Hire Us to Represent Your Property Because We Represent So Many Other Buildings!

“Hire us to represent your property, because we represent so many other buildings…and, we can tell about all of the leads at those buildings…to help you lease or sell your building quicker!”

In this day and age, when transparency and conflict avoidance are top of mind of almost every corporate executive, I am amazed that some commercial real estate brokers still use this tired and lame approach when soliciting property representation engagements.  What is truly amazing is, that given the above, some property owners still buy this line of trash!

Some brokers actually tell property owners that they should hire those brokers because the brokers represent a lot of other buildings and will share with them the leads that the receive on those other buildings.  That is a very common pitch!  Those brokers make claims like:

• You’ll have our complete attention (How is that possible?)
• Because we represent so many buildings in the local market, we see every tenant (Will you share my leads with other landlords?)
• We’ll tell you everything that’s going on in the market (Will your other clients mind?)
• Sign with us, and you’ll have a greater chance of making more deals (More or fewer deals?)

So, let me understand this:  Some property owners are actually comfortable not receiving true representation, the kind of aggressive and objective expertise designed to protect their interests, beat their competition, and help them succeed…the kind of service to which the broker representation agreements the sign actually entitle them?

Instead, they’re ok with their buildings being thrown into a large pool, so when a tenant jumps into that pool, if the property owners’ lucky number just happens to pop up, or if the broker overseeing that pool decides it’s that property owner’s turn, only then would they get a shot at that deal?  Is that really what they’re signing up for?

Do these property owners recognize that while they’re enjoying the supposed benefits of so many more leads that come from throwing their buildings into that very large pool, that some buildings or property owners will drown?  Do they think that brokers offering this service will favor them, and that all of the other property owners who were promised the same access to “all of the leads” won’t be clamoring for the same tenants?

Have these property owners considered that while they’re feeding on all of those supposed leads generated for them by all of those other buildings, that leads for tenants or buyers who may be sincerely interested in their buildings, will also be thrown into that pool, thereby possibly diminishing their likelihood of success?  Do they see that those tenants and buyers may be pulled from that pool and rescued by some other property owner at another building?

Is this true representation?  Isn’t this approach a blatant conflict of interest?  Do many property owners actually accept this approach?  Do the best brokers offer something better?

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

For additional profiles, pictures, and more click here or go to http://realstratnews.wordpress.com/media-information/.

Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.

###

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 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

For additional profiles, pictures, and more click here or go to http://realstratnews.wordpress.com/media-information/.

Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.

###

Let’s Put The Landlord in the Poor House, and Other Stupid Statements

How many times have I heard commercial tenants say “I don’t care about the landlord!”?  That’s pretty dumb (and, right up there with landlords who don’t care about their tenants!).  Why wouldn’t a tenant care about the business entity that is responsible for the very foundation (literally, the foundation of the building!), that supports their ability to efficiently and profitably conduct business on a daily basis? 

The role of a tenant advisor is to determine the optimal achievable transaction structure on the tenant’s behalf, advise the tenant as to how it can achieve those terms, and to execute its tenant’s preferred transactions. But, even halfway decent advisors recognize that in order to accomplish this, they must first understand the objectives, risks, and challenges of landlords. 

Understanding your opponent in any contest is the foundation of victory.  Too many unqualified or ill prepared real estate licensees (I use that term here to differentiate this subset of the industry from those who really know what they’re doing!), run their tenants headlong into real estate transactions without really knowing where to go.  These brokers are often long on salesmanship (and telemarketing skills), short on precise knowledge, and even shorter on true expertise. 

Tenants who take a ‘Let’s grab every dime we can!” attitude can shoot themselves in the foot as they either drive the landlord so far that it refuses to enter into a transaction, or jockey the landlord into position such that he / she agrees to bad terms in the hopes of making-up the difference on the next lease, only to put the building in financial jeopardy.  That’s not the best way to protect a tenant’s interests! 

Tenants rarely need every possible right and option under the sun, so that they tie the landlord’s hands and restrict its ability to lease the rest of the space in the building.  Tenants do need leases that provide favorable terms, flexibility, low and predictable costs, with no surprises.  They also require financially sound landlords who can and will provide the services to which they commit. 

