directly. The claims by the sublandlord’s broker that the tenant’s broker had acted unprofessionally or unethically were false and without basis.

• The tenant’s broker could have extended a courtesy to the sublandlord’s broker by advising that the tenant had elected not to pursue a sublease and had instructed him to contact the owner directly. However, the tenant’s broker was under no obligation to do so, and by this action the tenant’s broker was not in violation of any standard of ethics or professionalism

 

I found this circumstance to be a fascinating twist on the commercial real estate broker industry. What do you think?

Why “TENANTS” Need Written Tenant Representation Agreements!

…because only with a written representation agreement can a real estate broker or advisor represent the interests of a tenant or a buyer!  Absent a written agreement clearly stating that the broker represents the tenant or buyer, under common law the broker likely has an obligation to protect the interests of the landlord or seller.   That’s right!   This is true even if the landlord or seller already has a broker representing it!

What corporate executive in his or her right mind would work with a real estate broker whose job is to negotiate against the executive’s company?  Besides, don’t landlords engage brokers via written agreements?  Don’t companies engage executives via written employment agreements?  Employment agreements, representation agreements, and the like serve, among others, one very important purpose…they set down the terms of a relationship between employer and employee, service provider and client, or otherwise.  So, why wouldn’t a company “employ” its broker or advisor, especially given the risks of not doing so? 

The process of engaging a broker or advisor to represent the interests of your company is very simple.  First, select the right commercial real estate broker that is qualified to address your company’s specific objectives.  Then engage the broker via written agreement that clearly states that the brokerage company is obligated to protect your company’s interests.  Address all the terms that are important to your company, including how the broker will be compensated (most often through commissions paid by landlords) and any other terms that are important to you.  Then get to work on your real estate project knowing that your company will have an objective real estate representative authorized to advise it and negotiate on its behalf.  It’s that simple!

By formally engaging a broker, your company will send a clear message to landlords, sellers, and others that it is serious and has thought-out its real estate project.   Landlords and sellers also benefit when tenants and buyers engaged brokers, as doing so clarifies the relationships between the tenant, landlord or seller, and brokers.

There’s a lot more to this discussion.  But for now…Enough Said!

 

The above is based on guidance I have received from numerous legal experts.  I am not a legal expert.  The above may vary from state to state or province to province.   So, you may wish to validate how this works in your area.

Real Estate Brokers Are Not in the Tenant Credit Guarantee Business – Part Two

In last week’s post, I reviewed a number of issues concerning the transfer of cost and risk from one party to another in business transactions, specifically in commercial real estate deals. That post received a number of interesting comments. There’s more to this story.

When landlords find prospective tenants to be unacceptable risks, those landlords should consider the multiple risk mitigation alternatives available to them, including accepting the risks as they are, working with prospective tenants to minimize risk or to enhance the tenants’ creditworthiness, modifying the terms of the transactions to support acceptable risks, or electing not to complete those transactions becuase of the existing of too much risk. 

When landlords complete lease transactions, a large number of service providers may be involved on both the landlord’s side and that of the tenant. That list could include: lawyers, accountants, space planners, architects, engineers, asset managers, construction contractors, plumbers, electricians, HVAC installers, drywall contractors, carpenters, flooring installers, ceiling installers, elevator technicians, painters, other sub-contractors, property managers, asset managers, mortgage bankers and brokers, delivery contractors, administrative assistants, cleaning contractors, trash haulers, landscapers, snow plowers, and all others involved in completing a transaction or in maintaining the landlord’s property.

Like a tenant’s broker, none of the above service providers are responsible for assessing a tenant’s creditworthiness nor for the future performance of the tenant or the property. So, if a landlord wishes to shift the burden of its transaction costs and risks from itself to an entity other than the tenant, and since shifting that burden to the tenant broker would be unfair, then the cost and risk should be shifted to the entire list of service providers involved in any aspect of the property and its corresponding transactions.   Adjusting the payment of other service providers based on the landlord’s interpretation of a tenant’s risk would actually be unfair, too.  However, if a landlord’s policy was to compensate all of its service providers on a risk adjusted basis, then only in that instance might it be reasonable to compensate the tenant’s broker in that manner.

