Friday, May 30, 2014

Buzz kill for #CRE deals and ways to overcome it...

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Regulations, compliance, city requirements, zoning ordinances, occupancy approvals, high pile storage permits, racking permits, ADA requirements, conditional use permits...the list is endless for an occupant in California these days moving from point A to point B.

It is difficult enough to get an owner and a occupant to agree to terms, negotiate a lease or purchase and make a deal.

Now, more than ever in the past, a whole new negotiation takes place...that of the occupant negotiating with the city to gain the "right" to occupy the building the occupant has committed to lease or purchase.

So, short of moving the company to a less regulated state such as Texas or North Dakota (which might be easier), what is an occupant to do? This post is designed to give some suggestions on how to navigate these waters, protect your occupant, appease the owner, and get the transaction done to every one's mutual benefit.

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...that qualifies me as some sort of an expert...if I can only remember why...

If your occupant is concerned with ANY required approval...or even if he isn't he should be...I would suggest outlining the occupants concerns in the LOI and stating your and your client's desire to have any final agreement be subject to the concerns.

The type of transaction you are negotiating can really impact your occupant's position. A sale deal intrinsically has a "due diligence period" built into the structure of the other words, your occupant has a period of time to independently figure out what he is buying...what a concept! If the occupant, during the contingency period, discovers some arcane regulation that will keep him from occupying the building...he is free to walk away from the deal for free OR approach the seller of the property with the issue for some financial remedy.

In the absence of a sale deal, you REALLY must work had to protect your occupant. I would suggest one or more of the following solutions:

Negotiate a contingent lease: You simply agree on economic points, lease points, and both parties sign the lease. Deposits are delivered to the owner. The full commencement of the lease is contingent upon whatever issue is outstanding...i.e.: city approval, health department approval, grant of entitlements, etc...AKA, if your occupant is unsuccessful in resolving the issue, he is not bound by the terms of the lease.

Create a walk away amount: You "negotiate a contingent lease" but if the issue is not resolved, there is a non refundable amount that is forfeited.

Wait until all of the issues are resolved before signing the lease: Risky in an owner's market...but it is a solution. This approach is risky (especially if your occupant has few options) as the assumption is that the building will be available when the issues are resolved. In the absence of this, your guy is out scout...after spending time and money to resolve the issues.

Use the AIR form entitled "binding lease offer with contingency": I've not used this form but I understand it is structured similarly to a purchase and sale agreement...with a contingency period, deposits, time frames, etc. I WILL check it out!

Agree to a month-to-month lease that converts to a term once certain things are accomplished: Self explanatory but the upside is that the owner receives rent, the occupant ties up the space but there is a mechanism is in place to cancel the lease or convert the lease to an extended term.

Let's face it, we want to do the best job for our clients and put our clients in the best possible position for success. Anticipating potential issues and structuring around them will certainly accomplish this.

Saturday, May 17, 2014

5 ways to manage your #CRE pipeline more effectively...AKA, how to close more deals!

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Managing the transaction pipeline for your commercial real estate business can be a little akin to herding butterflies...once you get them all corralled, one flies in a different direction.

So exactly how do you manage a transaction pipeline for optimal productivity and keep the butterflies herded?

Indulge me and I will try to explain.

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. That qualifies me as some sort of an expert...if I can only remember why...

Before I jump into the coral of butterflies...a bit of background.

I recently employed a marketing associate, Joshua Harper, to assist me in all things commercial real estate, to make me more productive, and to persuade Joshua and our daughter Paige to move back to SoCal from Arkansas. The arrangement is working well! One of the side benefits of orienting Joshua is that I've spent a fair amount of time analyzing HOW I do things. After so many years, you do deals on "auto pilot" and don't think about the steps you take to originate, execute and close deals.

So if you are experiencing the same issue, here is what I suggest to get this party started:

Define what you do step by step: whether you specialize in listings or tenant representation, ultimately a transaction will occur (or consider a new profession). For us, we came up with eight steps in the transaction pipeline...Source, Find, Qualify, Control, Execute, Close, Bill, Collect...easy!

List all of the deals you are currently managing: Many great CRMs have project functions...REA, CRE Building Blocks, Aptotude, Outlook, etc. However, we wanted a custom spreadsheet with contact information, source of the deal...referral and from whom, sign call (what is that?), Internet inquiry, etc. As we manage a deal through the pipeline, we also wanted to be able to grab key documents...executed leases, escrow instructions, title report, etc. The spreadsheet Joshua created is killer!

Figure out where each deal rests on the steps you have defined: We can copy and paste each deal into the category that we created...source, execute, etc. This gives a real time picture of the transaction moving through the a pig through the pecs of a python.

Design a means of tracking the information: see killer spreadsheet above. The system is designed to be a receivables tracking document as well.

Use this tracking means to set specific "to dos" each day: Each day, Joshua prints out the spreadsheet for me...I'm still old fashioned that way...and I write my to do list on the sheet. Joshua and I then divide up tasks from the to do list and off we go to make it happen.