Tenants don’t need to put landlords in the poor house.  These days, doing that is a lot easier to accomplish, especially if tenants and their brokers aren’t careful.  Writing as a tenant advocate, landlords need the ability to stay in business, pay their mortgages, refinance their buildings, provide services to tenants, manage risk, sustain their own companies, and “Yes”, generate profits, whether those profits come now or later. 

Mounting a well-planned, well-armed negotiation with commercial landlords requires knowledge, resources, and skill.  Never “bring a knife to a gun fight” as they say.  Commercial landlords can be some of the most well trained, well armed, and aggressive fighters on the business battlefield, and many of them have some pretty big guns.  Accordingly, tenants would be well advised to bring tanks, jet fighters, and battleships, or at least a missle or two when negotiating with certain landlords! 

The special challenge in a successful negotiation, for both tenants and their advisors, is to determine in advance those terms that the tenant really needs to achieve its objectives and to negotiate aggressively to succeed in securing the right terms, while being mindful of keeping their landlord in business.  This is a wise approach, even when dealing with one of those few remaining landlords that doesn’t have a sense of fair play, could care less about the tenant, and is too plain greedy and self-absorbed to recognize the tenant’s good efforts and the true interdependent relationship that, when respected, gives tenants and landlords what they both need…the tools to succeed and prosper.

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.

Acquire new ideas about commercial real estate at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat.

Check out The Executive’s Guide to Understanding Corporate Real Estate Transactions.

Where is Andrew Zezas?

 

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved. 

###

Do Commissions Create Conflicts for Tenant Representative Brokers?

Traditional real estate commissions, based on a percentage of rental income or sale value of a transaction, work very well when brokers represent landlords, sublandlords, and sellers.  In those instances, their objectives and those of their brokers, are completely aligned.  The higher the price, the higher the commission.  See…that works perfectly!

But, what about the tenant representative broker and the corporate advisor, whose job is to protect the interests of the tenant or buyer?  In this case, the primary objective of the tenant representative broker is very often to reduce occupancy costs.  In most cases, tenant representative brokers are paid commissions based on the same percentage of rent standard as  brokers representing landlords and sellers…the higher the price, the higher the commission!

Does that work?  Is that right?  Don’t traditional commissions based on percentages put the tenant representative broker in a position of being in conflict with his / her own client?   Moreover, since most commissions are paid by the landlord, even those payable to the tenant representative broker, doesn’t that pose additional conflicts for the tenant and tenant representative broker relationship?  Afterall, doesn’t being the one who pays the tenant representative broker  give the landlord undue influence over the how the tenant representative broker might perform on behalf of his / her client?

In many instances, commissions paid to tenant representatives can be substantial.  Despite the ability to mitigate the potential for conflicts of interest, tenants are very often hesitant to accept the responsibility of cutting a check for large sums, especially when they haven’t done so in previous transactions.

Rent and other financial components are not the only points of commercial real estate transactions that tenant representative brokers address.  Given that fact, how can they charge for the true value they create in a manner that is both aligned with the objectives of their tenants and will result in fair compensation to them?   Any thoughts?

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.

Acquire new ideas about commercial real estate at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat.

Check out The Executive’s Guide to Understanding Corporate Real Estate Transactions.

Where is Andrew Zezas?

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved. 

###

Is a Lease Renewal Really a ‘Renewal’ Any More?

Do any companies really just exercise lease renewal options any more?  Don’t most companies negotiate to modify the terms contained in their lease renewal options?  Doesn’t that mean that lease renewals aren’t really ‘renewals’  but, instead are new deals? 

In a recent blog post I asked the question “Do Tenants Really Need Brokers When Negotiating Lease Renewals?”.  When we posted that question in a Corporate Real Estate Group on LinkedIn, a discussion began where numerous brokers, landlords, attorneys, and tenants from around the world added their thoughts.  One particular real estate professional very clearly exclaimed that there is no longer any such thing as a renewal. That made a lot of sense to me because for many years, I’ve viewed renewal options as nothing more than providing tenants with an extra element of future control over their premises.  In almost every transaction in which I’ve been involved where a tenant contemplated remaining in its premises beyond the initial expiration date, instead of exercising renewal options, those companies negotiated new terms.  So, those transactions weren’t “renewals” at all, but were actually new deals with new terms.

