The Art of Tactful Negotiating Encouragement

There are many times in a negotiation where being tactfully persistent (to hurry up) is important in a transaction. As an example; when a commercial property market has a low vacancy rate, and a potential tenant or buyer is looking at either leasing or buying the property. Tactfully encouraging the procuring side to move quickly is beneficial to both parties.

A real life example happened when a property was available for lease, in a market with a 1%- 3% vacancy rate. A tenant had committed to lease the property, but was not moving as fast as the property owner would like. We needed to tactfully inform the tenant’s representative that there continued to be a great amount of interest in the property and they needed to encourage their client to expend more resources in order to consummate a transaction. The encouragement was successful and the tenant ultimately got the building and was able to commence business; and the owner of the property was happy to finalize the transaction. Tactful encouragement provided a successful outcome to all parties.

We all know that work is a four-letter word. But so is love and help

I bring this up because work can be an enjoyable and meaningful daily task that can be used to help others and earn an income to feed your family and pay your bills. (I’m going to confess, I love my work—not every aspect, but the career choice in general.—there, I said it.)

The other day, my wife mentioned she was going to have dinner with a girlfriend which prompted me to consider working longer. I thought, why do I need to sit at the office when I have a perfectly good beach nearby? I picked up our dog Ginger earlier in the afternoon, and headed to the beach about 5 o’clock. I figured it would be a fantastic opportunity to watch the sunset, work and have my dog play in the sand and explore. It was an excellent decision and I’m glad I did it!

It got me thinking, what if I did not have a beach nearby. Well, the reality is one could always go to the park, mountains, outdoor cafe or any other favorite spot in order to enjoy the outdoor environment. Life is short, carpe diem!

The Importance of Handwritten Notes

I already know that all of the old timers appreciate the value of a handwritten note. It’s for the younger generation this article is being penned.

When I first got into business, we used things called typewriters. It was very laborious. As a substitute for the typewriter, was a handwritten note. While the typewriter was much more professional looking, it became a sign of personal professionalism to provide someone with a hand-written note.

I will acknowledge, it is a bit time consuming to author a handwritten note; and some folks don’t have the most legible handwriting, but none-the-less it shows someone cares. Handwritten notes need to be sincere. When I meet with someone and have a real connection, I will take the time to write and thank them for the meeting. I’ve been told by past recipients that they appreciated the gesture.

In this day and age of technology– email, texting, instant messaging, etc. taking a few moments out of your busy schedule to send something via US post and using a real postage stamp can make a difference in a relationship.

It’s All About Helping Others — Word Of Mouth Marketing

It’s no secret that one of the greatest gifts someone can give is a referral to another person.

That starts with getting out of your chair, and perhaps your comfort zone. It’s about visiting and communicating with current friends, clients, and others.

The idea behind this article came about by having my lunch meeting cancelled by a client (because their previous meeting had taken much longer than they had anticipated, and they had another meeting right after lunch). It’s okay, because we rescheduled our lunch meeting.

Well, what I ended up doing is going and visiting good friend to say hello and see how he was doing.

During our conversation, he had mentioned that he was looking for a specific type of service provider and it got me thinking. One of my very valued clients does exactly what he was looking for, and I knew my client was extremely competent, so I offered to introduce the two.

Well good things happened, and the two will be working together in the future.

All of this happened because I made an impromptu stop by meeting happen and great things came of it.

Now get out there and make things happen!

The Reason Commercial Real Estate Rents Keep Increasing is Because Office and Industrial Construction Still Lags Demand in Orange County

1 million square feet of supply was delivered last year, yet only 231,068 square feet was under construction during the first quarter of 2016. Although development activity has improved in the past two years, construction activity and completions still cannot keep pace with demand and absorption. Local real estate professionals anticipate this trend to continue throughout this year, although several developments are due to be completed late this year and early 2017.

