It is amazing that today, some commercial real estate brokers still believe that they and their clients must physically visit every building that might possibly support their clients’ needs. This remains the case in many geographic markets that are over-supplied with millions of square feet of available properties. My gosh! Brokers forcing their tenant clients in and out of 10, 15, 20, or more buildings over an entire day or two, just seems so counter-productive! In fact, it is! Your clients’ time is much too valuable to waste it trudging in and out of building after building. And, frankly, your time is equally valuable. So, why waste so much time?
By showing your clients every available property, are you really providing them great service or are you simply protecting yourself?
With the availability of technology and information at your fingertips, there exists no need to show your clients every property.
For those brokers who have not been appointed the authorized or exclusive representative of the tenant seeking to acquire a building, well, yeah, you do have to visit every property. Because in that capacity, you don’t represent the tenant and you’re not really providing them much service. In most states, your binding fiduciary obligations would be to yourself and/or to the property owners whose buildings you present. So, you have to show every building in order to protect your own interests.
The optimal approach to delivering service to your clients is to be formally engaged, by written agreement, and authorized to represent their real estate interests. As your clients’ authorized representative, you should have a process that permits you to gather information about them and their business needs, so you can gain an understanding of how they wish to acquire and use real estate. Coupled with your knowledge of your local market, you should be able to marry your clients’ needs with those properties that can best accommodate them, and eliminate those properties that don’t apply. If you’re uncertain about whether particular properties would work, you can always provide your clients with a written or electronic report, conduct a desktop review, and together with your client select those that are best suited.
If you’re concerned about covering your tail or losing a commission, for fear that some outside broker may bring an eliminated property to your clients’ attention and that your client may forget that you’ve already presented it, or because you’re concerned that some landlord may attempt to circumvent you, there is an easy solution. Simply provide your client with a list of those properties that you eliminated along with your reasons, and offer to inspect those properties with your client at a later date, if the client wishes to see them.
In this manner, your client’s time and resources will be respected and maximized, your tail will be well covered if you feel it must be, you will provide a better service to your clients, and will drive to conclude their transactions quicker, more effectively, and more profitably for everyone.
So, NO, your clients don’t really need to see every available property!
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.
Hey, commercial real estate brokers? Keep your compensation a secret, even from your own clients. They don’t know how much you make, they’re too dumb to figure it out, and if you don’t bring it up they won’t think about it. NOW, REALLY!
In most commercial real estate leasing transactions, commercial brokers representing tenants receive their compensation in the form of commissions paid by landlords. Yep, that sure sounds like a conflict-of-interest to me! But, unfortunately, that’s the way the industry works.
Guess what?
Your clients can figure out your compensation…and, they will!
Why withhold information from you own client?
When your role is to protect your client’s interests, withholding information that they can easily figure out on their own makes you look stupid and dishonest
Are you obligated to disclose your compensation to your clients? While you may not have any legal obligation to do so, from a moral and ethical perspective, I’m pretty sure the answer is “Yes!”
Whether or not you should disclose your compensation to your clients also begs other questions:
Why would you want to be transparent?
Are you concerned that someone might view your situation as your being over compensated somehow?
Did compensation discussions take place that may have negatively affected your client?
Is something negative going on?
Did you have to do any favors or compromise your position (or that of your client) to secure your compensation?
Were those favors at the expense of your client? Did you disclose them to your client?
What might your client have lost in exchange for the compensation you secured?
Have you compromised your client in any way?
Do any conflicts-of-interest now exist or did they previously exist?
If all you’re doing is getting paid, fairly and adequately, why wouldn’t you disclose your compensation to your client…the one who is the very reason for which you’re able to generate compensation?
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.
So, what happens if you uncover bad news and find out that your company’s landlord isn’t just managing cash flow but, may truly be in danger of losing its building…..the building YOUR COMPANY OCCUPIES?!