What is a renewal?  A renewal is when the previous terms of a lease are… renewed…when a tenant and landlord apply the same terms of a previous lease to a new term.  Except, for years, in almost every renewal clause  certain terms, like rent, almost always change.  So, since rents change, then renewals aren’t REALLY renewals anyway, right?  They’re renewals with changes…new deals!  

Even the kind of renewal where only the rent changes rarely occurs anymore.  In fact, I cannot remember when any of my clients simply sent a letter to their landlord “renewing” their lease. 

Let’s face it…companies that occupy real estate change.  Their employees change in type, function, experience, skill, quantity.  The way they conduct business, the type of businesses they’re in, and so much more, often changes over the 5 or 10 years that they occupy space under a typical lease.  So, it makes sense that their real estate needs will change, too.  That’s why few companies just exercise renewal options anymore. 

Prudence demands that companies examine their operational and financial needs before making major decisions like those about real estate.  Moreover, transparency and disclosure expectations of stakeholders, Boards, and senior management force companies to consider competitive alternatives, examine market availabilities, and secure terms that best suit their businesses in the present day.  Few executives would describe good business practice as automatically entering into real estate transactions on terms created five or ten years earlier, instead of based on their current and anticipated future requirements.

So, are renewal transactions really “renewals” anymore?  Not really!

Please tell me your thoughts on this.

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.

Acquire new ideas about commercial real estate at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat.

Check out The Executive’s Guide to Understanding Corporate Real Estate Transactions.

Where is Andrew Zezas?

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved. 

###

I Guess Tenants Really DO Need Brokers When Negotiating Renewals!!!

The overwhelming results are in!  Tenants, tenant representative brokers, landlords, landlord brokers, and real estate attorneys from the United States, Canada, Australia, the United Kingdom, and elsewhere, responded to my recent blog post, entitled “Do Tenants Really Need Brokers When Negotiating Lease Renewals?”  We posted that title as a question in a Corporate Real Estate Group discussion forum in LinkedIn and received tremendous feedback every day for almost two weeks!   

Not one single respondent said that tenants couldn’t benefit by engaging brokers, consultants, or advisors when negotiating renewals…not even the landlords!  One landlord responded, saying ” Bring them on! I love doing renewal deals with tenants when they’re not properly represented!” indicating that he exercises greater negotiating leverage and achieves more favorable results for his company when tenants are not represented by brokers in renewal transactions. 

I found some of the quotes to be very telling: 

• Paul Wyne:  “As a past director of real estate, I renewed over 40 leases.  One of my goals was to make each lease contemporary.  In 90% of the renewals, we achieved modifications”
  
• Bradley Siegel, Esq.:  “As a lawyer, I recommend that tenants get representation as a way to level the playing field.  I represent both landlords and tenants, and was the in-house General Counsel to a major NYC landlord for many years”
  
• Aaron Weiner, CPM, CCIM, LEED AP:   “In the US (I have done deals in 33 states), it is a given that the landlord pays both brokers, usually through a provision that the listing broker pays out of a standard commission; therefore, the landlord does not pay more if the tenant is represented”
  
• Mike Giles:   “I don’t believe I’ve ever seen a tenant just automatically renew its lease without negotiating, unless there was an auto-renewal clause and they missed a notice deadline”
  
• Gary Wells:  “If one is relying on lease comparables to negotiate their transaction, they are probably months behind the market trend. Current market conditions, trends and nuances can only be understood by being “on the street”
  
• Craig Trbovich:  “Even if you have real estate and contract experience, current market knowledge that will be invaluable.  And being in the trenches every day is the only way to be current”
   

Other readers offered these comments:

• “Tenants often only see the rent as the headline cost and don’t appreciate the associated savings to be made through reviewing operating costs, insurance, etc.”
  
• “Is it just coincidence that many landlords tell their existing tenants NOT to retain brokers – that they’ll “end up paying more”?   Additionally, a lease renewal should never be just about the rent – and the corporate executive who just focuses on that is probably missing the boat on other important considerations”
  
• “We renegotiate many key points in each lease, allowing for buyouts, terminations, removal of guaranty, etc.”
  
• “I represent both Tenant’s and Landlord’s.  One would be crazy not to have tenant representation on a renewal!”
  