If you are steadfast about this management technique, I can assure you you will close more deals!

Friday, May 9, 2014

Does your #CRE team have too many "shortstops"?

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Ahhh, springtime! The smell of freshly mown grass, the brilliant blue sky, warm temps, the crack of the bat...its baseball time! America's pass time. Whether you played at a professional level or are just a fantasy geek...we ALL have played baseball!

What the heck does baseball have to do with commercial real estate? Indulge me and I will try to explain.

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. That qualifies me as some sort of an expert...if I can only remember.

Back to baseball...Some would say that the shortstop is the most important man on the diamond. Certainly  in every level leading up to the bigs, the shortstop is the most talented. For all of you who have coached baseball at any youth level, you know that every kid wants to play shortstop. I still recall my first practice as coach of the All Star team for my sons Blake and Mike...I showed up to be introduced to twelve do you field a team with that? The answer is you can't and nor can every kid play shortstop. A successful baseball team requires nine players who can pitch, catch, field, hit, and run bases...a group effort.

Now to commercial real estate...As some of you are aware, I recently hired a marketing associate. I am building a team. Howard Kline discussed this move on his CREradio show recently . You can hear the show by clicking here. So far everything is proceeding nicely. We are two weeks in and Joshua is learning, helping, and assimilating the myriad things we do as commercial real estate practitioners. But why is he doing well? Is it my expert training, my good natured soul, my dashing good looks, dumb luck, the fact that he is my son-in-law and doesn't want to disappoint me?...Maybe all or none of these...but probably some of these reasons. I would offer that the main reason we are achieving some success is because we are not both shortstops. Both of us have our distinct roles and responsibilities which intersect but are autonomous at the same time.

Building a CRE team, hints:
  • Look for role players...not all "rain makers"
  • Place an emphasis on compatibility
  • Don't add a team member, just because your company will pay for it...
  • Think long and hard about what is "missing" from your practice and staff accordingly
  • Pretend you have a virtual assistant for a week or so and imagine what the team member would be doing for you that day
  • Consider carefully you strengths and weaknesses...I know, I hear a collective..."we're good at everything"...Uhhh, no you are not!
  • Family members are great but they are family members. One step removed is good...a son-in-law in my case. If you changed their diaper, they may not heed your mentor ship.
  • Carefully craft a compensation package that will allow learning but provide incentive (I talk a lot about this on the radio show).
Good luck to you with all of the shortstops on your may need a right fielder!

Friday, May 2, 2014

Unintended consequences of #CRE deals...AKA I didn't think about that!

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You wake up in the morning and trip on your daughter's ballet shoes that you left in the hallway the night before....because you left them there vs. waking her and putting them in her closet.

You have a few too many adult beverages and forget where you parked...a good thing! You must take a cab home.

You renege on an invitation from friends...feigning illness...and someone tags you on Facebook having dinner with your wife...and you obviously are feeling fine. Your friends see the post.

All of the above are unintended consequences of actions that we take...some good, some not so good, some DEVASTING! So exactly what does this have to do with commercial real estate? Let me attempt to explain.

As a disclaimer, I provide Location Advice to owners and occupants of industrial buildings in southern California...AKA, I lease and sell commercial real estate for a living and have since 1984...which makes me some sort of an expert...if I can only remember!

I have encountered several situations recently of the unintended consequences of an action taken by an owner or an occupant...which now cause the inability of the owner to lease or sell his building OR an occupant to find suitable space.

A few of the choice ones:

An owner leases a space to a national company...and then agrees to an ominous lease clause which precludes the owner from leasing additional space in the building to certain uses...OUCH!

An occupant signs a ten year lease in the peak...I mean they rang the bell after the lease was done...and now is paying 150% of the going market rents...and he has four more years left until he can move or renegotiate...PAINFUL!

An owner completes a five year lease at below market rents and realizes he must refinance his property during the "down" time...HMMM...

An occupant buys a building and his business outgrows the space two years later...UNBELIEVABLE!

So now what?

Before agreeing to a clause that places limitations on adjacent uses, carefully consider the possibility that the adjacent space may never be leased as the universe of potential occupants has been reduced by the limitation. Is the company's (with the exclusion rights) tenancy that critical?

Wow! This one smacks of someone looking out for his fee and not the best interest of the occupant. If you are not looking forward...and advising accordingly, you are seriously setting up you client for some painful years of overpaying! 

Before ANY lease is executed, consider the next five years, the maturity of any existing financing and the termination of the lease with respect to that maturity. This situation could have potentially been avoided by a different rent structure of free rent vs. a cheap effective deal.

A true dereliction of duty here! See "looking out for a fee". OK, maybe this circumstance was unforeseen...but if you sell an occupant a building that is in a rapid growth curve, you have sadly mis-represented him. Please understand the buying motivation and ask the appropriate questions...not just accept that the occupant "wants to buy".

Consider, very carefully, the consequences...intended and unintended...of your actions. Your daughter's ballet teacher will thank you!