Archive for the 'Leasehold improvements' Category

Exactly, How Transparent Are You?

As a commercial real estate broker, you probably consider yourself to be professional, fair, open, and honest.  Are you also transparent? Completely?  Follow these questions and comments and decide for yourself just how transparent you are and whether your clients view you the same way.

  • Can you describe the basic principles behind Sarbanes-Oxley?
  • Do you tell clients and prospects that you will be transparent in your dealings with them and on their behalf?
  • Are you really transparent in your dealings, or is that just marketing hype?
  • Do you keep your tenants and buyers informed about your dealings on their behalf and about the compensation to which you may be entitled when they complete their transaction?
  • Do you only mention compensation to your tenant clients when a landlord offers you a discount, an unacceptable rate, or payment schedule that takes too long or puts you at risk?
  • Do you also inform your clients when landlords offer you compensation bonuses or incentives?
  • Do you disclose relationships to your clients that THEY may see as being in conflict with your ability to properly serve their interests, even if you don’t see the same conflicts?
  • Are you really completely transparent?
  • Are your company’s relationships so vast and geographically dispersed that it is often difficult to understand the many possible conflicts-of-interest that may exist, let alone identify and report them to your clients?
  • Are you transparent with your transactional opponents and competitors?  Should you be?

Being transparent is not a buzz word, it’s an absolute, a must in business. You cannot be transparent on some issues, and not on others, and then claim to be transparent.  That’s being partially transparent, which means you’re not really transparent.  Either you’re transparent or you’re not!

Being transparent in your dealings is not that tough.  What are you afraid of?  Do you think your clients will figure out that maybe you’re not as good as you said you were?  Are you afraid that if you are transparent about your compensation that your clients may want some of it?  If you are truly concerned about this, then perhaps you should ask yourself if you really are worth what you expect to receive in compensation…if you deliver sufficient value to your clients, so that they will recognize your worth and entitlement to fair compensation.

Are you afraid to disclose that a landlord offered you a compensation bonus? Why? Do you deserve it?  Will accepting it have a negative impact on your client?  Would your client think so? Would your client be concerned that you didn’t disclose it?  If, for some silly reason, you chose not to disclose an offer of a bonus, what a tremendous opportunity you missed to build a stronger relationship with your client

If you don’t create a lot of value for your clients, if you’re merely an old-fashioned real estate space jockey, doing little more than driving your clients around the market, dropping them on a landlord’s doorstep and expecting to pick-up a check when the landlord completes your client’s deal, then you SHOULD be nervous!  While you’re still providing a service and are entitled to be paid, you’re probably not entitled to the same compensation as a true professional real estate broker or advisor who helps his/her clients plan and negotiate complex transactions and provides superior service to them.  Like in any other business, if you’re in it for a quick hit and provide minimal service and value, you should expect to be compensated in a similar fashion, and frankly, in a lesser amount than your competitors who really deliver!

Wouldn’t it be great if your clients backed you up when it came time for you to be paid?  Yours won’t?  Why not?  Could it be that you haven’t been transparent, that they don’t trust you or don’t believe that you are worth the amount of compensation you seek?  Your relationship with your clients, and how your compensation is treated, can’t be one way.  If you choose not to accept discounts, then don’t accept bonuses.  State your compensation requirements to your clients at the outset of your engagement. Inform them that you don’t accept bonuses, and neither will you accept discounts. When a landlord or seller offers you a bonus, tell them you must inform your client (that tells the opposition you can’t be bought), then tell your client!  $10 bucks says that, so long as you provide your clients with stellar service, every once in a while, your clients will let you keep those bonuses. If not, then by your transparent disclosure, it will be the best investment in your relationship with that client that you could ever make! You’ll also likely find that your clients will support you when a transactional opponent attempts to under-pay you or tries to put your compensation at an unfair risk.