Interestingly and consequently, if a landlord did attempt to compensate its other service providers in the above fashion, that landlord would likely be out of business.  (I have this vision of big burly union contractors showing up at the landlords office to collect their pay, when told they won’t get their money because the tenant didn’t pay its rent!)  Under that scenario, most service providers would probably find work elsewhere, leaving the landlord with no services to receive or to offer, no ability to conduct business or lease any space, with ALL of the risk for EVERYTHING borne by the landlord, and no one to transfer that risk to.

So, what quid pro quo could a landlord provide to a tenant’s broker in exchange for accepting greater risk?  Could the landlord offer:

• An insurance policy to protect the tenant broker’s compensation in the event of the tenant’s default? 
• The opportunity to participate in the landlord’s future equity appreciation?
• Some other incentives?

But, the above might more closely align the broker and landlord, and could create a conflict-of-interest for the tenant / broker relationship.  Now, that wouldn’t work.  Resolving this issue using the above approaches could become very complicated…probably more so than is really necessary. 

I’ve got a great idea for those landlords that seek to mitigate their cost and risk by shifting that burden to tenant brokers.  Since commercial real estate brokers, especially those that represent tenants, are not in the tenant credit guaranty business, your best bet will simply be to follow the lead of the better quality landlords with which you compete. 

Aportion the cost and risk of your transactions appropriately between yourself and your prospective tenants.  Make as many deals as you can. Don’t unfairly shift your transactional burdens to anyone who shouldn’t participate in them, including tenant brokers and your other service providers.   Life will be a lot simpler that way.  Tenant brokers will be more comfortable dealing with you, and will likely bring you more tenants.  Guess what?  You will almost certainly receive more interest from tenants, because they’ll see you as fair and equitable…the way most tenants like their landlords!

Risk is a funny thing.  When minimized by one party in a negotiation, risk never really goes away…it just goes somewhere else.  Be sure to transfer risk in the right direction.  And, remember that Real Estate Brokers Are Not in the Tenant Credit Guarantee Business!

Real Estate Brokers Are Not in the Tenant Credit Guarantee Business – Part One

In every kind of business transaction, whether real estate or otherwise, the wise approach to increasing profitability is to reduce costs and risk.  Risk is an interesting concept, in that even when avoided, it never really goes away. Risk remains…always, only in different forms and quantities, and in different hands.  If one party in a two-party transaction reduces its risk, it is likely that the avoided risk simply transferred to the transactional opponent. 

Transferrals of risk are a reasonable part of every negotiation, so long as such obligations are not unfairly thrust onto others.  But, like investment in a risky stock or placing a risky bet, an increase in risk must be accompanied by additional opportunity as an offset. Otherwise, the risk receiving side of the transaction loses by virtue of taking on a bigger burden with no potential increase in profit or other benefits, and the transferring side of the transaction experiences a dramatic win as the result of paying no cost in exchange for minimizing its risk.

In lease transactions, commercial landlords must manage their risk in order to compete profitably and to sustain their own businesses.  Transaction related cost and risk should be borne either by landlord, tenant, or both, depending on various considerations.  However, lesser quality landlords will attempt to reduce their cost and risk by shifting some of those burdens not to tenants, their transactional opponents, but instead to tenant brokers. This usually comes in the form of an insistence by the landlord to:

•  Lower commission rates
• Calculate commissions on phantom rent amounts and other discounts 
• Calculate commissions on shorter lease terms that aren’t applicable to the corresponding transaction
• Propose payments over periods of time 
• Avoid or suspend payments or require paid commissions to be returned in the event of tenant default
• And, plenty of other reasons that serve only to unreasonably benefit landlords

Transactional cost and risk should only be borne by transactional participants. Transferring cost and risk to service providers, those who seek to perform a one-time service, collect their compensation and move-on, is unfair and inappropriate, especially when forced. Tenant brokers, like other service providers involved in various stages of real estate transactions do not belong in the chain of risk. Interestingly, landlords rarely offer tenant brokers an upside quid pro quo in exchange for a proposed increase in risk. 

