How to avoid #CRE "time wasters"

I provide Location Advice to owners and occupants of industrial buildings in Southern California...AKA, I sell and lease commercial real estate for a living and have since 1984.

Today, I am posting for three reasons...therapy, education, and as a personal reminder.

As commercial real estate practitioners, we only have two things to sell...our information and our time. Levels of our information are available as a commodity, for the world to see, and we only have 168 hours per week...that's it! Now, we can place our expertise on top of the basic data levels...but we cannot create anymore time. I realize that is trite but stay with me, here. Avoiding commercial real estate time wasters is tantamount to locking your house at night...If you don't do it, you might get robbed!

I mentioned in the preamble my three reasons...here goes!

Therapy: Without a doubt, I have encountered (and unfortunately been engaged by) more time wasters this year than I can remember in my career that spans four decades!...and I pride myself on my qualification skills! Some were requirements unable to be filled, which resulted in lease renewals. Some were loooong drawn out RFP processes or market surveys or tours or owner education or...All had the same result...no revenue! Time invested with no return...the death knell of any commissioned sales person! Now before you go all sappy and feel sorry for me, please don't. I am the most blessed man on earth for myriad reasons that I'll save for another post...but maybe you can learn from my mistakes this year.

Education: OK, some of this is brokerage 101...but I'm going to spin it for you.

• Work with control I know, basic, right? But how many of you make this mistake? I tell the young guys in here, "working without control is like drinking and driving" You might get away with it but when you get caught...and you will...the consequences are severe.
• Qualify, Qualify, and keep Qualifying Qualifying is ongoing. Remember to qualify "throughout the process"...not just at the front end of the transaction.
• Think "anti move" Let's face it, moving sucks! It's disruptive, time consuming, counter productive, inefficient, and expensive. Its like a knee replacement...painful but necessary sometimes. Be VERY candid with your occupants about the downside of moving locations. When things get tough in the transaction...and they will, you can relay your discussion and remind your clients why moving makes sense.
• Make the client "convince" you How many of us have fallen for "we want to buy a building"? I always ask my clients "why would you want to do that?" The answer is illuminating!
• Beware of the corporate "local guy" Ok, these can be your biggest advocate or CHAMPION time wasters. Is the local guy willing to give you complete access to the "real decision maker" or are you trying to fulfill his dream location that has NO CHANCE of materializing or passing corporate scrutiny?
• Beware of lengthy processes Decisions on who to hire are rarely the result of the biggest package, the best presentation or the fattest response to an RFP. They generally boil down to a "relationship"...what a concept.
• At some point, they gotta give back My Mom taught me that a relationship must be a fifty fifty proposition. Why should this differ in a real estate deal? Examine how much YOU are giving and how much the client is giving in return. This can be as simple as timely returned phone calls, emails, texts, etc. or as complicated as deciding on a strategic direction.
• Out of State...out of mind Anyone out there ever dealt with an out-of state company that is tremendously responsive when you are face-to-face but once the plane leaves the tarmac, so does the responsiveness?  Candidly, I've still not figured this one out! Next blog post?

Personal reminder: TRUST YOUR GUT! If it walks like a duck, quacks like a duck, has feathers, flies south for the winter (and you are not in Eugene, Oregon)...chances are they are a commercial real estate time waster!

Warehouse automation and safety for commercial real estate

I provide Location Advice to owners and occupants of industrial buildings in Southern California...AKA, I sell and lease commercial real estate for a living.

I was asked recently by Cisco Eagle to provide commentary on automation and warehouse safety. Of course I was honored to participate!

I decided to crowd source the answer as well as relying upon my expertise and that of my client Raymond Handling Solutions.

If you would like to read the post you can click here.

I posed the following question on the material handling group on LinkedIn.

In your opinion, can safety "be automated" in warehousing facilities? Please explain.

Which produced the following answers:

Brian O'Reilly

Sales Manager - CT Products at Gorbel

With enough software and sensors, anything can be automated and made "safer". But as long as there is human presence in the warehouse, nothing can be guaranteed safe or accident-proof. And even in "Dark" warehouses with ASRS Systems, equipment malfunctions and items are damaged.