If a rogue landlord attempts to force you to accept a compensation amount or structure that is less than you would ordinarily accept, advise the your client, and let the landlord know you intend to do jus that.. Many tenants won’t feel comfortable with a landlord who attempts to under-pay their real estate advisor, as they often see that as a sign that the landlord will be unfair to them, and will likely under-fund or under-deliver for them, too.  Ask your client to support your efforts to secure fair compensation.  If your client recognizes the value you’ve created for it, they’ll back you up almost every time!

Heck! Even if you don’t get to keep a landlord offered bonus, think of all the incredible goodwill you’ll create with your client, your ability to deflate the opposition’s intent on swaying your negotiating strength by “buying you off”, how much stronger you’ll be in negotiating on your client’s behalf, the additional concessions you’ll likely secure on your client’s behalf, the strengthening of your reputation, and the future credibility and additional business opportunities you’ll likely get from the client who knows he can trust you…even with cash!

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. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

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Brokers Compensation is Performance Based…But, Who Must Perform?

I love it when some commercial landlords claim that the commissions they pay to commercial real estate brokers should be conditioned on whether a tenant performs or defaults under a lease.  Some landlords insist that they should not be required to make future commission payments if tenants default.  Some go so far as to demand reimbursement of commissions by real estate brokers when tenants default.

Many commercial landlords argue that commissions should be paid based on the value landlords derive when tenants pay rent.  Those landlords claim that if a tenant defaults in paying rent, then the landlord’s value is diminished, and the commercial real estate broker should somehow be responsible for that default and should not be entitled to its full compensation.

This is simply an issue where commercial landlords attempt to pass on their risk to real estate brokers, as a result of landlords not performing the due diligence necessary to protect their own interests.  Do landlords really believe that real estate brokers are capable of analyzing the financial abilities of commercial tenants?  Do landlords really expect brokers to act as credit analysts and insurers of tenant creditworthiness?

Sure, the compensation of commercial real estate brokers is performance based.  But, to who’s performance does that relate?  Not the tenant’s performance!  Real estate brokers are not compensated based on the performance of their tenants. That’s why most courts of law have found that a real estate broker’s commission is due when the lease is executed by landlord and tenant, not at the end of the lease after the tenant has performed its obligations. So, from a landlord’s perspective, a commercial real estate broker should be paid for its own performance, for “delivering” a tenant, not for what that tenant does or doesn’t do after the landlord has accepted the tenant and after the landlord has freely elected to enter into a transaction with that tenant.

In fact, a commercial real estate broker working on behalf of a tenant may receive payment from the landlord, who is, in turn reimbursed by the tenant for the cost of the broker’s compensation along with other costs through payment of rent.  So, because tenants reimburse landlords for real estate broker compensation, some courts of law have held that, in fact, it is the tenant that actually pays the broker’s commission.

The world has changed and business, especially commercial real estate, has become a riskier industry.  Companies that appear to be healthy may not be, or may become unhealthy and default on their obligations at a later date.  This puts more burden on commercial landlords, and the necessity for them to take greater steps to protect their interests has become even more important.  For the record, it is not only tenants that can become unhealthy….

The issue of whether landlords should place the burden of tenant default on the backs of commercial real estate brokers has been an on-going source of debate, both in this blog, in LinkedIn, and in the commercial real estate industry.  And, so long as some commercial landlords, not the best or strongest landlords, mind you, unfairly attempt to shift their obligations and risks onto commercial real estate brokers, unfortunately this discussion will continue.

However, as the commercial landlord industry consolidates and becomes more sophisticated, that out-dated mentality of “stick-it-to the-real-estate-brokers” appears to be fading away, as greater numbers of commercial landlords recognize the benefits they derive from commercial real estate brokers representing tenants and the commissions to which those brokers are rightfully entitled.

 

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 finance 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 Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, 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. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

Change is Good!

Ah, birthdays!  GlobeSt.com is 10 this year!  And, what changes GlobeSt.com has seen across so many facets of commercial real estate in those 10 years.

In that short time, many changes have taken place in the tenant representation and corporate advisory business that will likely have a permanent impact on how transactions are done…one way or another.

