Archive for the 'Investors' Category

Always Cut Your Commission!

Yeah, that’s right!   “Always Cut Your Commission!”  And, why not?  If the only value you can offer your clients is your price, then you probably will have to cut your commissions to stay in business!

Actually, let’s clarify what is often referred to as “Commission Cutting.”  It simply means that one broker is willing to sell his or her services at a lower rate than he or she would for other projects, or perhaps in comparison to his or her competitors.  So what?  Does that mean every one in the local market must sell their services at the same price?  If you buy shoes from one store at a low price, does that mean that all of the other shoe stores will lose all of their customers and go out of business, just because you got a good deal?

Just like in other industries, there exist many common practices in commercial real estate, including those surrounding broker compensation.  But, no “standard” compensation or commission structure exists.  In fact, in most states, setting commission standards is considered price-fixing, and is illegal!

So, what’s all this noise about brokers who cut their commissions and how that supposedly affects the compensation of other brokers?  The response I often hear is that if one broker offers low-priced services then every landlord, tenant, buyer, and seller in that market will make the same demands.  Really?  Well, guess what?  They already want your services at the lowest possible price.  Shouldn’t they?  Don’t you want to buy those shoes as inexpensively as possible?  Don’t you negotiate for a lower price when you buy or lease a car?  Didn’t you negotiate when you bought your home?  Did everyone else get their home for the same price you did?  Of course not!  Seeking a lower price is the American way, and there isn’t a darned thing wrong with it.

Ask yourself these questions:

  • Are you a low-cost service provider?
  • Is low-cost always the winner?

NO!  If that were true, there would not exist high-priced hotels, restaurants, resorts, clothes, homes, cars, etc., etc., etc., or anything of better quality.  If low price always won, consumers and businesses would never buy the best quality or engage the best of any service provider.  Instead, they would only hire the cheapest.  And, in those instances, they’d get what they paid for.

Forget what other brokers do.  There is plenty of room in every industry for low-cost service providers, because some clients do make purchasing and hiring decisions purely on cost.  Low cost, almost always means low quality, and those who hire only on a low-cost basis typically receive services commensurate with what they pay.  And, if that’s their preference, so be it!

The answer here is very simple:  If you are a low-cost service provider, be the best one in your market.  If, on the other hand, you wish to be something other than low-cost, make sure that like Mercedes, BMW, Nobu, Gucci, and other fine products and service providers, you provide your clients with such incredibly valuable services, experiences, and outcomes, that your other-than-low-price will be warranted and you will be in demand!

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

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What Makes a Great Commercial Landlord? Here Are 20 Answers

I spend a lot of energy in this blog writing about knucklehead commercial landlords and real estate brokers of equal stature.  In a recent conversation with a very accomplished landlord representative, someone who I respect greatly, I was lightly accused of landlord bashing.  After reading more of my posts, and recognizing that I give equal time to bashing bad landlords and bad brokers, those who deserve a swift kick-in-the-pants, this landlord representative changed his statement to: “You’re not anti-landlord…you’re anti-idiot!  I like that!”  Except “idiot” wasn’t quite the word he used. 

Commercial landlords have it tough, especially these days.  Many are running scared, and for good reason. 

According to  Andrew Florence, CEO of CoStar Group, a publicly held commercial real estate information company, “$1.4 trillion in commercial mortgages will expire in the next three to four years.” Add to this the facts that supply (vacancy) is rising, demand is unstable and remains low in many markets, capital is tight, and credit still hasn’t found its way back into the commercial real estate market.

So, yeah, landlords have it tough. But, like the Phoenix rising from the ashes, or in the Chinese way of life known as “Weji” where many believe that from Chaos comes opportunity, or even the writings of Nietzsche who wrote “You must have chaos within you to give birth to a dancing star” many landlords, those who truly understand the industry they’re really in, those who represent the majority of the commercial landlord industry, know how to be great landlords, and they work hard at it every day. 

So, in the interest of giving equal time to good  landlords, I thought I would jot down some of the attributes that, in my experience, make for great commercial landlords.  Do you agree with this list?  Can you add to it? 

Landlords entitled to be called great, are those who:

  1. Maintain the heck out of their properties
  2. Improve their properties often, even if it might not positively affect short-term profits
  3. Recognize that the most important phrase in commercial real estate is not “Location, Location, Location” but rather is “Service, Service, Service!”
  4. Abide by the principle that “Honesty is the ONLY Policy!”
  5. Under-promise and over-deliver as a standard operating procedure
  6. Understand that they’re not in the real estate business, but rather, they are in the business of providing productive working environments to their tenants….tenants who are paying customers, companies that are run by people who provide landlords with monthly income streams, which permits landlords to pay their mortgages, generate profits, and achieve success.
  7. Keep their tenants informed about goings-on at their properties, both those happenings that are good and those that may be not so good
  8. Know how to apply creativity to deal-making when the situation demands, and when it doesn’t they understand that simplicity is often the best way to uncomplicate things and close a transaction
  9. Know how to complete transactions that are profitable for themselves and fair to their tenants
  10. Utilize short simplified lease documents that already contain the standard changes over which other landlords spend weeks fighting, and they strive for equally short negotiations
  11. Employ short commission agreements, cooperate with and compensate tenant and landlord real estate brokers fairly and quickly
  12. Believe that just because a tenant pays its rent on time, doesn’t mean a relationship exists between landlord and tenant, and that it also doesn’t mean the tenant would never relocate
  13. Recognize that a lease transaction, and possibly a relationship, STARTS when the lease is signed
  14. Know that a transaction is not a deal at all, but an opportunity and an obligation, in most cases, for the landlord to provide great service to its tenant-customers
  15. Accept those transaction and occupancy related risks that are rightfully theirs, without attempting to unfairly transfer them to tenants or brokers
  16. Demonstrate respect for tenants, the brokers who represent those tenants, and the tenant-broker relationship
  17. Strive to live-up to all terms to which they’ve agreed, and make amends when they may be in error
  18. Are fair and even-handed with all tenants
  19. Demonstrate more interest in existing tenants than in prospective tenants. They believe that the last deal is as important to them as the next one!
  20. Understand that they must work diligently to win new business opportunities, even from tenants that currently occupy their buildings