 

Buddy Fordham

Parts & Service Sales Rep. at Thompson Lift Truck Company

I agree with Brian. Anything that is automated or Software controlled can malfunction. Anytime you add the human element, it's always a moving target. I've been in the Lift Truck business for over 25 yrs. and a Safety Trainer for over 16 yrs. Every aspect needs to be covered and Good Habits established. The only thing consistent is change.

 

Jorge Lopez

Sales and Marketing Manager Latin America

Agree with Brian, everything can be automated, but we should consider that we only are reducing risk, but risk are still there, we can use all ultimate safety devices to avoid any injury in people, but still we most train people about risk and possible injuries if they don't take care about their own safety. Sick is probably the best choice in safety systems due to all their innovations in this area.

 

Scott Stone

Advertising & E-Business Manager at Cisco-Eagle

Safety can't be "automated," but varying degrees of automation can be integrated into safety. Automation cannot guarantee safety unless a plant is empty of people. Items such as motion sensors or AisleCop gates to help people be more aware of forklift traffic simply help to enhance safety. In a sense, safety railing on stairways is safety "automation", but it's not useful if people simply climb over it. Also, in a sense, robots that do dangerous work are safety automation simply because they remove people from a hazardous area.

 

Tony Hart

Avonwood The RFID Specialists

So very interesting points here. At Avonwood we have produced our ZoneSafe system which can be fitted to FLT's and other vehicles which alerts the driver that a pedestrian is near his vehicle. This is normally set to between 3 and 9 meters. However you can use the technology to alert pedestrian when a vehicle is in a certain area for example. We have always been quite clear that what we offer is an aid to safety and does not substitute for good existing practices and training, but it does go some way to help improving warehouse safety.

 

Frank Lucas

Associate / Team Member at Nestle S.A.

Having worked in the MH and Heavy Equipment environments and now in the processing and production area where the traffic is quite heavy share sentiments such as Scott that SAFETY can and must not be automated. Tony makes good points always that guards and company policies can be instigated to assist with the safety issues. I truly believe that SAFETY is something that must be properly trained for and thus each and every employee is subject to the responsibility of looking after themselves and ALL those around them. Cheers.

 

I discovered that there is a big beautiful pool of expertise out there just waiting to be utilized! Thanks all for your participation and to Susie Romans for the opportunity!

Don't use Social Media for Commercial Real Estate...IF

I provide Location Advice  to owners and occupants of industrial buildings in Southern California...AKA I sell and lease commercial real estate for a living and have since 1984.

I recently started following The News Funnel on Twitter which morphed into a sign up for their service...it is free by the way...and has resulted in the inspiration for this post.  Thank you Lindsey Kacher! The post is available here, as well!

I can hear the collective..."wait...I thought this was "don't" use social media? Ummm...he just sited an engagement through social media...what's up"?

Well my friends, that is the large word "IF".  You may be a commercial real estate dinosaur...

IF you don't care to engage with other #CRE thought leaders on industry "what's ups"

IF you have an established practice and there is NO chance that could EVER change (think 2008)

IF you would rather cold call for new business than have "them call you"

IF your thing isn't CRE inspiration, education, entertainment, or content consumption (you never read a newspaper or watch TV)

IF you prefer sign calls (do those exist anymore?)

IF you believe an "on-line presence" is a gift from Amazon.com

IF you want to be invisible to your clients AND new prospects

IF you can contact ALL of your past clients enough by calling them

OK, you see where I'm going? If you answered yes to one or more of these questions, you should ignore social media marketing for your commercial real estate brokerage practice. If, however, you believe that there is some merit to this "on-line" stuff...read on.

What's the best way to get started? Slowly! If you've never been to a backyard BBQ, don't make a White House state dinner your first meal away. Social media is about engagement. Each platform has its own language. YOU'RE NOT SELLING, here...you are listening, learning, and when you believe you can "add to the conversation", make a contribution.

What social networks are most effective? The one(s) where you can "find your voice". Some very successful #CRE social media marketers simply aggregate other's content. Others are serial bloggers...via You Tube or a written platform. There is no "correct way".

What's a good content strategy? One that is "sustainable"...like that green friends? Choose a strategy that will allow you to post, comment, or curate consistently.