Creditworthiness

For as long as I can remember, it has been a common practice for commercial landlords to demand proof of financial worthiness from prospective tenants before finalizing any transaction.  Based on available information, landlords calculated risk and set rents, terms, and security deposit requirements, and decided if they chose to do business with tenants on the basis of the financial strength of those tenants. Landlords were clearly in the driver seat.  Oh, how times have changed!

Now, tenants demand and most often receive proof of landlords’ financial worth.  And, with such prominent fear by tenants that in the current economy, landlords could lose their buildings, in turn causing tenants’ rights to be diminished or lost, more and more tenants now assess landlords’ financial condition prior to engaging in lease transactions with them.

Will the Landlord Be Around in the Future?

It used to be assumed that, despite lengthy contracts, a certain element of professional relationship was always part of any lease transaction.  In many cases, tenants could rely on their landlords for certain elements of their occupancy experiences that were not written into any lease.  But, now the potential for buildings being foreclosed upon is highly increased, and in prior years when markets were hot, buildings were sold and then sold again, often in relatively short time periods.  Even today, in some markets, with prices as low as they’ve been, many buildings are trading hands.

Accordingly, tenants can no longer assume that the landlord with whom they negotiate their lease will be the same one with whom they might negotiate again if, at the expiration of that lease, they seek to renew it. Tenants must negotiate leases with the expectation that another landlord will be in-place, and that little likelihood of a relationship on which they can count, will exist.

Prices Are Low, But…

In the current market cycle, some tenants find themselves faced with an unusual combination of lower rents, but little available landlord funds, and the necessity for tenants to fund their own improvements and transaction costs. With companies seeking to preserve cash, this makes transactions challenging.

No Takers

At the present time, when companies have sought to reduce and contain costs by disposing of surplus assets and by paring down liabilities, commercial tenants see almost no market for sublease space.  In some markets, there exists no price at which such space can be subleased, because there simply exists no demand.

Lease Renegotiations

Lease renegotiation transactions have been around for a long time.  However, they came into vogue in the last three years and became the transaction of choice, as a means of generating opportunity for both landlord (usually by extended lease terms in years) and for tenants (most often including lower occupancy costs, surplus space relinquishment, and improved terms).  It may be true that in the U.S. more leases have been renegotiated and restructured in the last three years than new leases have been completed.  Many in the industry expect lease renegotiations to remain a standard transaction opportunity for both landlords and tenants, even after market conditions come back into balance.

Times, they have changed.  They’ve been both exciting and interesting. Here’s to even more exciting and changes times!

 

 

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. Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

###

Dear Mr. Landlord: We Both Know You’d Rather Deal Directly with the Tenant! Part Three

Q&A on Tenant Representation with a Commercial Landlord
Part Three of a Three Part Post

Most commercial landlords understand the role of tenant representation brokers and welcome the benefits they derive when tenant representation brokers properly educate and advise their tenant clients.  However, some landlords, mostly old-school die-hards, continue to maintain very negative views of all things about the tenant representation process.   Some actually get offended by the very idea of a tenant representation broker.   Offended!?  What’s that about?

In a recent Q&A conducted via email with a prominent commercial landlord, I had the opportunity to hold a completely frank and open discussion about his views about tenant representation brokers.  And, while some of the conversation was challenging at times, both of us came away having learned from each other.

I invited the commercial landlord to provide me with his views on tenant representation, tenant representatives, and how he’d prefer to conduct the business of leasing his properties.  The conversation got so good, that it took me three posts to include it all.  Be sure to go back and read Parts One and Two!  Following is Part Three of that dialogue:

Read Part One and Part Two of this three part post.

7. Landlord: I wish tenant representative brokers would….

A) Present complete information on ALL tenant requirements at their first communication with me

RealStrat’s Response: Do you present all of your requirements at your first communication with tenant representatives?  Of course not!  While most tenant  representatives strive to provide complete information, so that landlords can make informed and intelligent decisions, sometimes complete information is unavailable.  In other instances, certain information may be confidential or may change over time as a result of landlord responses, negotiations, or changes in the objectives and needs of tenants.   So, providing ALL information at the first communication, while a preferable approach, may not always be possible.