Much of the construction is happening in Irvine, where the 425,044 square feet 200 Spectrum Center project was completed in March. This walkable, WiFi-enabled campus with 40-feet-wide uninterrupted window line provides breathtaking views of the surrounding lifestyle. Right next door is 400 Spectrum Center, which is perhaps the most significant project to break ground in the first quarter, and is predicted to be completed by September 2017. Another notable project is The Boardwalk on Jamboree Road in Irvine, which will comprise of two, nine-story towers amounting to 537,224 square feet of premier office space, due to be completed next spring.

Signing a Lease? 7 Things to Expect from Potential Landlord

Often, tenants are unsure of the items that a potential landlord may be looking for. The below list should help you get prepared.

1)   Rental Application. Every landlord will require a tenant to complete a comprehensive rental application. Landlords need to understand whom they are leasing to. Landlords will need to run a credit check to verify the tenant is in good credit standing with other credit agencies, because in reality the landlord is lending you the space for a period of time. All landlords should run a credit check in order to protect their investment.

2)   Two Years of Tax Returns, Income statements, and Balance Sheets. Many landlords want to see the past history of a tenant. This can only be done by looking at the tenant’s past income statements and balance sheets and compare those with what was given to the Internal Revenue Service – also known as their tax return.

3) Current Financial Statements. Landlords will also want to review the “most up to date” balance sheet and income statement of a client to make sure the tenant is performing in an acceptable matter.

4) Articles of Incorporation. Landlords would want to see the Articles of Incorporation should the company be incorporated. The landlord wants to make sure it is a viable entity and can enter into a lease.

5)  A visit from your landlord to your current property. Many landlords like to swing by a client current office to get an idea of how he or she might treat the property. It’s important to make sure the tenant’s “current” property is in a neat and tidy fashion in order to give the landlord the necessary comfort level that you will take care of his or her property as well.

6) Potential references. Some landlords will require references should the company financial not be as strong as they would like them to be. If you are unable to provide references, this might be considered a potential red flag to the new landlord.

7)  Conversation with your current landlord. Many landlords will contact your current landlord to verify your payment history. This can be a tricky situation because if your current landlord would prefer you out of “his” property, he or she may provide inaccurate information. Most landlords complete their due diligence before entering into a lease. Landlords would prefer to have a tenant that they feel comfortable with, than to sign a lease with a tenant who could be a potential nightmare for years to come. As a tenant, it is important to live up to your obligations when you say you will live up to them.

I heard of a story where a tenant and landlord come to an agreement and the next step was for the landlord to cash the tenant first month rent and security deposit. The tenant kept stalling and asking the landlord to wait until some specific contingency had expired; the tenant kept moving the date where the landlord could cash the check, which inevitably frustrated the landlord enough to where he canceled the lease. The tenant was in a world of hurt after that circumstance. We believe the reason the tenant did not want the check cashed was that the company was cash poor until a specific date, however no one ever confided in the landlord to tell him the real situation and because of that lack of communication, the company lost the space which dramatically affected its future business operations.

Being prepared and knowing what to expect will greatly speed up the negotiations and everyone will win.

By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialists

When is Too Much Too Much?

Negotiation, that is. Let’s start this off with the understanding that my career has always been to represent my client’s fiduciary interests in commercial real estate transactions. My goal is to get the best terms feasibly possible at all times.

When negotiating something as important as a commercial real estate lease or purchase transaction, all parties want to maximize their positions. It just makes sense. Both sides need to assess the market and determine who has the most negotiation leverage in that particular market cycle. Sometimes it’s the tenant/buyer; sometimes it’s the landlord/seller. If there are abundant competing properties, it’s pretty obvious that the buyer or tenant carries the most leverage; the inverse is a lack of availability, which creates leverage for the seller or landlord.

One also has to understand that if the space is unique (but not in a positive way), the property owner will need to make concessions they would normally not want to make. If the property user had some unique requirements, it might be forced to look at a finite number of properties, thereby decreasing the amount of leverage it had in the marketplace. I recently worked with a client who needed above-standard parking in a market where the majority of the buildings provided standard parking. We had a few opportunities to choose from, and had to negotiate nimbly on the few properties that could in fact work for us.