The existence of a tenant broker in a transaction means that the tenant will be better advised as to its in-place transactional alternatives and those associated with relocating.  It is for this reason and others that most landlords would prefer that tenants not utilize the services of tenant brokers. So, when landlords attempt to shift cost and risk to tenant brokers, they typically feel little sympathy for the impact their actions have on them.  Moreover, many landlords assume that if they can shift cost and risk from themselves without placing additional burden on their prospective tenants, they’ll have a greater likelihood of completing more transactions. 

An experienced tenant broker will advise its tenants in advance that, because landlords must focus so intently on managing risk, especially in the current economic environment, the tenant’s creditworthiness will play a significant role in the structure of all components of the transaction they seek. The tenant broker must make it clear that, like in other financial transactions, the tenant will be able to achieve certain terms or not, based on the landlord’s interpretation of the tenant’s financial condition. A reasonable tenant will recognize these facts and will proceed accordingly.

The role of the tenant broker is not to analyze nor qualify the quality of a tenant’s credit. Since that responsibility should fall to the landlord, and since the tenant broker is not a direct participant in a transaction between landlord and tenant (paying or receving rent, fullfiling lease obligations, etc), the tenant broker should not be expected to shoulder the burden of the tenant’s creditworthiness in how it receives its compensation.  Interestingly, landlords rarely offer tenant brokers higher compensation when their tenants have excellent credit! 

In next week’s post, I’ll write more about specific issues associated with the transfer of cost and risk in lease transactions.  Please send me your comments and check back again!

12 Reasons Why Tenants SHOULD Say “No!” to Lease Renegotiation Transactions

While some landlords say “No!” to tenant requests to renegotiate their leases, many tenants will have a similar reaction to landlord requests to renegotiate leases.  In most cases, a tenant’s negative reaction is due to an imbalance in the perceived benefits the tenant would derive from a renegotiated lease versus the additional obligations the transaction would create. 

Multiple reasons exist for a tenant to decline such a transaction, many of which are simply the flip side of the reasons landlords say “No!”  12 reasons why tenant should, and often do, say “No!” to lease renegotiation transactions include:

1. Insufficient dollar amount of financial incentives offered by the landlord
2. Structure of financial incentives or other transactional components do not support tenant’s business objectives
3. Delayed timing of financial incentives that results in diminished benefit and erodes NPV
4. Too many restrictions placed on the financial benefits or other elements of the transaction by the landlord or lender
5. Too long a lease term required by the landlord or its lender to justify other terms associated with the transaction
6. Inflexibility on the part of the landlord in agreeing to non-financial or other business terms
7. Lease document is too strenuous or one-sided, favoring the landlord
8. Lack of faith by the tenant in the landlord’s ability to perform or deliver on commitments made, including the landlord’s ability to fund construction or service commitments
9. Concern over lender’s willingness or ability to modify or decline renegotiated terms
10. Tenant’s misinterpretation of current market conditions and achievable terms
11. Unreasonable expectations of the outcome by the tenant
12. Lack of qualified real estate advice and representation provided to the tenant

Other reasons may exist, as well, as to why tenants would decline the ability to reneogtiate their leases.  This is not intended to be complete or all encompassing. 

For tenants, it’s pretty simple;  improve their terms, both financial and non-financial, to a point where it makes sense for them to extend their lease for a term that is commensurate with both the additional benefits they’ll derive therefrom and their own non-real estate business objectives.  See!  Wasn’t that simple?

32 Reasons Why Landlords Sometimes Say “No!” To Lease Renegotiation Transactions – Part Two

Last week we discussed the first 15 of 32 Reasons Why Landlords Sometimes Say “No!” to Lease Renegotiation Transactions.  Below are the remaining 17 reasons:

16.   Landlords who may be in default of their debt covenants or whose relationships with their lenders are so strained that they have difficulty securing approvals

17.   Landlords who have been reduced to mere figure heads, with their lenders already having taken control of their buildings, because their lenders may be uncertain as to their future plans for those buildings

18.   Landlords or lenders, where the building may already be in the bankruptcy process, that may be legally unable to modify current lease contracts

19.   Landlords or lenders that may be experiencing other business or legal challenges that cause significant distraction

20.   Landlord’s whose primary business may be something other than real estate and may cause too much distraction for them to be responsive to tenants’ request

