Posts Tagged 'office space'



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

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

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

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

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

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

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

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

2. Landlord: I view tenant representatives as obstacles.

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

3. Landlord: Tenant representatives make deals more complicated.

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

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

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

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


About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America.  By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat at http://www.Twitter.com/RealStrat.

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Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved.

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Tenant Creditworthiness…A Complicated Discussion

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.

Acquire new ideas about commercial real estate at RealStrat’s blog at http://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.

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Hire a Broker to Negotiate a Relocation, But Negotiate a Renewal On Your Own…You’re Kidding, Right?

Hire a broker to negotiate a relocation, but negotiate a renewal on your own?  That’s like hiring a dentist to work on only some of your teeth!  What benefit could you derive from that?

When a commercial tenant contemplates relocation or renewal, some landlords will suggest that the tenant engage a real estate advisor, but only to negotiate transactions outside of their current building.  In these instances, the landlord will typically recommend that landlord and tenant negotiate directly on a renewal or other in-place transaction.  This approach is designed to favor the landlord and removes from the tenant the benefit of expert advice and representation it would receive from an advisor on an in-place transaction.  Such an approach also changes the role of the advisor from an objective representative of the tenant, one who has no preference or incentive to sway the tenant toward any particular property or transaction (other than the one that best meets the tenant’s objectives), to that of a salesman who would only be compensated in the event the tenant elected to relocate.

Landlords will suggest that to preserve the relationship, landlord and tenant should negotiate directly.  That’s exactly why a tenant needs an advisor, so the tenant advisor can secure the terms to which the tenant is entitled and, at the same time,  preserve the tenant’s relationship…that is, if a relationship with the landlord is important. 

Other landlords will suggest that by negotiating directly, the landlord won’t have to compensate a tenant advisor, so the tenant’s occupancy costs will be reduced.    Not quite!  In fact, an advisor’s role is to drive down the tenant’s occupancy costs, despite the fact that a commission would be paid.

If the tenant agreed to deal with its existing landlord directly, such action would telegraph to the landlord that the tenant really planed on staying in the landlord’s building.  It would stack the odds in favor of the current landlord and eliminate most, if not all, of the constraints and pressure placed on the landlord through a competitive bidding process.  Moreover, the tenant would lose the objectivity it would otherwise derive by engaging an advisor to provide counsel and to protect its interests across all transactions.

In fact, the presence of a tenant advisor actually benefits the landlord while serving the tenant’s needs.  A knowledgeable advisor, objectively evaluating the implications to the tenant of all alternative transactions, including those  proposed by an existing landlord, could more appropriately guide the landlord as to how to make a deal with the tenant.

Do most tenants engage real estate advisors only to negotiate  relocation transactions, while negotiating on their own with their current landlords?  Not really.  Frankly, if a commercial tenant has the know-how, time, resources, and inclination to negotiate a transaction without an advisor, then it should do that for all transactions, whether relocation or renewal.  Otherwise, if the tenant elects to engage an advisor at all, it should give serious consideration to engaging that advisor across all transactions it may consider, to ensure continuity and objectivity, and to secure the optimal terms, wherever the tenant elects to land.

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

Acquire new ideas about commercial real estate at RealStrat’s blog at http://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.

Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved. 

###

Passive Real Estate Brokers…Striving for Mediocrity

Considering the current challenges in the global economy and the commercial real estate marketplace, it is amazing that a few brokers continue to take a laid-back and nonchalant attitude toward their business, their clients, and their potential customers.  

While this type of attitude may exist across all segments of the commercial real estate industry, and other industries for that matter, I have most recently experienced this confusing approach with a handful of landlord representatives.  Even more disturbing is the adversarial used car salesman-like tactics I continue to see proffered by some low-rent brokers.

These brokers even use terms that support their largess on their path to mediocrity.  They “show” their landlords’ properties.  Showing anything to another person basically says: “Here it is, see for yourself.”  Showing something only permits a view of what’s on the surface. That’s exactly the problem.  Showing property won’t accomplish anyone’s objective in an over-supplied commercial real estate market!  The most successful brokers I’ve met, those who represent either landlords or tenants, understand that not merely showing a property but, presenting it in its best light, and providing insight as to both its attributes and its short-comings is the optimal approach to inspiring a potential tenant to consider it as a possible future corporate home.

Interestingly, I have found more passive brokers representing buildings, than on the buyer or tenant side.  But, these brokers do not represent the majority of the landlord representation segment of the commercial real estate brokerage industry.  Passive brokers can sometimes afford to be more sedate, as they wait for the phone to ring and  look like heroes.  Don’t get me wrong, I’m not knocking landlord and property brokers…not at all!  I’m just fed up with the lazy ones and those who simply don’t do their job!  Some of the most impressive professionals in commercial real estate today are property brokers who understand that their success is directly related to their ability to support the objectives of their clients (landlords), while serving the needs of their customers (tenants and their brokers).