B) Permit landlords and tenants to negotiate directly

RealStrat’s Response: Depending on many moving parts, including issues of confidentiality, tenant preferences, landlord’s style, and more, permitting direct negotiations may not be beneficial to tenants or to the transaction.

C) Not grandstand

RealStrat’s Response: Absolutely!  Frankly,  no one likes a show off!

D) Make the overall transaction process easier for the landlord

RealStrat’s Response: Unfortunately, while no one should intentionally make a transaction unnecessarily challenging, the demands made to the tenant representative by its client may have the unintentional result of creating challenges for the landlord.  And, since the tenant representative’s job is protect the interests of the tenant, making things easier for the landlord may not be on the tenant’s agenda.

E) Communicate thoroughly, more often, and in greater detail

RealStrat’s Response: A tenant representative should absolutely communicate effectively to landlords, especially when asking that landlord to be responsive and expend time and resources in an effort to complete a transaction.  However, in protecting their tenant’s interests, tenant representatives may not be able to communicate in a manner always preferred by landlords.

F) Hurry the hell up!  Tenant representatives often take too long and drag out the process.  Either make a deal with me or let me move on to a real prospect!

RealStrat’s Response: You’re certainly right about that!  Sometimes, transactions feel like they take forever.  But, in many instances, tenant representatives and their tenants must contend with changing business tides and the resulting impact on the tenant’s real estate requirements.  Additionally, based on how you and other landlords negotiate, the outcome of the transaction, and the tenant’s preferences as to where and how it will make a deal, in many cases, is not known until closer to the end of the negotiation process.

G) No longer exist (I had to! Just kidding)

RealStrat’s Response: Ha! Ha!  Landlords, tenants, and tenant representatives maintain a peculiar set of relationships.  Tenants and tenant representatives each have the kind of relationship with landlords that makes them dependent opponents.   Even with their bumps and potholes, the relationships work, and they result in profits and success for all involved.  As the world changes, so will the roles and relationships of these three parties.  Tenant representatives, the direct value they create for their tenant clients, along with the indirect value landlords derive from their presence, will likely be around for a long time.

Mr.  Landlord, thanks for being open about your beliefs and your concerns, and for being a good sport about this sensitive topic.  I hope that my replies helped you as much as your comments helped me.

Read Part One and Part Two of this three part post.


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. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

###

Dear Mr. Landlord: We Both Know You’d Rather Deal Directly with the Tenant! Part Two

Q&A on Tenant Representation with a Commercial Landlord
Part Two of a Three Part Post

Most commercial landlords understand the role of tenant representation brokers and welcome the benefits they derive when tenant representation brokers properly educate and advise their tenant clients.  However, some landlords, mostly old-school die-hards, continue to maintain very negative views of all things about the tenant representation process.   Some actually get offended by the very idea of a tenant representation broker.   Offended!?  What’s that about?

In a recent Q&A conducted via email with a prominent commercial landlord, I had the opportunity to hold a completely frank and open discussion about his views about tenant representation brokers.  And, while some of the conversation was challenging at times, both of us came away having learned from each other.

I invited the commercial landlord to provide me with his views on tenant representation, tenant representatives, and how he’d prefer to conduct the business of leasing his properties.  The conversation got so good, that it took me three posts to include it all.  Be sure to go back and read Part One, and then check-in again next week to read Part Three!  Following is Part Two of that dialogue:

Read Part One of this three part post

5. Landlord: I have to put up all the cash and take all the risk!  I don’t appreciate that tenant representatives won’t share my risk.

RealStrat’s Response: Tenant representatives are well aware of the many challenges that landlords face, especially in the current economic environment.  A large part of what landlords must contend with is how they can effectively manage their risk.  Landlords bear a lot of risk in leasing transactions, and in most everything they do.  However, with risk comes the potential for upside reward.

