Friday, February 12, 2016

Be PATIENT with your Commercial Real Estate Deals

Image Attribution: www.talkingtrading.com.au
Patient. A word that rarely describes a commercial real estate broker.

We are doers! Delays bug us. Bureaucracy drives us crazy. Please don't tell us "no that can't be done today".

I believe we lack patience because time is our most valuable commodity. After all, time and knowledge are all we have to sell.

However, a couple of recent transactions have forced me to wait. In both cases, we represented the owners of buildings in their pursuit of a tenant or a buyer. After an exhaustive search, I believe we will conclude both deals next week.

So, why will these deals conclude successfully? Patience! Curiously, we are entrenched in a market where owners have their pick of occupants - unless, there are issues with the building. If the building lacks amenities, is indebted with more than the building is worth, has an unrealistic owner, or a combination of the above - the marketing cycle is exponentially extended. We are forced to be patient. What follows are two stories of patience and the way it benefited both deals.

Case #1. We were engaged to sell a building one year ago Monday. I remember the date because we met with the owner on President's Day last year - a holiday for our office. Since we didn't have staff in the office, my associate and I had to scramble to attend the meeting with some semblance of a marketing package. We got the assignment and scurried back to the office to wordsmith an agreement - once again without staff. The owner is a delightful chap. His need to sell was not terribly delightful, however. A business mishap had forced the liquidation of his real estate. We struggled through environmental concerns, three failed escrows, many low ball offers, a building that was constructed in two phases and showed poorly, the building's lack of a couple of key features and a touring protocol that required discretion. We could not use the building's prominent location for marketing signage because the employees were un-aware of the building's disposition. Patience and determination prevailed as we secured a buyer that checked all the boxes for our seller - a good price, quick close, and a leaseback of some of the building.

Case #2. I wrote recently about the difficulty in leasing research and development buildings. You can read the post here if you wish. Typically, these buildings come equipped with too much office, too few parking spaces, and an industrial shop with inadequate power, loading, or warehouse clearance. If you combine these intrinsic difficulties with an occupant pool that is shrinking and an unrealistic owner, you have defined the situation contained in Case #2. We conducted over 40 tours in the past year and have generated fifteen offers - none seemed to gel. Last week an occupant divinely appeared, offered to lease the building with no tenant improvements, pay close to our asking rate, and move in immediately! Yes, miracles do happen. We are expecting to sign leases next week.