And, that’s just the beginning!

Is this the complete list?  Are there other issues that make some landlords great?  What experiences have you had with great landlords?  Are you a great landlord?  What’s your secret?  Let me know.

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Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

Will Recovering Capital Markets Catch the Other Commercial Real Estate Shoe Before It Drops?

In previous blogs, I’ve written about the potential perils of lending, credit, and capital markets, and have asked the question:  As the Economy Stabilizes, Will Commercial Real Estate Markets Worsen?  I also discussed how investors and corporate occupants have recently been successful in buying office buildings for One Year’s Rent!

With $1.4 trillion in commercial debt expiring and in need of replacement over the next three to four years, many of us in the commercial real estate industry are asking ourselves:  “If the next shoe drops in commercial real estate, will the bottom fall out of the economic recovery?”

Let’s consider some of what’s going on:

  • Securities markets remain volatile
  • Credit markets appear to be moving slightly, but are doing so cautiously
  • Europe?  Don’t get me started!
  • The BP oil spill debacle in the Gulf of Mexico?  Too many bad things to say here about too many people!
  • Banks are still not aggressively lending for commercial real estate (Loans-to-value, recourse, and other important metrics are loosening, but are still rather challenging)
  • Despite a large portion of the nation’s commercial  real estate being owned by institutional investors, the majority of commercial properties are owned by private entities

One of the challenges in jump starting commercial real estate markets, that differs from the last declining real estate cycle, is that a majority of previously placed commercial real estate debt was securitized.  Replacing such debt now, often requires arduous negotiations and decision-making on broad and deep levels.  Challenges associated with time and cost of restructuring securitized debt has proven overwhelming to some borrowers, forcing foreclosure and deeds-in-lieu of foreclosure actions.

Some banks, becoming saturated with delinquent loans, non-performing properties, pending foreclosures, forbearance, and foreclosure avoidance procedures, simply will not or cannot return to lending in the near term.  They have become, in essence, property disposition servicers.  We’ve seen that before…can anyone say “Resolution Trust Corporation”?

In the current environment, banks and other lenders are more likely to lend on fully leased commercial properties.   Such properties represent the minority of those seeking funding.  Other lenders are focused primarily on residential properties, and are offering loan terms that are considerably more favorable than those available for commercial properties.  As a result, many commercial investors have moved into residential real estate investing.

How will the economy work its way through these challenges?  What must occur in order for commercial real estate markets to truly stabilize?  Can banks simply lend their way out of this?  Will recovering capital markets catch that other shoe?  What are your thoughts?

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Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

Buy an Office Building for One Year’s Rent!

I’ve recently heard about five transactions in suburban New Jersey real estate markets, where sale prices for commercial buildings were extremely low.  Of these five, two transactions have closed and three are under contract. 

In some cases, sale prices have been so low that they equal nothing more than the rent most tenants would pay in the first year of a typical lease. 

How low?  Here’s the perspective: 

The cost to newly construct buildings comparable to those that recently sold could be between $75.00 to $150.00 per square foot, or more, and corresponding rents could be in the $12.00 triple net to $45.00 gross per square foot range. 

Ready?  The buildings referenced above have sold or are under contract at prices ranging as low as $14.00 per square foot to as high as $39.00 per square foot!  At $14.00 per square foot, that’s 18.7% of a $75.00 per square foot replacement value!

In all three instances, these buildings were sold either by their lenders or by the court through bankruptcy proceedings.  Developers, investors, and others in the know, tell me this is just the beginning.  They say that lenders are finally loosening their grip and actively seeking to sell properties that are in default on their mortgages and those on which lenders have already foreclosed.

Is this true?  Are the flood gates beginning to open?  Will we see a flurry of commercial buildings come to market around the country at below replacement cost?  What will this do to prices for those buildings that are not in default?  None of this sounds positive for sale values.

If the above is more than a blip on the pricing radar, the positive news is that it will likely foster transaction and lending activity.  And, that’s a good thing. 

How will the above effect pricing for corporate sale / lease back transactions?  Will these events result in the wholesale lowering of commercial property rental rates across the country?  Will it hinder or help to stabilize commercial property values?

What are your thoughts?

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Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

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