Tenant representatives, and brokers in general, are also in the risk / reward business, but only to the extent of investments of their time and resources prior to, and during, the execution of a transaction.   Brokers pursue tenants and bear the risk of not winning those assignments.  Then after being engaged, brokers risk that their tenants might not complete transactions that would yield compensation commensurate with the broker’s investment of time, resources, and risk.

Beyond that, specifically after landlords and tenants execute transactions, brokers are not in the business of managing the same risks as landlords.  Nor are brokers entitled to the same upside rewards as landlords, including equity and portfolio appreciation, tax advantages, debt and equity financing, and more.

So, regarding compensation and risk participation, like every industry, landlords and tenant representatives bear their own risks.  When engaged in transactions, tenant representatives are not participants in landlord’s risk (nor in landlord’s upside benefits) for very simple reasons, because participating in landlord risk would:

A) Align the interests of tenant representatives with that of landlords, which would pose a clear conflict-of-interest in relation to tenant representatives’ obligation to act solely in the best interests of their tenant clients.

B) Unfairly affect the compensation of tenant representatives by virtue of their acceptance of landlords’ risk without the benefit of the quid pro quo associated with the upside opportunity afforded landlords.  Again, if such upside were provided to tenant representatives, it could align tenant representatives and landlords posing  conflicts-of-interest between tenant representatives and tenants.

C) Unfairly force tenant representatives into a compensation model other than that of generating fees

D) Place tenant representatives in the position of acting as guarantor of their tenants’ ability to perform under their leases

None of the above fit into the tenant representation model too well.  Frankly, landlords and tenant representatives have their own risks which should be kept separate from each other and from those of tenant representatives.

6. Landlord: It is wrong that tenant representatives want to be paid up front when I don’t know if the tenant will uphold its lease obligations or pay its rent, especially after I put up all the transaction costs and have to wait until all the free rent expires.

RealStrat’s Response: This is a similar discussion to the one above about risk.  Waiting for an extended time period before getting paid creates real challenges.  As tenant representatives, we completely understand that.  Remember, that it typically takes three to nine months for landlords and tenants to complete  transactions, plus many months or even years for tenant representatives to build relationships and win a tenant’s business.   So, by the time tenants close their deals, tenant representatives have typically been working without compensation for at least a year, and in many cases, longer.

But, let’s get to the real issue of the relationship between a tenant representative’s service and its compensation.  When a landlord and tenant execute a transaction, as far as the landlord is concerned, the job of the tenant representative is done.  After that, it’s then up to the landlord and tenant to perform their obligations under the terms of the lease they executed.

Prior to executing a lease with a tenant, one would expect that a professional landlord would have assessed the tenant’s creditworthiness, and determined whether the tenant was an acceptable risk and whether or not the landlord should even conduct business with the tenant.  During the lease term, it is the tenant’s responsibility to make rent payments on a continual and timely basis and follow the rules defined in the lease.  If either the landlord made a bad assessment (or, didn’t conduct one), or the tenant fails to perform, neither of the above are controllable by, nor the responsibility of, the tenant representative.  Accordingly, tenant representatives are not in the tenant credit guarantee business.

Like the plumber who installs a sink in your home, if you select the sink because you’re satisfied with its quality and then you pay the plumber because you’re satisfied with his installation, if the sink fails because it was manufactured poorly or it cannot perform the way the manufacturer said it would, then you should pursue the manufacturer, not the installer, unless of course the installer provides you with a written guarantee for the product, too.  Few commercial real estate brokers are in a legitimate position to guarantee a tenant’s performance under a lease.

And, NO! Mr. Landlord, you should not rely on claims made by a tenant representative as to a tenant’s creditworthiness.   Neither should tenant representatives make such claims.   Do your own homework and protect yourself from unnecessary risk.  If you foolishly rely on anyone to ascertain a company’s creditworthiness, especially one who is not qualified to make such a determination, then you deserve the added risk and the consequences.