How do I measure its effectiveness? When you get that first re tweet (thanks Linda Day Harrison, Bridget Willard and Matt Smith), that first comment on a group share on LinkedIn (thanks Howard Kline), when someone "likes" your business page, when your blog page-views reaches 500,000 (How's that feel Coy?), When Howard Kline invites you to be his guest on CRE Radio, when Duke Long calls and says..."hey I'm coming to SoCal, any chance we could grab coffee?...and then you appear on one or more of his Top Ten Lists!, when The News Funnel contacts you and ask you to guest blog...when you realize that you are not a voice in the wilderness...that someone is listening! Notice I didn't mention money. That's right! If money is ALL you care about, go manage a hedge fund.

What's the next big thing in Social Media? Who knows? I leave that up to my friends at the News Funnel...If I follow them, they will tell me.

Leave the dinosaurs to Fred, Wilma, Barnie, and Betty.

"How to" make a WINNING #CRE presentation

I provide location advice to owners and occupants of industrial buildings in southern California. Most in the CRE trade would agree that we present every day and consequently must structure our presentations for a YES. This could be presenting ourselves, our building alternative to an occupant, a marketing plan to an owner.

What about trades that don't present? I contend that ALL of us present...every day and structuring our presentations in the following manner will help you get the YES that you seek.

The Premise: Have you ever heard the phrase, "I don't sell for a living" so sales techniques are not important? Well I have, and I disagree! EVERYONE sells, EVERYDAY...you just may not think of what you do as selling. Three quick examples..."Darling, I believe we should try that new Latin restaurant that just opened"...which could result in all of the normal objections...too expensive, too far, I don't like Latin food etc." You probably will be eating frozen pizza! "Son, how about completing your science project before we go to the Angel game this weekend?"..."Oh Dad, I have this, its not due until two weeks from now, you are old school..." You may be dashing to Office Solutions at 10:00 PM the day before the project is due. "Hey guys, what about moving our golf outing to Shady Grove this weekend?"..."too tough a course, no caddies, etc." So you get the idea. EVERYONE SELLS, EVERY DAY. The success of your "selling" is up to you!

The Presentation: The key to "making the sale" is to make the idea; your client's, spouse's, child's, etc. their idea. I have discovered that the easiest way to accomplish this is to structure your presentation to include five easy steps...summarize the situation, state the idea, explain how it works, reinforce the key benefits, and suggest an easy next step. I honed these skills schlepping shortening in the seventies! Believe me, you had to make the idea the grocers if you wanted to convince the grocer that he should lose money on your product...tough sale!

Summarize the Situation: As simple as "Darling you mentioned the other day that we should add some "spice" to our lives". To as detailed as "You mentioned that you have seen several new signs on buildings in the area. We investigated your observation and discovered that the vacancy rate on industrial buildings in North Orange County has significantly increased in the past six months. The deals that are getting made fall into two categories...class A buildings leased at class C prices, and buildings sold at 2002 pricing. Your building is Class C. If your desire is to lease, then you must realize that tenants can demand "C" pricing on "A" buildings." A concise summary can build the "ownership" of the idea.

State the Idea: As simple as "Let's try that new Latin restaurant that just opened". To as detailed as "We recommend pricing your building to move. We must compete with "A" space and the best way to do that is with aggressive pricing." Make the idea statement very direct.

Explain How it Works: As simple as "The restaurant is running a two for one special if we reserve before 6:00" We can be there and back in no time and with the money we save, maybe we can catch a movie!" To as detailed as "We have a complete list of tenants in the market that can receive information on your building today. We believe that the aggressive pricing will separate us from the masses. Additionally, we can forward the information to all of the active industrial brokers in the market. Lastly, we have established a rather aggressive Social Media marketing campaign through theBrokerList that will allow us to distribute the information through Facebook, LinkedIn, and Plaxo." Very important to clearly define your plan.

Reinforce the Key Benefits: As simple as "Spice darling...like you said" to as detailed as "Leasing the building one month sooner than anticipated will save you ...$.

Suggest an Easy Next Step: As simple as "Let's leave in an hour" to as detailed as "We have prepared the agreement and upon your written approval, we will begin the marketing campaign."

It really works!

Try forming your persuasion into these five easy steps and enjoy the "sales" that you make every day!