Here are 9 Defensive Strategies When Your Landlord May Lose The Building Your Company Leases, that might stave off catastrophe:
1. Buy the building from the landlord (This one may be challenging if your company is a small tenant in a large building)
2. Buy the building’s mortgage from the lender
3. Sublease your space (This strategy may be least effective if the building is experiencing financial hardship, especially in markets with little demand for space)
4. Restructure your lease (Can your company create enough of a financial benefit for itself and its landlord to save the building? What would be the quid pro quo?)
5. Seek self-help (Which services, on which the landlord may default, can your company perform or have performed by other service providers, without placing itself into default of its lease?)
6. Check with your real estate professional (What’s the word on the street?)
7. Check with your attorney (What legal remedies might be available to your company?)
8. If your lease is scheduled to expire, move now….move early (The double rent that your company might pay for a short time period, if it moves to other quarters before its lease expires, may be cheap in comparison to the expenses, lost productivity, and other challenges it might experience if the landlord loses its building)
9. Have a conversation with your landlord to determine what you might work out together
In tumultuous economic times such as these, prudence demands that executives be proactive in understanding the stability and risk associated with the real estate their companies occupy. Advanced planning and a little investigative work, coupled with creative solutions can go a long way to protecting your company’s flank.
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.
As your company seeks to reduce costs and preserve its cash, it is important to keep a careful eye on those other companies that provide services to you that can have a material affect on your ability to conduct business productively, safely, and profitably. Specifically, your company’s landlord could be experiencing financial or other challenges that, if unresolved appropriately, could hinder your company’s ability to enjoy a productive business environment, irrespective of your continued rental payments.
Watch for a number of issues that could signal your landlord is having difficulties, or may be headed for them. They could be signs that your landlord may be in danger of losing its building. While this list is not intended to be complete, some indicators may include:
1. Significant increases in vacancy in your building
2. Increases in vacancy in other buildings where your landlord has an ownership interest
3. Increases in vacancy in neighboring competitive buildings
4. Construction projects that start at your building but, languish unfinished for extended time periods (typically a sign that contractors are not being paid on time or at all)
5. Decline in response time and / or communications for service, maintenance, or repairs (a sign that staff has been cut or is stretched too thin)
6. Increase in equipment and system breakdowns, such as elevators, HVAC systems, etc. (indicates a decline in preventative maintenance, staff cuts, or more)
7. Fewer landlord or management company employees visible on site
8. Decline in security, life and property safety services
9. Consistent lack of consumable items in restrooms and other areas
10. Interior office, common area, or window cleaning occurs less often
11. Trash not disposed of in a timely manner or is stored in basements and other areas
12. Snow not removed from parking lots in a timely manner
13. Landscaping not updated or maintained and / or grass is cut less often
14. General deterioration of the appearance of the building, parking lots, and grounds
15. Reduction of tenant events
16. Deferred capital improvements
17. Preventative maintenance announced or planned but, not implemented
18. Floors, glass, and metal and other interior components not polished or maintained
19. Band-aid repairs being made in place of needed capital replacements
20. Unresolved mechanics liens from contractors and other service providers
21. Real estate taxes delayed or not paid
22. Mortgage payments delayed or not paid
23. Water, utility, or other payments delayed or not paid
24. Increase in unresolved or unpaid fines from the municipality and / or other governmental authorities
25. Substantial and / or unexplained increases in operating expenses and costs of landlord or management company provided services passed on to tenants
26. Landlord making multiple requests for you to sign estoppel certificates or lease summaries (suggests that the landlord may be scrambling for financing or attempting to sell the building)
27. Real estate brokers unwilling to show your building to prospective tenants (suggests that landlord is unable or unwilling to pay commissions – typically a sign of a cash crunch)
28. Contractors seeking payment from you instead of landlord (indicates a lack of confidence on the part of contractors in their ability to be paid on time, in full, or at all)
29. Contractors unwilling to work in your building (see above)
30. Multiple switching of leasing and / or managing agents, building managers, cleaning companies, security services, vendors, service providers
31. Landlord selling other assets
32. Landlord’s inability to sell or refinance your building
33. Change in landlord’s leasing program – agreeing to many short term leases to small, transient, and / or undesirable companies
What can you do to protect your company and assure that your environment remains productive, safe, and profitable, and that your company receives the services to which it is entitled?