• “In renewal transactions, with the tenant hiring a broker, the cards are stacked all in the landlord’s favor.  When a tenant hires a broker it tells the landlord that the tenant is serious about its renewal and that the landlord will have to treat the tenant fairly”
  
• “The tenant is ceding to the landlord an incredible amount of leverage not to have a tenant rep broker involved in the transaction”
  
• “As a property manager on the landlord’s side, I prefer working with a broker.  To me, some of the toughest deals we do are renewals, and having a broker, even on the tenant’s side gets the deal done”
  
• “…negotiating a renewal gives the tenant an opportunity to renegotiate any risky language which may have been overlooked in the original lease”
• “As an in-house corporate real estate department manager I can attest to the benefits of broker representation during renewals.  It is about more than securing a low rent, but it is also about best all around deal the best all around deal, streamlining the process, and making sure the information is always presented the way the tenant needs”  
  
• “Extensions and renewal options should never be treated as simple extensions of the existing lease.  They should be thoroughly negotiated with new lease terms reflecting today’s economic realities, current market valuations supported by site specific market data, and new priorities of the tenant’s business” 

Most companies will go through significant operational and / or financial change between the time they first negotiate their lease and the time their lease will come up for renewal.  As a result, most companies typically negotiate to modify their lease terms before extending their lease.  

The punchline?  Unless a tenant has truly qualified internal real estate resources and a keen understanding of lease transactions and structure, along with access to timely local market intelligence, the overwhelming majority of respondents strongly believe that “Tenants DO Need Brokers When Negotiating Renewals!” 

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. 

Acquire new ideas about commercial real estate at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat. 

Check out The Executive’s Guide to Understanding Corporate Real Estate Transactions. 

Where is Andrew Zezas? 

  

  

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.  

### 

Do Tenants Really Need Brokers When Negotiating Lease Renewals?

Do Tenants Really Need Brokers When Negotiating Lease Renewals?  Short answer?  OF COURSE THEY DO!  

Less sophisticated landlords have difficulty with the concept that a tenant, a company who has occupied space in a landlord’s building for 3, 5, or maybe even 10 years, would wish to engage a commercial real estate broker when it comes time to renew their lease, expand, or engage in some other transaction.  

So, riddle me this:  How is a renewal transaction so different from an initial transaction, such that in a renewal the tenant would not require the same intelligence, market and transaction knowledge, experience and expertise that can be provided by a tenant advisor?  Especially, nowadays, when corporate executives are held to very high standards of ethics, transparency, and disclosure, when boards of directors and other stakeholders demand that companies seek the best alternative transactions and select only those that are most beneficial, how could any company agree to renew a real estate lease without being properly advised by a qualified third-party professional?   

Don’t lease renewal transactions contain the same components as initial leases?  Don’t decisions have to be made about important questions like: 

• How much square feet does the tenant really need? 
• What kind or configuration of space in what location would best serve the tenant’s business needs? 
• Will the tenant’s space need to be modified to support changing business criteria? 
• How much will interior improvements cost and who should pay for them? 
• Should the tenant secure expansion or consolidation rights? 
• Are other rights or options required? 
• How will operating expenses and real estate taxes be addressed? 
• What length of term would provide the tenant with the right balance of cost, flexibility, and overall value? 
• What is the optimal rental structure that would support the tenant’s needs? 
• How might free rent play into renewal negotiations? 
• What other concessions and incentives should the tenant seek? 
• How will competitive market conditions affect negotiations and the terms the tenant could ultimately achieve? 
• What is the building’s real occupancy and vacancy ratio?  How does that stack-up against other comparable buildings? 
• How has the building’s tenant mix evolved during the initial term, and how might that affect the tenant if it renews? 
• What is the financial condition of the building and its landlord? 
• How seriously should the tenant consider relocating to other buildings?

 ….and, that’s just the beginning!

So, do tenants require the same expertise and insight when contemplating lease renewal vs. relocation?  You bet?  Is it in the landlord’s best interest to circumvent the tenant’s real estate representative and attempt to deal directly with the tenant?  Not really.  Most corporations prefer to be objectively advised by a service provider whose role is to protect the interests of the corporation.  And, frankly, a landlord who will profit from a transaction with a tenant just can’t do that.  Moreover, when a landlord attempts to by-pass tenant’s real estate advisor, tenants don’t appreciate it and often view that landlord negatively. 