Another consideration that needs to be understood and addressed is the creditworthiness of the property user or tenant. Landlords rarely like to get under contract or sign a lease with a user that may not be able to close or may not honor the full lease term. If a company’s credit is not adequately strong, the tenant may need to increase its security deposit, provide a letter of credit, reduce its rental concessions from the landlord or any combination of the above. Having shaky credit can definitely limit your negotiation leverage.

Regarding security deposits, a client I was representing was asked to provide more than eight months’ rent as a letter of credit or cash security deposit in order to secure a particular property. Understandably, the tenant did not want to provide said security deposit, yet they forwarded me an email from their existing landlord stating that should they desire to renew, they would need to provide personal guarantees (in other words, an increased security deposit).

Still another consideration is how much one should ask for during a negotiation. That is impacted by how many people are looking at or negotiating on the same property. If there are few opportunities for people to consider, the desire of wanting a seemingly endless amount of tenant improvement dollars, free rent, moving allowances, etc., may be unreasonable—and flat out foolish should one really want to secure that particular space. This is where being knowledgeable and reasonable may in fact secure a building that other tenants or buyers desired, as well.

Timing has a lot to do with knowing how much to ask for during a negotiation. If one has not allowed themselves more than enough time to research the market, negotiate and actually play the negotiation game, the ability to ask for excessive beneficial terms may not be realistic. As with many things in life, it is extremely important to plan well ahead of an actual need.

There are many factors to consider to determine “when too much is too much,” and a solid strategy needs to be developed in order to achieve the best terms possible.

By Randolph T. Mason, CCIM, SIOR, Managing Partner, Commercial Realty

In Tightening RE Market, Quick Action is Key

This current commercial real estate cycle is continuing to heat up. Available product across the board is decreasing, rents are increasing & concessions are decreasing and those companies that react quickly often reap the rewards.

In order for a potential tenant or buyer to feel comfortable about the decision they make, early market research & education is paramount. Generally, no one wants to make an important decision without adequate information.

Comfortable decisions are made after educating oneself in the specific area that must be decided upon. In real estate, markets can change very quickly. I’m reminded of an incident where a tenant was reviewing a property brochure that was only two months old, yet the lease rate had increased by 20 percent within that two month period.

Once suites started leasing up, the vacancy rate declined and the rents went up: simple effect of supply and demand.

Fortunately, my client and I started the education process early on so when an actual decision needs to be made, they would be educated and feel comfortable about the decision they make. As the market continues to tighten, astute investors and tenants will need to react quickly when an opportunity arises.

 

By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty

Ouch, Wish I Had Negotiated These Terms in My Commercial-Property Lease

Three clauses that are very important in a lease include the holdover provision clause, the relocation clause and the sublease clause.

Under the holdover provision clause, the landlord is allowed to charge some rental amount that is above the last month’s rent the tenant paid during the last month of its lease term should the tenant stay in the property after its lease expires. I have seen these clauses as high as three and four times the last month’s rent. A typical and fair amount would be approximately 150 percent of last month’s rent. I like to negotiate this provision up front with a term that is more reasonable such as 125 percent of last month’s rent for say, three months and then the rent bumps up to the 150 percent number.

If a tenant is contemplating relocation, and his new space will not be ready upon by the time of his current lease expiration, this increased rent does not penalize him excessively in order to stay a few additional months.

Regarding the relocation clause, a landlord is allowed to relocate a tenant, usually to accommodate a larger tenant within the property. While this is not an unreasonable request for a smaller tenant, it can provide some unplanned inconveniences. The tenant may be asked to relocate during their busy season, which could greatly impact the tenant’s business. Often, negotiating the removal of this clause is typically not difficult provided it be done upfront, prior to the lease being executed. It’s an important clause to attempt to strike in order to mitigate any tenant disruptions. Remember, the landlord always has the option of approaching the tenant and asking him to relocate. A landlord usually pays all of the tenant’s costs due to such relocation.