Remember that plumbers don’t accept payment each time you turn on the water, because they don’t usually guarantee the manufacturer’s product, only their own work.  Correspondingly, tenant representatives don’t guarantee the ability of tenants to perform their lease obligations, only their own work.  If you’re not satisfied with the tenant representative’s work (remember that they represent the tenant!), then address that before completing the transaction (don’t do the deal!), not after the tenant defaults.  So, when the plumber and the tenant representative have completed their duties, they both expect to be paid in-full without the risks associated with accepting payments over time, tenant default or sink failure, or otherwise.

Choose any analogy you wish.  If you buy a new car and it doesn’t work, the manufacturer must stand behind it.  You don’t get to take back the dealer’s compensation.

Read Part One now.  Stop by next week to read Part Three of this three-part post.


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. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.  Follow RealStrat at http://www.Twitter.com/RealStrat.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

###

Dear Mr. Landlord: We Both Know You’d Rather Deal Directly with the Tenant! Part One

Q&A on Tenant Representation with a Commercial Landlord
Part One of a Three Part Post

Most commercial landlords understand the role of tenant representation brokers and welcome the benefits they derive when tenant representation brokers properly educate and advise their tenant clients.  However, some landlords, mostly old-school diehards, continue to maintain very negative views of all things about the tenant representation process.   Some actually get offended by the very idea of a tenant representation broker.   Offended!?  What’s that about?

In a recent Q&A conducted via email with a prominent commercial landlord, I had the opportunity to hold a completely frank and open discussion about his views about tenant representation brokers.  And, while some of the conversation was challenging at times, both of us came away having learned from each other.

I invited the commercial landlord to provide me with his views on tenant representation, tenant representatives, and how he’d prefer to conduct the business of leasing his properties.  The conversation got so good, that it took me three posts to include it all.  Be sure to read all three posts over the next three weeks!  Following is Part One that dialogue:

1. Landlord: I would prefer to deal directly with tenants and to apply my creative deal making abilities to solve their problems, without having to work through tenant representatives.

RealStrat’s Response: In a world where transparency, disclosure, conflict-of-interest, and Sarbanes-Oxley are commonplace, for all but a few companies, it would be next to impossible for them to rely on recommendations made by transactional opponents, without having the benefit of advice and representation from third-party advisors whose job would be to protect their interests.

Additionally, professional landlords recognize the benefits of dealing with tenants who have been educated as to market conditions and properly prepared by their advisers, especially when those tenants are organized, ready, and perhaps pre-approved to make a deal.

2. Landlord: I view tenant representatives as obstacles.

RealStrat’s Response: Guess what? That’s precisely why many tenants engage tenant representatives (also known as corporate advisors).  To state the obvious, landlords benefit from higher rents, lower allowances and incentives provided to tenants, and more square feet leased for longer terms.  Tenants benefit from lower rents, higher allowances and incentives provided by landlords, the right amount of square feet and a length of term that best supports their business objectives.  Given the opposing position between landlords and tenants,  tenants see one of the many important roles of their advisors is that of a knowledgeable gatekeeper, and at times, and somewhat of an obstacle to keep the landlord from going in the wrong direction.

3. Landlord: Tenant representatives make deals more complicated.

RealStrat’s Response: Many tenants have complex business requirements that demand creative solutions. When it comes to satisfying a tenant’s operational or financial objectives, keeping it simple…the right approach in many instances…may not always be possible.

4. Landlord: I don’t like paying commissions to brokers who don’t represent me and who negotiate against me.

RealStrat’s Response: That’s interesting, because actually, tenant representatives would prefer not to be paid by their clients’ opponents.  Receiving payment from a landlord when representing a tenant makes things very complicated for tenant representative brokers.  Few industries handle compensation in a manner similar to that of commercial real estate, where the tenant’s advisor is most often paid by the landlord, the tenant’s transactional opponent.  By changing industry compensation practices, this challenge could be eliminated.  Because it remains the norm, most tenants prefer that landlords bear this responsibility.  So, until that change occurs, landlords and tenant representatives are stuck with each other as it relates to compensation.

Stop by next week to read Part Two of this three-part post.