21.   Landlords that may have entered into contracts of sale for their buildings and cannot or will not modify existing leases

22.   Landlords that are actively engaged in refinancing their buildings and prefer to wait until that initiative is complete before engaging in discussions to renegotiate any leases

23.   Landlords whose staffs are overwhelmed with lease renegotiation and other requests and cannot focus on new requests

24.   Lenders who don’t support or won’t fund lease renegotiation transactions

25.   Lenders who are so overwhelmed with debt expirations, renegotiations, and foreclosures, and in some cases, their own survivability, that they are unable to respond to landlord requests in a reasonable time frame, if at all

26.   Tenants who may be viewed by the landlord or lender as being unstable, risky, or unworthy from the perspective of their finances, credit, reputation, or otherwise

27.   Tenants who may be too small to have a positive impact on the building, its value, or the landlord

28.   Tenants whose space may be desired by another tenant

29.   Tenants whose industry, image, or style of business may no longer be conducive to the landlord’s plans for the building

30.   Tenants in a building where the landlord may prefer to empty it and demolish it or convert it to some alternative use

31.   Tenants that offer too short an extension term to create any real value for the landlord

32.   Tenants that demand too many concessions to result in an economically viable transaction for the landlord

 

So, even in this horrible economic environment, lease renegotiations don’t always make sense.  Landlords, lenders, and tenants, each have good reason to say “No!” at one time or another.

       Tenants:  Why have landlords said “No!” to your company? 

       Brokers:  Why have landlords said not to your tenants?

Let me know.

32 Reasons Why Landlords Sometimes Say “No!” To Lease Renegotiations – Part One

Lease renegotiation transactions are not absolute.  They can prove profitable for both tenant and landlord when orchestrated properly.  They can also fail miserably when inappropriately executed.  Neither landlord or tenant are obligated to enter into a renegotiated lease, and would only do so if such a transaction made sense.

 

Lease renegotiation transactions don’t always work, and in fact, sometimes can be seriously detrimental to landlord and /or tenant.  Accordingly, landlords sometimes say “No!” when approached about renegotiating a tenant’s lease. 

 

The reasons why a lease renegotiation might not come to fruition could be many.  Here are just some of them, in no particular order of importance:

 

1. When the tenant’s broker is not qualified to properly effect such a transaction
2.  When the landlord’s broker is either not qualified or does not grasp how to manage such a transaction to the landlord’s true benefit
3. Tenants or brokers who take an overly aggressive approach to renegotiating the lease
4. Landlords or tenants who conduct incomplete due diligence on their transactional opponent
5. Poor communications on the part of landlords, tenants, or their brokers
6. Over zealous or misinformed landlords, tenants, or brokers
7. Emotional landlords, tenants, or brokers (It’s just business fellas!)
8. Tenants who attempt to engage their landlords without the requisite knowledge, information, and / or transactional expertise
9. Landlords, tenants, or brokers who don’t understand how current market conditions and possible future market trends may impact their transactional opponent or how it might impact the landlord / tenant relationship, if a lease is renegotiated or if it is not
10. Tenants and brokers who don’t understand how landlords do business, their challenges, risks, and opportunities
11. Landlords who incorrectly assume that they have such strong relationships with their tenants that for some magical reason those tenants will never vacate their building, or that the tenant is captive and has no viable alternatives available to it
12. Landlords who don’t expect to retain ownership of their buildings over the long term, either because they plan to sell them or fear they may lose the buildings through foreclosure or some other legal or government action. Therefore, despite the possibility of improving the value of a property as a result of a renegotiated and extended lease, such a landlord would likely see no value in this type of transaction. This is especially likely given the requisite capital and the often cash flow reduction associated with a lease renegotiation
13. Landlords whose buildings are so close to the edge that any renegotiation that produces lower cash flow in the short term, irrespective of the potential long term benefits, would push them over that edge and into the abyss
14. Landlords who are too distracted by their focus on refinancing their properties and being forced to replace high loan-to-value debt with lower loan-to-value debt, and searching for ways to make-up those financial shortfalls
15. Landlords who, in the current economic environment, are focused on their own survivability and risk fear of failure in that effort

Check back next week for the other half of this list…it’s just too long to include in a single post, at least that’s what my publisher says!