Imagine planning and executing a well designed defensive operational and financial strategy, only to find out that the real estate your company leases may not be under your control and that the space may be pulled out from under you! That’s right! Your landlord may not be as good at pruning expenses and could lose your building, throwing into question your company’s rights to remain in its space.
“But, we have a lease with many years remaining; We pay rent and have never been late! They can’t take our space away from us….can they?”
The answer to that question is a resounding…..”That depends!” It depends on a number of factors, from whether or not your landlord will really lose its building, to who will end up with it, to what the process will be if the landlord does lose the building, to how thorough your company’s lease was negotiated in the first place and what protections that document affords you.
The first step is to read your company’s lease. Check all of the clauses that might impact your occupancy, including those pertaining to non-disturbance, landlord default, self-help, sublease, early termination, and others. Since your lease constitutes the rules of engagement, be certain to understand your company’s rights, privileges, and obligations, in the event of a serious landlord problem.
Make it your business to understand all lease components that could affect your company’s ability to remain in the building if the landlord were unable to support it financially. Specifically, does your lease provide for self-help (the ability to secure services that the landlord fails to provide) in the event that the landlord defaults in providing services to you? Can you contract for temporary cleaning and other services? Can you secure utilities directly from the utility provider? Can you do the above without putting your company into default of its lease?
What if the landlord actually goes bankrupt and ownership of the building reverts to the lender? Can the lender terminate your lease? Maybe! Does your lease require the landlord to secure a non-disturbance agreement for you from the lender? Has the landlord provided you with that document? A non-disturbance agreement, if written properly, will most often prevent a successor, like a lender, from terminating your lease.
By now, you’re likely asking: “Why would a lender terminate our lease? Wouldn’t they prefer to retain rent paying tenants?”
That, too, depends! It is possible that your building could have a greater value or a greater likelihood of being sold if it were vacant. Perhaps a larger tenant, or one that for some reason is more desirable, may want your space. Or, maybe your company’s use of its space is not conducive to the lender’s future plans for the building. Without a non-disturbance agreement, your company could receive notice to vacate and have little choice.
When commercial landlords experience financial difficulties, the tell tale signs may be easy to spot. In many cases, payments to vendors, service providers, taxing authorities, and others become delayed or are sometimes not paid at all. In others, the building shows signs of neglect.
If you believe you have reason to be concerned, do a little detective work. Check with the local property tax dept, utility companies, and other building services providers to confirm that bills are being paid in-full and on-time. Ask around, too. Are vendors, commercial real estate brokers, contractors, and others being paid in-full and on-time? But, be careful here. You wouldn’t want to spook anyone and create concern about your landlord if problems don’t exist.
Above, we discussed 33 Signs That the Building Your Company Leases May Be In Serious Financial Trouble. Guess what? There are more than 33 signs! Take a look around your building and ask yourself some of these questions:
34. Has building management or maintenance staff been cut?
35. Is the landlord any less responsive?
36. Are capital projects being delayed?
37. Is construction languishing in an incomplete state for extended periods?
38. Are repairs taking too long to complete?
39. Does the building look as good as it did?
40. Are the interior and exterior common areas being well maintained?
41. Is the landscaping being properly maintained, trash being removed and parking areas being plowed of snow promptly?
42. Are vacancies growing?
43. Are smaller, less desirable, and / or transient tenants taking space?
44. Has the landlord tried unsuccessfully to sell or refinance the building?
These are common indicators that a building and / or its landlord may be in serious financial trouble. So, how bad could it get? What could happen if your landlord DOES lose your building to its lender…..or, to the sheriff for non-payment of property taxes? It could get ugly…very ugly, with your company’s productive becoming the victim.
Do your homework…early and thoroughly!
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.
Commercial landlords and real estate brokers have been forever locked in a battle over the amount and timing of landlord paid compensation, especially when landlords are unsure of the quality and stability of particular tenants. Landlords contend that because brokers bring tenants to landlords, that those brokers should be responsible for their tenants’ creditworthiness and should participate in the credit and other risks borne by landlords.
I’ve written a lot on this subject. Landlords are in the risk management business. Commercial real estate brokers are in the fee for service business, and are therefore not in the business of accepting the type or quantities of risks that landlords accept. Accordingly, this matter is more appropriately one to be had between landlord and tenant.
The reality is that commercial tenants are responsible for their own creditworthiness, good, bad, or otherwise. And, while landlords are in the business of bearing acceptable levels of risk, neither landlords or brokers should bear unnecessary or unreasonable amounts of risk on a tenant’s behalf.
In assessing the financial wherewithal of commercial tenants, landlords will consider numerous factors, including a tenant’s:
· Business history (number of years in business, stability, growth and contraction)
· Industry stability (software, personnel, other)
· Place of incorporation
· Country of origin, treaties between that country and the United States, and the ease or challenge with which a landlord can expect to contend to collect amounts owed, before lease provisions, ensure tenant performance, and more
· Financial statements and other information provided by tenant
· Bank references
· Rent payment history
· Legal history
· Creditworthiness
· Credibility of the management team, investors, and others
· Tenant’s willingness to proactively provide information and insight, and answer questions
· Landlord’s ability to understand tenant’s business model and horizon
· Tenant’s negotiating posture, responsiveness, and reasonableness
· Tenant’s required business terms, cost of construction and other transaction components
· Tenant’s desired length of lease term
· And, more
A landlord’s perception of the riskiness of a particular tenant can affect almost every part of a transaction, including:
· Annual rental rate
· Rent increases (amount & frequency)
· Free rent
· Construction and other allowances
· Rights and options to expand, contract, terminate, renew, purchase, other
· Non-monetary business terms
· Security deposits
· And, more
Security deposit requirements can make or break a deal. Tenants perceived to have superior credit and long-term stability can often expect to pay little or no security. This can change depending on the particulars of any transaction, including the need for the tenant to secure large construction allowances, free rent, or other monetary concessions and incentives.
Some landlords prefer to receive cash security deposits, while others insist on letters of credit. Other landlords insist that all cash investments required of them to complete a transaction, including those for construction, commissions, legal and administrative costs, free rent, and more, be secured. When landlords perceive a tenant to be very risky, they may require that the tenant guarantee all rental payments in some manner.
It must be said that certain landlords, because of their own financial challenges, may inaccurately view certain tenants as more risky than they really are. The issue of landlord risk is one on which tenants should directly focus before entering into any real estate transaction.
When it comes to securing a real estate transaction, effective communication between landlord and tenant, whether directly or properly coordinated through tenant or landlord brokers, is essential to understanding risk and distributing that risk in a balanced manner in any transaction.
As for brokers acting as guarantor of the tenant’s creditworthiness and performance of lease obligations, that’s about as absurd as brokers guaranteeing landlord credit and performance. Brokers are fee-for-service professionals, not credit analysts, nor guarantors. Frankly, if a tenant is viewed by a landlord to be risky, that landlord has many alternatives available to it to mitigate that risk, including not entering into the transaction. Commercial landlords and tenants each come with their own risk, as do brokers. Accordingly, each party should be responsible for those risks for which they have traditionally been responsible, and should not seek to unfairly off-load those risks onto others involved in their transactions.
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.
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.
is amazing that today, some commercial real estate brokers still believe that they and their clients must physically visit every building that might possibly support their clients’ needs. This remains the case in many geographic markets that are over-supplied with millions of square feet of available properties. My gosh! Brokers forcing their tenant clients in and out of 10, 15, 20, or more buildings over an entire day or two, just seems so counter-productive! In fact, it is! Your clients’ time is much too valuable to waste it trudging in and out of building after building. And, frankly, your time is equally valuable. So, why waste so much time?
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