Passive brokers don’t return your calls right away, they take their time opening the emails you send them, let alone responding.  And, when they do respond to your emails, it is often in only a few words, poorly written without punctuation or proper grammar, leaving you to figure out what the heck they mean.  Passive brokers can usually be identified by sloppy and incomplete proposals and offers, and by missed deadlines attached to a long list of excuses and promises never to do it again. 

As competitors, I like passive brokers for one reason; it is pretty darned easy to win against them.  And, most often, they don’t even see successful brokers coming!  So, why do I care?  Because I must deal with them when they represent transactional opponents, and they get in the way.  Moreover, these kind of devil-may-care brokers, most of whom will put in less than an 8 hour day (even in this economy!) perpetuate too many of the negative stereotypes that many of us in the commercial real estate services industry work so hard to quash!

So, in a hard scrabble business like commercial real estate, in the worst economy in decades, do you really want to be one of those laid-back, wait-for-the-phone-to-ring types?  If so, then go sell something else, and get out-of-the-way!  There are some pretty hard-working brokers in commercial real estate who prefer not to have to step over you on their way to serving their clients and customers!

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 http://www.RealStrat.com.

Acquire new ideas about commercial real estate at RealStrat’s blog at http://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. 

###

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. 

###

Soon To Be In Foreclosure!

You’re not going to believe this story…in this economy…in this real estate market!  I almost can’t believe it myself!  This is real time stuff that  happened to me.

To set the stage, my client is a growing company that is led by a very bright CEO.  He’s young, aggressive, extremely accomplished, highly successful, hard-working, respectful, and takes no prisoners.  He’s a straight shooter who respects straight shooters.  

The tenant occupies office space in a suburban New Jersey building, which is owned by an out-of-state landlord.  This particular landlord promotes the stereotype of the mean and nasty commercial landlord, that dwindling minority of the industry that tries all they can to dominate every tenant and every deal.  This landlord, a cheap suit wearing an open collar, gold chain, and way too much cologne,  demonstrated himself to be arrogant, condescending, self-absorbed, not too bright, somewhat successful despite himself, probably a front man for other people with real money, and based on his antics, someone who still thinks he’s in a landlord’s market where tenants should pay homage to him and be grateful to be occupying his building.  Based on how this landlord handled himself, he is a very strong candidate for president of the local bread line.
Here’s the abridged version of what happened.  You’ll get a kick out of it!
  • Our client, the tenant, sought to renegotiate its existing lease based on current market conditions, or to relocate to another building
  • Our client had uncomfortable dealings with the landlord in the past
  • We submitted an RFP to the landlord’s agent and provided specific guidance as to our tenant’s requirements
  • The landlord’s agent called us with a precise message from the landlord, one that I have never received before:  “The landlord said if you play ball with him, he’ll pay you a commission.  If you make it tough for him, he’ll only pay you half!”  Wow!  How to win friends and influence people!  Was the landlord trying to intimidate us, create a conflict-of-interest, or just bring us over to the dark side?  We advised our client of the conversation.
  • Despite our guidance, the landlord submitted a proposal that was extremely one-sided and did not address our client’s requirements
  • The landlord attempted to circumvent us and meet with our client directly
  • Our client authorized us to arrange a meeting with the landlord, which we did
  • The landlord rescheduled the meeting twice and then swaggered-in 45 minutes late
  • During the meeting, the landlord was disrespectful to our client, speaking down to both the CEO and the President, as well as, to his own agent
  • The landlord arrogantly spoke to me, and after realizing that he was not the most important person in the room and wouldn’t get his way, waved his arms, got up and stormed out
  • Despite our email and voicemail requests for a revised landlord proposal, weeks passed without a reply
  • I finally go the landlord’s agent on the phone one evening, when he sheepishly told me he was not authorized to respond, but didn’t want me to tell that to the tenant…Huh?
  • We received an email directly from the landlord saying we were an impediment (To what…his ability to take advantage of our client?), and telling us that he instructed his agent not to deal with us ever again (Really?  So, I should not bring my next 100,000 sq ft tenant to your building?)
  • Our client said good riddance and instructed us to make a deal elsewhere
  • Our client will be moving into their new facility shortly
  • Oh, and did I mention that the landlord’s building is a 60% vacant class B building that sits way out beyond the western fringe of the central New Jersey market, where very little demand exists even in good times?

Anybody want to buy an office building…cheap?

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. 

###


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