"How to" avoid a guaranty of #CRE leases

I provide Location Advice to owners and occupants of industrial buildings in Southern California...AKA, I sell and lease commercial real estate for a living and have since 1984.

I was touring with a client the other day and he told me that he has not guaranteed a lease in fifteen years (he is only 33). Another large operator that we represent, has over 500 commercial leases,  and guarantees none of them...did I mention that the leasing entity has no assets?

Other occupants that we have represented are required to personally guarantee the lease without any discussion....without regard to creditworthiness, tenant improvements, term, or use.

So what is the difference in the above scenarios and what are some means for avoiding the personal guaranty?

Business dictionary.com defines a "personal" guaranty as:

"An agreement that makes one liable for one's own or a third party's debts or obligations. A personal guaranty signifies that the landlord can lay claim to the guarantor's assets in case of the tenant's default . It is the equivalent of a signed blank check without a date. The landlord is generally not required to seek repayment first from the tenant's assets before going after the guarantor's assets. The landlord's actions are usually based on whose assets are easier to take control of and sell. Once signed, a personal guaranty can only be cancelled by the landlord". Read more:

In effect, the guaranty is a security measure to insure the owner gets his rent. The ways to avoid a guaranty are seeded in understanding the owner's risk, clarifying the owner's reality, and proposing alternatives which provide security.

The owner's risk: An owner can spend up to 25% (or more) of the lease's future income originating the lease. I discuss that in this post. An owner wants to make certain the he receives his rent.. as the first several months of the lease's origination are net of revenue (the income reimburses the cost of origination). Only in the later months of the lease does the lease generate any cash flow. Understanding the actual origination costs of the lease are important. How much "free rent" did the tenant receive? How much was the brokerage fee? What, if any, special purpose improvements did the landlord fund? Was the space vacant for long period of time? The dollars associated with the lease terms generate a sum of money that could be construed as "risk". What will the owner lose if thebb tenant defaults (aside from the future rent payments)?

Clarifying the owner's reality: Assume that a 20,000 sf building is leased for five years at $.65 Industrial Gross with 3% annual increases. Generated is a potential income stream of $839,914. I will assume for this example that 3.5 months of "free rent" are outside the term ($45,500), that the owner spent $20,000 on improvements (north of paint and carpet), and paid a brokerage fee of  $41,950. The "concessions" and fees total just over $107,000 or 12.7% of the future rent. We have not considered the vacancy period preceding the occupancy. The owner wants a "guaranty" of the lease's revenue and has spent $107,000 in hopes of receiving $839,914.

Alternatives to a guaranty: My experience is that "reducing the owner's risk" is key to eliminating or modifying a guaranty. I have successfully negotiated the following "solutions".

• Increase the security deposit: In lieu of a mechanism to insure rent receipt...which could include legal action that costs time and money...giving the owner double or triple the normal security deposit gives the owner cash in reserve to cure the non-payment of rent (and gives him money at execution to offset origination expenses). 
• Shorten the term of lease: Shorter term, fewer concessions, less risk. I've used this approach with start ups who have little or no rent payment history.
• Reduce the amount of Tenant Improvements: This reduces an out of pocket expense to originate the lease...thus reducing the owner's cash risk
• Encourage the occupant to accomplish the Tenant Improvements: Similar to the point above. Occasionally corporate occupants have a "pool of money" for tenant improvements which is accounted for differently than lease payments.
• Spread the leasing commission over the term of the lease: This does two things, the owner "pays as he goes" thus reducing the cash outlay at the lease execution AND if the tenant defaults, the fee payments stop. Some practitioners argue that they are not "guarantors of credit" but I've seen this work to avoid a guaranty.
• Only guarantee a portion of the obligation including an "earn out bonus": The owner has shelled out over $100,000 to originate the lease in hopes of receiving $840,000. How about only guaranteeing the $100,000 and with one year of faithful and timely rent payments, the guaranty goes away?
• Restructure the "free" rent to "abated" rent and spread out the concession: Abated rent is recoverable in the event of a default, free rent is not. Classify the free rent abated rent and spread the abatement over the term (1st, 13th, 25th months) of structure the abatement as 1/2 rent for a period of time. The initial cash flow drain is minimized.

Good luck with your deals! Hopefully this helps you close more lease transactions.