The sublease clause is an important clause that benefits the tenant should the tenant need to get out of his existing lease obligation. This clause should be carefully reviewed by the tenant and his counsel in order to craft a clause that works for all parties. Generally speaking, a tenant cannot sublease his space without receiving the approval from the landlord, which should not be unreasonably withheld. Also, make sure the cost to the landlord is reasonable. I’ve seen clauses stating the landlord may charge the tenant all of its costs, which was very vague and could get rather expensive. Also, if it is a multi-tenant property, or the landlord has been in discussions with a prospective tenant, it should be allowed that the tenant could still sublease to that prospective tenant.

It is not uncommon for a landlord and tenant to split any of the profits that the tenant may receive from the new subtenant. The landlord should respond to tenants’ requests within a reasonable period of time, which should be no longer than 30 days after landlord’s receipt of a request for consent to a proposed transfer. If it takes too long to get the landlord’s approval, most likely the replacement tenant will go elsewhere.

There are many items in a lease that need to be scrutinized in order to have a fair and equitable contract between the tenant and the landlord, and a competent real estate attorney is a person to help craft those changes.

By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialist

7 Ways for Tenants to Win in a Competitive Office Environment

The office landscape in the Orange County, Calif. market is making its long-anticipated shift. While this is a clear and positive reflection on a recovering economy and local job creation, this shift is impacting both landlords and tenants in very different ways. As supply continues to dwindle in many of the sub-markets, tenants are left with fewer properties to consider and as a result, less clout in office lease and sale negotiations, leaving landlords with the leverage.

In this competitive office setting, it’s important for tenants to be proactive and prepared when considering a move, expansion or lease renewal. Listed below are a few important items that every tenant should review to aid in their chances for a favorable relocation.

1) Space Programming: Know your space needs (headcount, parking, product type) and your desired configuration and finish (contemporary vs. open plan). Time and money spent during the transaction cycle developing plans will put you at a competitive disadvantage with other prospective tenants.

2) Create a Budget: Anticipate -fit costs and funding challenges. Contemporary, open-plan up-fits cost $50-$55/ square foot whereas most building owners will only spend $25-$30/ square foot, leaving a $25/square foot funding gap. Tenants should know where they are willing to give. A landlord may choose another potential tenant based upon a less-costly up-fit.

3) Plan Well Ahead: When renewing in place is not desirable or possible, tenants should enter the market 12-15 months in advance of their lease expiration (30-36 months, if a user seeking 50,000+ square feet) and should be prepared for the possibility of committing to a space several months in advance of a current lease expiration. With planned and proposed development projects taking 18-36 months to deliver, tenants can find themselves boxed-in, needing to renew short-term or move part of its operations to another location.

4) Get Ready to Date: In a tight market, landlords have the luxury of interviewing prospective tenants and selecting those who best fit their risk profile and their asset’s needs. Tenants should have up-to-date financials and business plans available and be ready to share and defend them.

5) Be Decisive: Tenants thinking that they can take their time to consider multiple options, leverage every last nickel of savings, and navigate a lengthy internal approval process, will likely find themselves needing another solution.

6) Do You Have a Plan B?: Where possible, every tenant should keep a ‘plan B’ in their hip pocket, whether it is to renew in place, acquire space in an alternate property or even to move to another sub-market.

7) Get Help: One final word of advice is to leverage the knowledge and resources of a local real estate professional. This will not only make you an educated consumer, it will enable you to stay focused on your day-job while your advisor navigates these now-tricky waters.

Although the office market is shifting away from the tenants favor, don’t despair. Have heart that it remains, and will always be, an open and dynamic marketplace. Great values and opportunities exist and new ones are evolving every day. With a blend of preparedness, focus and flexibility, you can both discover and take advantage of opportunities when they materialize.

By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialist