Monday, May 31, 2010

Learning the Commercial Real Estate Business

I just returned from speaking to Coldwell Banker Commercials National Convention as as well as teaching a class for the California Association of Realtors.

Both had one thing in common agents that wanted to improve their bottom line and professionalism. Most agents are generalist and dont have a competitive advantage over other agents. Today to stand out you need two things:
  • Be a Master of your market--to know it like no other
  • Be a Master of the process--help the client get what THEY want!
If you can do this you can stand out and make your dreams come true! Specialize in an area of commercial real estate that excites you! You can't know everything about everything!

Tuesday, May 18, 2010

Protect from Undue Rent Escalations in the Term of the Lease

This can happen in any type of lease from retail to office or industrial.

Many times there are different rent escalations and to protect your client from it by knowing the market and what is typical in your market per product type.

Don’t let an aggressive landlord or developer get huge escalations that can ruin your client’s profit margin. What is fair? That will depend on how much money the rent is; the improvements are costing the landlord and how long the lease is and the credit of the tenant. If it’s a large tenant with good credit many of these you can reduced or eliminated. If it’s a small tenant and they want a deposit have this be able to be reimbursed or put towards rent after a time of showing good payment history.

Escalations that come because of large improvement outlays from the landlord should then be taken off once that extra amortization is completed in that term of the lease. Be careful not to let a high rental rate continue if the escalation was caused from these extra improvement costs!

Doing rent surveys and tracking the market can help you greatly in this area.
If you don’t know the market learn it, and get with other professionals and organizations that sell this information to make sure you are on top of what is market at the time of your assignment.

Ways for Commercial Brokers to Get More Business

If you are new to the business or have never put a plan for business development than this part of the book will be most important for you to study!

First what we do is to identify three high end members of each what we call preferred vendors that we want to work with to assist our clients in other areas of expertise that they need to get the assignment done quickly, smoothly and professionally.

They are in no particular order:

1. Commercial Bankers to assist you with loans and lines of credit, equipment loans, etc.
2. Real Estate Attorney to assist you with any lease document, purchase document, commission agreement, partnerships, LLC’s etc.
3. Accountant/CPA that knows and can assist with lease vs. buy analysis as well as 1031 exchanges and knows the in’s and outs of LLC’s.
4. Insurance agents that know cost of insuring various types of user and investor property
5. Project Manager who can assist you in managing the project once a lease is signed
6. Move Management and manager, can be combined with above to assist the client in organizing and planning the actual move.
7. A mover to do the move
8. Phone vendor/contractor as most clients will want new phone systems on a move
9. furniture vendor/walls systems same as above
10. “IT” person to help with all the new technology and how it will effect any new space or facility the tenant/buyer is going into
11. Wiring and Cabling person to wire all the new technology
12. Architect to put a plan together for their new space or facility
13. Contractor to build out their new space or facility.

Once you have identified the three professionals from each of these areas and that will take sometime and networking to really see who stands out from the others than you want to select who you want to work and network with and who wants to work and network with you!

The next phase of this relationship approach to getting assignments is that you want to give something of value to these professionals and then get them to introduce you to one prospective new client each per month or quarter!

What do you give them of value, introductions as many as possible to your past clients if you have any or ones from your company as well as current introductions? Let them know instead of them having to do a “dog and pony” show that once you have developed this professional vendor preferred vendor relationship than you will personally introduce them to your client(s) when they have a need in there area. If that client has an existing relationship in this area we don’t jam someone else down their throat but rather see if there is any advantage to using this other preferred vendor rather than the clients current relationship. This works extremely well to get you to get them in the door of your clients and past clients and make them feel indebted to you to help you!

Also you offer to give them in their facilities and their friends and clients a “no cost” review of their facilities and leases to see how they stack up with other tenants in their building and submarket. This is giving something of great value to them and you don’t charge them for this. Again you want to meet one prospect or current client of there’s every month for you doing this and have an agreement saying this is what you are going to do.

So you are going to get a potential of 40 plus meeting a month from this way of doing business rather than cold calling with no knowledge of who you are calling? Now if you use costar or another vendor that tracks tenants, lease expirations, etc you can then go thru the lease expiration list with these preferred vendors and see which ones if any they have a relationship with.

Doing business this way has enabled me to service over 30 clients a year without cold calling at all and using a relationship approach we have helped our clients not only get great facilities but made the transition quicker, smoother and much more cost effective! If a client had to find out who to use of all of the above vendors on their own they would spend a minimum of 100 hours interviewing and deciding on whom to use for all of those activities! You will be a hero in their eyes, a valued team member by the other vendors and have put into place a system for life to bring you continued sources of business and future revenue!

Lease Negotiations in a Down Market

In many areas around the country, the office market is experiencing its highest vacancy rate in years. What does this mean to brokers, tenants, and owners of commercial real estate? For brokers, it is a great time to brush up on skills in tenant representation to ensure that you are ready to help your clients realize the opportunities available to them.

When vacancies are high, the potential for greater savings for tenants increases. Opportunities include taking advantage of early lease renewals to relocation to space that is renting at below market rates. Commercial brokers, who solely represented landlords in the past, have seen that tenants have new opportunities to take advantage of changing market conditions to craft leases that are more favorable to them—with the help of a tenant rep broker and a good strategic plan that offers tenants increased savings. Savings can be achieved in areas such as discounted base rent, capping controllable operating expenses, and generous build out allowances, free rent, and tax incentives.

Imperative to Know Your Market

Knowing the market, which includes knowing the landlords who can offer the best incentives, is imperative. Because build out expense has increased dramatically because of soaring costs for steel, cement, copper, and other building materials, knowing which buildings are ready to move into immediately and which ones need minor build out, is important and can help tenants save money. Agents need to study each building in the market area to determine which buildings can accommodate tenants with little improvements and which landlords/owners can and will cover the high cost of renovations.
The bottom line is that tenants have never had it so good! In many markets around the country, clients are experiencing savings of from 10 to 20 percent this past year; with no end in sight!

Getting the Best Deal When Negotiating a Lease

Landlords analyze potential leases on the following items: credit, amount of space available to lease, lease terms, and the cost to build out that space. What does the landlord/owner need to do in this down market? The landlord can begin by educating brokers and prospective tenants about their properties and the competitive edges of the properties offer. Are the buildings well managed, clean, well lit, secure, handicap accessible? Are the floor plans on CAD and easy to read? Is it easy to subdivide the space for various size requirements of tenants? Most cities have many tenants that have small space requirements and not as many that require larger office space, which again points to the importance of having space that can be subdivided. What kind of amenities does the building offer—shared conference rooms, Wi-Fi, plenty of parking for events, and cafes are among the most desired amenities.

Evaluate Clients’ Needs

It is always important to listen to clients’ needs and goals to select a property that will best suit them. Easy-to-read floor plans and brochures are helpful to everyone in evaluating properties. Consider having an expert space planner work with the tenant to determine space needs.

Getting a floor plan priced out correctly and in a timely manner also is important. Knowing the permit process will help a great deal; many tenants procrastinate on relocation efforts and do not plan far enough in advance to allow for a thorough search and careful negotiations.

Lease negotiations in a down market are all about the credit of the tenant, learning about the tenant’s short- and long-term goals, and educating them about the options and incentives available when the vacancy rates are high.
Brokers who are good at listening to their clients and who can put together a creative plan will be successful in 2010 and beyond—even in a down market!