What do you think?

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.

Acquire new ideas about commercial real estate at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat.

Check out The Executive’s Guide to Understanding Corporate Real Estate Transactions.

Where is Andrew Zezas?

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?

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

Visit Real Estate Strategies Corporation at www.RealStrat.com

Check out the CFO’s Guide to Understanding Corporate Real Estate Transactions at www.TheCFOsGuide.com

Where is Andrew Zezas?

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

As the Economy Stabilizes, Will Commercial Real Estate Markets Worsen? Improve? Maybe Worsen?

Amid continued economic challenges experienced by companies;  individual consumers and families;  federal, state, and local governments; and considering the present concerns over destabilized economies in the European Union, the U.S. economy continues to show signs that it may be slowly heading toward stabilization. 

Experts say the recession has bottomed out.  Economists tell us that, technically speaking, it ended over a year ago.

 

Really Good News

Treasury Secretary Timothy Geithner, on NBC’s Meet the Press, recently said the economy is growing faster than the Obama administration expected.

At a recent meeting in New Jersey of Financial Executives International (“FEI”), Robert DiClemente, U.S. Economist at Citigroup said:

• “We’re finally seeing job growth!”
• “200k to 300k job losses to 125k new jobs in the month of March”
• “44% of people who are unemployed have been out of work for at least six months”

In fact, in May 410,000 jobs were created across the United States!  A lot of other very positive news is consistently being delivered.

Some retailers are reporting marked increases in revenue and are beginning to increase inventories, with manufacturers getting in gear to support them.  In certain industries,  executives are going back to work.  Logistics and shipping industries report steady increases in orders.  Other industries are reporting consistent month over month revenue gains…not huges gains, but increasing nonetheless.

New housing starts have been up across the country.  In certain areas, like Manhattan, residential sales are on the upswing.  And, New York City commercial real estate leasing and sale transactions are purported to be picking up speed at a pace that caused GlobeSt.com, the commercial real estate information source, to recently report that “Leasing activity and investment sales across Manhattan are up sharply year-over-year…”

In commercial real estate investing, capital and credit have begun to loosen a bit, despite word of recent pull-backs by some east coast community banks.  More buyers and sellers of commercial properties appear to be going to contract.  An increasing number of sale transactions are beginning to close.  Transactions are beginning to occur both in traditional buyer / seller transactions, and as a result of banks seeking to sell both foreclosed properties and those that they’ve taken back through other actions.

 

Continued Challenges Call for Cautious Optimism

Despite the good news above, could negative events derail a recovery?  Banks selling commercial properties at discounts to market could cause real estate markets to gain ground through increased transaction volume and lending activity, while creating a further decline in already significantly depressed values.

With commercial real estate lenders seeking to off-load foreclosed properties, investors are making very aggressive, low-cost bids.  In more than a few cases, banks are acquiescing to such offers in the interest of moving those properties out of their defaulted loan portfolios.  The market expects this trend to continue.

So, as the volume of foreclosed sale transactions increases, the overall value of commercial real estate, negatively impacted by properties sold by lenders at significant discounts, will likely continue to decline…at least, for a while.  

So, at the same time, commercial real estate markets could experience increases in sale transactions with declines in value.  It is reasonable to assume that as bank pipelines of foreclosed properties empty and the volume of low-priced lender inspired transactions subsides, prices would then stabilize and begin to rise.  But, when will that happen? 

In a recent television interview, Andrew Florence, President of CoStar, was quoted as saying:  “$1.4 trillion in commercial mortgage debt will expire in the next few years.”

With this much debt expiring and being replaced with mortgages at lower loan-to-value ratios based on lower valuations, how long will it be before commercial real estate prices begin to firm up again?  How many billions of dollars in value could be lost until then? 

Could such significant declines in value create a second wave of unstable properties?  Could this just be a hungry monster that perpetuates its need for greater declines?  Could that next wave cause a stall in other sale activity?  Could it have a greater negative affect on the global economy?

What do you think?

Wishing you much success and profits!

Regards,

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

Visit Real Estate Strategies Corporation at www.RealStrat.com

Check out the Executive’s Guide to Understanding Corporate Real Estate Transactions at www.TheExecutivesGuide.com

Where is Andrew Zezas?

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.