"You won't get paid until you solve all the deal's problems."
This was the statement that greeted me when I became a commercial real estate broker in 1984. The statement was made by my mentor who was a steely eyed veteran of the truck leasing business turned #CRE broker.
As a disclaimer, 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.
As I now have thirty years of deal problem solving, I thought I would wax philosophical on just "how" to solve deal problems.
Before I write about the solutions, I believe that it is important to talk about the
cause of problems. If we, as commercial real estate practitioners can adequately
prevent problems from occurring, we ostensibly solve them.
Unrealistic expectations: Many times we enter a deal without properly preparing an owner or an occupant for the challenges that could befall the transaction. If an occupant enters an
owner's market, the alternatives and deal making environment are skewed away from the occupant. If an owner's vacant building is obsolete and overpriced, the building will sit vacant. Sometimes, even when we do our best to educate an owner or occupant about current market conditions, there is a stubbornness or disbelief that prevails and that must be overcome.
No control: I have written about this ad nauseum, but I see this as the single biggest problem that can crater a deal...not working with an engagement agreement. Remember that problems are going to occur. If you are working without control, the ease of "replacing" you with another practitioner becomes very easy.
Not dealing with the decision maker: Another one of my favorite rants! If you are talking through a
translator...ie: a CFO that reports to a CEO, a local guy that reports to an out-of state president, a member of a board, a warehouse manager that must gain owner approval, an asset manager that doesn't have discretion, you run the risk of your message being
garbled.
A hidden agenda: Are you being engaged to educate an occupant on market conditions so that the occupant can use the information to renew a lease at his present location? Is the move contingent upon the acquisition of a competitor? Has an owner over leveraged his real estate and now
must sell? Is the owner or occupant facing a business obstacle to which you are not privy?
A failure to qualify: If you have failed to diplomatically broach ALL of the above...you have failed to qualify the opportunity.
Solutions:
Unrealistic expectations occur with an
incomplete understanding of the market, a lack of credibility with the advisor (you) or a misconception...an article in a trade journal, a friend's boast at a cocktail party, information sent to them by your competitor, etc.
You can thwart an
incomplete understanding of the market by conducting a tour of available alternatives...not just a tour on paper but an actual tour. This works especially well with an owner who is planning to list a vacancy with a broker.
If you believe that your
credibility is lacking,
let the market be the bad guy . By this I mean, state your case clearly in writing, agree with the owner or occupant's view of the market, accept the listing or the engagement and let the market take over. Once your owner or occupant gets some
real data in the form of offers on a vacant building or rejected proposals, your credibility will soar without being the bad guy.
Finally, the
misconception is easily rebuked by talking specifics vs. generalities. We saw many occupants in the 2009-2011 talking about commercial foreclosures because the media was filled with these reports. We could diffuse these reports by talking about the generalities of the reports vs the real deals in the market.
The solution to
working without control is simply
not to do it...period. Just walk away. If an occupant is not willing to commit to you, then why should you commit time, effort, and money (or the loss of earning potential) on a maybe. There are enough uncertainties in a deal without worrying if your client is going around you with several of your competitors.
I try to get an handle on all the people involved in a
real estate decision early in the process. When things are cool and you are establishing a working relationship, this is easier than when a problem occurs later in the deal and you need to go over the local guy's head. I try, when feasible, to meet with ALL parties, get their contact information and copy them on all correspondence on the deal. Whenever possible, I insist on dealing directly with the person making the decision...easy when the owner is a single, "one off" owner or occupant...tougher when the occupant is a multi state company or when the owner is a pension fund advisor. Realize that if a situation occurs which necessitates talking with a local guy's boss, you may only be able to
go to that well once...may sure it is worth it. Your relationship with the local guy will be tainted forever.
Hidden agendas are masked by a seemingly good motivation and eagerness that can sometimes feel
too good to be true. You can test hidden agendas by zooming out and analyzing the motivation as you interpret the motivation, communicating this to the owner or occupant in a diplomatic way. "Wow, I'm surprised that you would move given the amount of expense you would incur to replace the electrical."
The same gentleman that preached the sage words to me about
solving the deal's problems was maybe the best
qualifier I've ever seen. He had the uncanny ability to ask the question that everyone was thinking but hadn't the balls to do so. I believe that the best way to qualify a requirement is to have the owner or occupant
convince you of their motivation. If an occupant can convincingly recite his reasons for moving...and they are valid...you have just qualified the deal.
Let's all concentrate on solving problems and getting paid this year!
