“I will get the lowest price per square foot for my new office lease.” (Charlotte Business Owner)
“I will not drop my initial offer for price per square foot for the new lease. It’s not worth it and I really don’t like this guy anyway.” (Charlotte Commercial Landlord)
“I will maximize this commission.” (Charlotte Commercial Real Estate Agent)
One deal. Three different parties. Three different motivations. Sounds like a movie trailer doesn’t it? Granted, not a great movie or anything, but maybe it’s 3-D so you’ll go and see it anyway.
This was the situation when I met a friend of mine at Dean & Deluca recently. “Abe’s” (yes, I realize the irony- it’s a fake name for our President known for honesty) office lease was expiring and he wanted to extend it. However, he knew this was the time to get a great lease rate as the commercial market is in a state of sheer awfulness. The real estate agent he just hired to represent him on the lease extension whole-heartily agreed. However, the landlord does not see why he needs to come down in price at all- his costs had gone up!
Abe broke down the situation for me:
Him: He wants to stay in the office. It’s close to where he lives, it has room for future expansion, he loves what he does, and his employees are happy with it as well. His business is growing and he (almost) salivates when he thinks about the result of his increasing sales cash flow mixed in with a sizeable reduction in fixed costs (if his rent is lowered in a new lease). He doesn’t want anything to do with the hassle of moving. He likes where his office is and wants to sign a fair, multi-year deal.
Landlord: He doesn’t really like Abe, besides the fact that Abe pays his rent on time every month. Though a third of the building he manages for a national commercial firm is empty, he is adopting a hard line on the price. He is offering a minor price reduction for a 3-year lease. He is still a few dollars off from what could be argued is current market rate. He also mentions that if Abe wants new carpet or painting, the rental price would have to go up.
Agent: He seems reluctant to negotiate with the landlord now because it’s more than a few months before the expiration of the lease. He’s confident that in his discussions with the landlord that he can get him to drop the price further if Abe can commit to a long-term lease. I asked Abe how the agent was compensated and he said the agent would get a percentage of the total size of the deal (monthly rent multiplied by the months in the lease agreement multiplied by his commission rate).
“So,” Abe says, “Let’s take a look at what’s on the negotiating table:”
1. Price per square foot
2. Length of lease
3. Improvements- carpet, paint, other?
4. Free months of rent- Abe heard other tenants nearby were being courted with this offer.
“At least with this information, we know where to start. I guess we’ll figure out soon enough where it ends up.”
Abe then began to detail his strategy. “The first thing is to align my agent’s interests with mine. I want to pay the lowest amount of money, while he gets compensated the most by having me pay highest amount. We need to revamp our commission structure; clearly our incentives are not aligned. So we either come up with a incentive structure that ensures he gets compensated the most when he benefits my interests the most. This also means he needs to understand where I stand on all the negotiable items. If not, we’ve got to part ways immediately.”
The second is to proffer some trial offers. What is important to the landlord? I really have no idea. I want to see what he is willing to easily give up in the negotiation. I assume he wants me to stay. The one thing you can usually be sure of is that no one is stupid enough to blatantly act against their own self interests. Why is he giving such a hard line on the rental rate? I want to know what his mandate from corporate is and what his commission structure looks like. I’m willing to lay most of my cards on the table and I’ll ask him to do the same.
At the end of the day, it would be an absolute tragedy if I left. It would be a pyrrhic victory- we’d both be losers.”
As Abe prepares to leave to meet his real estate agent, he picks up his folder of vacant commercial property listings (with their corresponding lower rental rates) off of the table.
“Wish me luck!”
His strategy sounded good to me. What do you think?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com,
Posts
No comments:
Post a Comment