Posts Tagged 'office space'



9 Defensive Strategies When Your Building is in Serious Financial Trouble

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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

Advertisements

33 Signs That the Building Your Company Leases May Be In Serious Financial Trouble

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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

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.

###

6 Critical Steps to Protect Your Commissions in a Challenging Market

The compensation of most commercial real estate brokers is performance based, especially in lease transactions.  When real estate brokers perform, they are entitled to receive their compensation. Yet, too many seasoned brokers put their compensation at risk, too often.

Follow these six simple, but critical steps to protect your commissions, and to ensure that you’ll be paid fairly, in-full, and on-time.

Step 1. Speak Up!

As early as possible, discuss your compensation requirements with both your tenant – client and any landlords with whom your client may consider entering into lease negotiations.  That means at your first meetings, before your prospective client actually becomes your client, and at your first landlord meetings, advise them how you expect to be compensated, how much, and why.  Advise them that your compensation is performance based…based on YOUR performance in bringing about an executed lease, not based on the tenant’s performance once the lease is signed.  That’s a critical aspect of a real estate professional’s compensation.  Once the transaction has been completed, so has the job of the real estate broker, and at that point his / her compensation has been earned and is due.  Real estate brokers are NOT in the tenant credit guarantee business and are not responsible for the performance of the tenant after the lease is executed.  Read more on this subject.

Explain to your tenants that at some point, while you are working to protect them, you may ask for them to demonstrate to the landlord that they expect you to be compensated adequately.

Step 2. Make It Clear in Your Representation Agreement

Never work to acquire real estate on a company’s behalf, without having a written agreement between them and your company.  Your agreement should define your obligations and those of your client.  It should specify how and by whom your company would be paid, and should state that your compensation is not dependent on your client’s performance under any lease. Moreover, in your agreement, your client should agree not to execute a lease until your company has secured an executed commission agreement from the landlord.

Step 3. Spell It Out in RFPs and Offers:

Include text in all requests-for-proposal and offers, specifying how much and by whom your company would be paid, that your compensation is due in-full upon execution of the lease, and that the tenant’s creditworthiness and/ or performance under the lease shall not impact how, how much, or when your compensation would be paid. The old standard text that often appears on offers saying “Commission to be paid by separate agreement” is no longer a viable means of protecting yourself.

Shouldn’t the landlord know in advance what your compensation expectations are, so he/she can properly budget for transaction costs?  Shouldn’t your tenant-client know how you’ll be paid?  Then, why not be transparent?

Include text in RFPs and offers clearly stating that you make no representations, claims, or warranties, as to the tenant’s creditworthiness, financial condition, or ability to perform any of its obligations, that the landlord will be solely responsible to conduct its own investigation of the tenant and satisfy itself as to the tenant’s financial condition, and that your compensation shall not be conditioned on the tenant’s creditworthiness, financial condition, or ability to perform any of its obligations.

Step 4. Be Clear in the Commission Agreement

Irrespective as to whether it is a common practice in any market for a landlord and tenant broker to enter into a commission agreement, always secure a written commission agreement before a lease is executed.

In almost an identical fashion, include text in the commission agreement, whereby the landlord acknowledges that you made no representations, claims, or warranties as to the tenant’s creditworthiness, financial condition, or ability to perform any of its obligations, that the landlord will be solely responsible to conduct its own investigation of the tenant, and that your compensation shall not be conditioned on the tenant’s creditworthiness, financial condition, or ability to perform any of its obligations.

By the way, since you’re asking the landlord to acknowledge that you made no claims, be certain not to make any!

Step 5. Use the Lease to Protect Your Compensation

The lease provides an excellent opportunity for you to be transparent with your tenant and bring the tenant in on the commission conversation.  Explain to your tenant that as you fight hard to secure favorable terms on its behalf, you will need the tenant’s help in securing favorable commission terms.  The tenant’s assistance becomes especially important since you will not ask the tenant to compensate you, but only to stand arm-in-arm with you as you negotiate both the lease terms necessary to protect the tenant and the commission terms needed to protect your company.

With tenant and broker in a unified front, this approach benefits both tenant and broker.  It clearly telegraphs to the landlord that both tenant and broker are aligned in all respects, are co-dependent, and that the landlord will not likely be able to divide and conquer, as some overly-aggressive landlords will seek to do.

Include text in the lease stating that if the landlord does not pay the broker its commission in-full and on-time, in accordance with the terms of the commission agreement, then the tenant may, at its option, pay the broker’s commission and deduct an equal amount from its rent without being in default.

Most tenants will have no issue with the addition of this type of text, as it places no burden on them, and the decision to pay you will be at their discretion.

Some landlords will yell and scream and claim their lenders will never approve of such text. Since such text places no greater burden on landlords than the terms contained in the commission agreement, and since it specifically references the terms of the commission agreement, lenders typically take no issue with such text.  If a landlord fights hard on this issue, be very careful and there may be real problems hiding around the next corner.

Step 6. Secure the Lender’s Cooperation

Landlords get lenders to grant non-disturbance agreements all the time, wherein lenders agree not to disturb tenants’ right to use and occupy their space in the event of a building’s bankruptcy or other similar circumstance.  Similarly, brokers should insist that landlords secure from their lenders written agreements stipulating that, in the event of a building’s bankruptcy or other action that might displace the landlord, the lender would fulfill the landlord’s commission obligations.

In tough times, unusual things can occur, and a business-as-usual approach can prove dangerous. This is especially true when it comes to broker compensation, which is sometimes treated as the last point to be negotiated or as a landlord’s slush fund, in some transactions.  Moreover, if during lease negotiations on your client’s behalf, a rogue landlord thinks he/she can get the best of you because you were not aggressive in securing your compensation requirements, that unfortunate perspective will likely translate into how the landlord will negotiate with you for your client’s lease. If you’re weak in protecting yourself, you’ll be perceived as being weak on your client’s behalf, and in fact, you may actually lose for your client, while you lose for yourself.

 

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.

###

11 Important Steps to Achieving Commercial Brokerage Success in 2011

Happy New Year!  It’s time to make your business resolutions for 2011.

Here are my recommendations to better serve your clients’ needs and to achieve your own realistic success in the coming year:

1. Determine which client types best fit your expertise and service offerings, and then focus the majority of your efforts on those sectors

2. Develop a business-centric approach to advising your clients and delivering real estate services

3. Customize your service model to one that achieves your target clients’ business objectives, while satisfying their real estate needs

4. Develop an approach to serving your clients that is transparent in all you do, with “Honesty is Our Only Policy!” as your motto

5. Make conflict-of-interest identification and resolution an integral part of your service offering

6. Be crystal clear in your compensation expectations to minimize confusion, especially if yours is a performance and risk based commission model

7. Always put the needs of your client first, without fail, so long as your client recognizes that you are entitled to fair, reasonable, and timely compensation

8. Resolve to agree to no compensation bonuses, but accept no discounts

9. Recognize that, as a service provider, you have your own business risks, and that your role does not include discounting, delaying, or risking your performance based compensation as a means of guaranteeing the creditworthiness or performance of either tenant or landlord

10. Negotiate on your clients’ behalf like you and your client don’t need any particular deal, that you have multiple alternatives, and that you’ll always walk away in the absence of a favorable, but reasonable transaction

11. Recognize that as a service provider and advisor, your only role is to protect your clients’ and satisfy their needs first, that your job is to maintain relationships that your clients permit you to have with them, and that without sustainable relationships with great clients you will not achieve your own success objectives, those of your company, or those of your clients.

Are there more important steps to take to achieve commercial brokerage success in 2011?  Let me know.

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.

###

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.

###


Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 42 other followers

Follow Me on Twitter



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.
Advertisements