Has Your Wife Inspected the Building Yet?

In a recent industrial lease transaction, how the deal came to a close was not only unusual, but very telling about the direction of the current economy.  A privately held company negotiated with a commercial landlord to occupy a full building in a prominent and well-located industrial park in central New Jersey.   The landlord had an excellent reputation for quality designed and solidly constructed buildings, for maintaining high service levels, and for sticking to his word.  However, the landlord’s buildings were also known to be priced higher than his competition.

The landlord, a very astute and respected business man, had recently gotten very aggressive in lowering rents in an effort to attract more tenants and fill his buildings’ vacancies.  Nonetheless, his rents were still higher than many of his competitors.

In this particular negotiation, the landlord offered extremely flexible terms and an annual rental rate that was one of the lowest he had offered in the last eight years.  After weeks of back and forth, the tenant’s CEO informed the landlord that the company would not accept his terms, and that the company decided to lease a building of similar quality located twenty minutes further south.  The CEO said that the building they had chosen was less expensive, and that given current economic challenges, the spread between rents for the two buildings was significant enough that he could not pass up the additional savings.  He told the landlord that his company made its decision a week earlier and that its lawyers were already deep into lease document negotiations.  The CEO was a candid guy, so the landlord took him at face value and correctly assumed this was not a negotiating ploy.

Disappointed for having worked so hard to land the tenant, the landlord knew he couldn’t win them all.  The landlord confirmed for the CEO that he had truly offered all he could, and wished the tenant well.  The CEO stated that even if the landlord had offered more, he did not expect the central New Jersey building to be able to match the lower rents at the selected building.  So, they parted, saying they each hoped to do business together again some.

That weekend, the CEO was driving through central New Jersey with his wife on his way to a social function.  Since his wife had heard so much from him about the intense building negotiations, the CEO decided to drive her past the two buildings, both the one to which the company planned to relocate and the central New Jersey building he’d decided not to lease.

After driving around the central New Jersey building and sitting in front for a few moments, the wife, who rarely involved herself in her husband’s business affairs, told her CEO husband that he was nuts for passing-up the central New Jersey building.  She told him that she thought he’d made a mistake, and that the building offered an image that was far more impressive than anything else she’d seen.  From what the CEO told her, the central New Jersey building offered a giant leap in functional design, in comparison to the company’s current facility and the one the CEO selected.  She said that the building he had chosen could not compare, that his company would have benefited considerably more by moving its employees and operations to the central New Jersey building, and that the company would likely have become more profitable and able to significantly elevate its own image had it chosen the central New Jersey building.  Wow!

The CEO’s wife was right, and he was convinced!  First thing Monday morning, the CEO called the central New Jersey landlord and agreed to close the deal, despite the additional rental cost for the central New Jersey building.  The CEO realized that given the terms offered by the landlord, he would basically get a BMW quality building for the price of a Chevy.  He knew that, despite the continued economic doom and gloom heralded by the media, a good deal would still be a good deal.  Moreover, the CEO, obviously an intelligent business man, recognized that the lowest cost deal, even if it is less than the cost of a Chevy, while often attractive, is not always the best deal.  He understood that value could be derived, and success could be achieved, in multiple ways, other than through mere cost reduction.

When companies begin to return to rational thought, as in the case above, a circumstance that has lately been repeated again and again, you can be assured that such activities are the true signs that the recovery is gaining traction.  And, when your wife tells you that your company would be better off by taking a particular action, you may want to listen closely.

What unusual circumstances have surrounded your projects?

About Real Estate Strategies Corporation

Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com.

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4 Responses to “Has Your Wife Inspected the Building Yet?”

  1. 1 Chris T April 10, 2010 at 10:48 pm

    I have had two such “wife” experiences. In both the clients logic, expected economic/operational benefits, and sound business management played major roles in the out comes in each experience.

    The first was my largest transaction in a similar market during the early 1990’s involving a 2 million square foot free standing industrial building; just after separating from a lengthy tour of the premises with senior management of the seller (a national corp) I stopped the client (a large regional company owner) at the edge of the property and asked him what he thought. His response was he didn’t know, he’d have to give it some serious thought as it obviously was a significant decision and would be the largest, on any level, his company would have made to date. Feeling ok about the response (I had a hunch he liked the opportunity the property offered his company) I made some small talk about their upcoming trip to South America. As I finished the “wife” turned to her husband and said “I think it is just a big white elephant” stunned I was speechless, she continued “I think we’ll buy this THING and lose everything we’ve work so hard for”. Obviously, I can’t say I was real happy about the “wife” being involved with this transaction.

    In the end, the client called me at home the next day (it was Saturday) and told me he couldn’t sleep the night before, he wanted to meet for breakfast the next day so we could have an offer to his attorney Sunday afternoon and an offer into the seller sometime the next Monday. We did, and we ended up closing on the deal, although it took several years for us to do so.

    My second experience was with a long time client I had sold several investments over a dozen years. I clearly had an understanding of this clients objectives both short and long term. I had assisted this client multiple times to make multiple millions, and more importantly had kept him focused on his objectives which included continuing to hold real estate assets instead of selling on “media noise”, recession concerns, or shorter term and somewhat tempting gains. He was at times a lot of psychological work.

    In my last deal with him, he’s since retired, I was selling him his largest purchase to date, four times any other purchase. The building was a vacant building we had pre-leased to a prospective tenant before we had the property under contract, but the thought of buying it vacant without valid enforceable leases made him nervous. I can’t say I blame him, I’ve been in the same situation (I’m a CRE professional) and when my money was on the line it made me nervous. Just as we were getting ready to close, the prospective tenant informed us they would need to delay their occupancy of the property by as much as six months. Hum, his nervous just reached anxiety level. Decision time came at a hastily arranged meeting with his “wife” and their three younger kids at a local restaurant near the property. He told me during the lunch he was considering bailing on the deal and the lost earnest deposit would only “cost” him two months of mortgage payments if the building sat vacant for more than a couple of months. Sitting with the clients and looking into his and his wife’s eye’s I recapped the numerous years of investments, their goals for these investments, the numerous times I had talked him out of selling such investments, etc. I ended by telling him he would literally be giving up a doubling of his passive rental income, already a fairly significant amount, by terminating this transaction for fear of several months worth of mortgage/vacancy thereby passing on his goal to retire with X $ of passive income.

    When I got done, the wife stood up and told her husband “ok we’ve heard enough”, “thank you for being so kind over all these years”, “I hadn’t realized we had been guided so well”, “I’m the one who insisted we meet with you today”. They bought the investment, and the wife insisted the husband send me a bonus after the closing which he did (I got a couple of boxes of Cuban cigars, and lets just say I almost literally picked the tobacco leaves myself with the bonus).

    Sound business decisions will always out weight unstable markets, fear, recessions, providing the service provider communicates a clear message to all parties involved.

  2. 3 Kathi Browne April 19, 2010 at 1:14 pm

    What a wonderful post (and comments). Sometimes, it’s the discussion that takes place at home that is most valuable in making a decision–even when the spouse is misinformed. Reexamining a decision and having to defend it is never wasted time if the wife has good intentions.

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