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. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat at http://www.Twitter.com/RealStrat.

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Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

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10 Reasons Why a Lender Might Cancel a Commercial Tenant’s Lease?

In a recent post, I wrote about the “Dangers of Ignorance” when tenants don’t aggressively seek to understand the financial stability (or, instability) and creditworthiness of prospective landlords  before executing leases.  I wrote about the risks of lenders terminating leases when they take over foreclosed or bankrupt buildings. It is a widely held misconception, and frankly a dangerous and naive one, that when taking over buildings lenders won’t terminate commercial leases.  Think so?  Read on.

How many times have I heard this:

“If the landlord goes bankrupt, the building can’t go anywhere…we’ll still have our space and we’ll be able to do business!” 

Actually, while a foreclosed building won’t likely pick up and move, a company’s lease actually could go away.  Very often, when lenders seize buildings in financial distress through bankruptcy, foreclosure, deed-in-lieu-of-foreclosure, or by other means, they often have no obligation to recognize tenants or their leases, and can take a number of steps that may not be in tenants’ best interests.

When taking over buildings, lenders can very often terminate leases; increase, decrease, or change the spaces associated with certain leases; change rents and other lease terms; and a lot more.  When they are able to terminate leases, lenders are typically not required to recognize options, rights, or other hard-won protections tenants may have secured from the previous building owner.  Moreover, when terminating leases, lenders have no obligation to reimburse tenants for leasehold improvements that they’ve installed in their space at their own expense, relocation costs, business interruption, or otherwise.

Here’s another doozy: 

“No lender will terminate our lease in this economy.  Our rent will be too important to them!  So, we’re safe!”  What a naive perspective!

There are multiple reasons why a lender might terminate a lease, even in the current economy.  Here are a few:

 1. The tenant’s rent is under market

2. The lease contains options or rights that could impede future leasing efforts

3. The terms of the lease are not favorable to future landlords (possible purchasers of the building)

4. The lease term is too short to positively impact value

5. The tenant occupies too much of the building, thereby making the building a potentially unstable or unattractive investment

6. The tenant’s creditworthiness is too risky

7. The tenant’s use of the building doesn’t support that which could optimize the building’s value

8. The tenant’s space is an obstacle to a more important tenant’s growth

9. The lender sees greater value in making entire floors available

10. The lender seeks to empty the building and offer it for lease or sale on a completely vacant basis, because it might yield greater value to a single owner or tenant, or because the lender plans to convert the building to some alternative use

Are there other reasons?

“But, we got a non-disturbance agreement when we signed the lease.  So, we’re safe, aren’t we?” 

Are you?  Did you secure a non-disturbance agreement or just a promise from the landlord that it would provide one?  Did you actually receive it?  If the lenders changed in your building during your lease term, did you obtain a new non-disturbance from the new lender?  Was the landlord obligated to provide a non-disturbance from the original lender AND all future lenders? 

Like any written document, the terms of a non-disturbance agreement may not be sufficiently strong to protect a tenant against the actions that a lender may be permitted under the law.  And, not every tenant gets a non-disturbance agreement!  In fact, in most buildings, only the largest tenants (typically measured by company size  or square feet), or the most important tenants are usually successful in securing non-disturbance agreements.  Those tenants without non-disturbance agreements can be at significant risk of having their leases terminated by a lender that takes over their building.

What’s a tenant to do?  Tenants should consult their attorneys to review their leases and non-disturbance agreements.  They would be well advised to ask their real estate advisors to find out what’s going on with their buildings and their landlords.  Taking steps now to protect a company’s flank before it’s too late would be a wise move…especially, in the current economy! 

What are your thoughts?  Have you been through a lender lease termination?  How did it work out?

Follow me at http://twitter.com/RealStrat

Where is Andrew Zezas?

 

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

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THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED AND REPRESENTS THE OPINION OF THE AUTHOR. HOWEVER, IT IS PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR IS NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR SPECIFICALLY AND EXPRESSLY DISCLAIMS ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.
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