Your Rent is Above Market - Now What?

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Recently, I've encountered several situations involving an occupant paying an over market rental rate. The occupant's desire is to remain in the building and renew their lease. But, there is a problem. Storm clouds are rumbling on the horizon and a face off between owner and occupant is quickly approaching. So now what?

First, let's first determine how the over market rent occurred?

Leases originated before the financial meltdown of 2008 were inked at the prevailing market rents. These rents were at a high water mark.

Most, if not all of the leases, contained annual rent escalators which increased the rates over the term of the lease. Shortly after the crash of 2008-2009, market rates plummeted.

So hypothetically, if the lease an occupant signed in 2008 was a five year lease, gold! When renewal time rolled around in 2013, occupants were pleasantly surprised the market had moved in their favor and now rates were cheaper than they were paying. In many circumstances, owners gladly renewed occupants at reduced rates to insure the owner's cash flow would continue - albeit at smaller amounts.

However, if the term of lease was seven to ten years - the opposite is true. Occupants have paid rent in excess of market rates for the term of their lease AND now face renewal in an over heated rental market. Ouch!

Owners, who were anxious to renew leases at cheaper rates in 2013-2014 are now quite bullish and unwilling to budge on the renewal rate they demand. The resulting tug o' war between owner and occupant plays out something like this:

Owners point to the vacancy for industrial buildings in Orange County - 98 of every 100 are occupied - and a better spot will be hard to find. Oh by the way, rents are increasing as evidenced by the recent lease comparables.

Occupants quickly counter with the fact they have faithfully paid an above market rent for the term of their lease and consequently deserve a break - in the form of a rent reduction.

Owners return the argument by reminding their occupant of the cost, disruption, and inefficiency of moving.

Occupants respond with the owner's cost of originating a new lease - down time with no rent, free rent with a new occupant, potential upgrades required by the new tenant, real estate fees.

Now a stand-off akin to wild west saloon gun slingers ensues.

The man who draws first generally wins.

Today, I Need your HELP, Please. TUESDAY Traffic Tips

I really need your collective wisdom, today. How frequently should you follow up with a prospect? We generally follow up in the manner we believe is appropriate. But how much is TOO much? If you will kindly leave a comment, I will feature some of your answers next week. This and much more on this week's VIDEO tip for commercial real estate brokers.



Today, I Need your HELP, Please. TUESDAY Traffic Tips

You Goofed! Now What?

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I love the Academy Awards!  At a minimum, my wife and I try to see all the movies nominated for best picture. We can then watch the awards show with some anticipation and knowledge of the nominees.

We, like many of you, watched in agony two weeks ago as the wrong movie was announced as best picture.

The chaos that ensued made for great TV but one couldn't help but feel a pang of remorse for the producers of La La Land while feeling stoked that Moonlight was the winner. We witnessed a view from the pinnacle of accomplishment to the depths of despair in seconds. Wow!

So what, you may ask, does this have to do with commercial real estate? Only this. Sometimes, we just goof. We try very hard each day to do our best, represent our clients, market our listings, and cooperate with our fellow brokers. With these good intentions, things can still go awry. Case in point, last week, I missed a meeting because I failed to open a piece of mail that specified the date and time. Oops!

What is one to do when the inevitable goof occurs?

Own it. How many times do we blame others or fail to take full and complete responsibility for our actions? I've found it's best to simply own the goof - admit you made a mistake. Say these words - "I made an error and I take full responsibility."

Make no excuse. No one cares if you were stuck in traffic, didn't open your mail, forgot the meeting, or your dog ate your only marketing brochure. The net effect is the goof happened. How and why it happened becomes irrelevant - and only weakens a sincere apology.

Apologize profusely. A good apology. I'm sorry that I missed the meeting. You must have felt as though I didn't care about your issue. In the future I will make sure to be early. A bad apology. I'm sorry if what I did made you angry. However, you should have called and emailed in addition to sending me the letter with the meeting time - ummm, no.

Take steps to insure you don't repeat the mistake. In my case, I'm not great at opening mail. I find mail mostly junk and anything of importance generally arrives via a different medium - email, text, call, social media, etc. I've now committed to visiting my mailbox once a day, reviewing the contents, and responding to the important things. Seems like a no brainer, right?

Forgive yourself and move on. You've owned it, made no excuses, apologized, and taken steps to insure you don't repeat the error. Ok. Done. Move on. Please don't wallow in the fact that you goofed. After all,  someone wise once opined - "to err is human, to forgive is divine". I believe that even applies to forgiving ourselves.

They are TOPS for a reason! TUESDAY Traffic Tips

Ever noticed how you play better when paired with better players? Get to know em. They are the top producers in your field, your office, your profession. If you will adopt this simple strategy, you can take your brokerage business to the next level. This and much more on this week's VIDEO tip for commercial real estate professionals.



They are TOPS for a reason! TUESDAY Traffic Tips

Opposites ATTRACT. TUESDAY Traffic Tips.

Today's tip was hatched from a conversation with my friend Natalie Wagner from our Santa Barbara office. Thanks to Natalie! We tend to target too large and prospect too small.  We should do just the opposite. This and much more on this week's VIDEO tip for commercial real estate professionals.



Opposites ATTRACT. TUESDAY Traffic Tips.

5 Things that Happen after the Listing is Signed?

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You've conducted an exhaustive search for the correct commercial real estate professional to help you find a tenant or a buyer for your vacant building.

Three interviews, seven pin striped suits, and countless shiny pages of pitch books later, you've made a decision. You've signed an agreement and soon, prospects will be traipsing through your vacant space - hopefully.

Today, I want to outline what happens after the listing agreement is signed.

Marketing collateral. A brochure highlighting the building's features is created. Generally, these brochures are html'd into a format that can be easily transmitted electronically for "broker blasts". Certainly, a pdf of the brochure can be forwarded to inquiring parties. Postcards provide a nice respite from the myriad emails we receive. Snail mail still works! Especially if the postcard has a great image of the building prominently displayed. We are starting to see websites (I can hear my resi friends chuckling) for each available building and password secure document vaults for mission critical documents such as leases, reports, financials and others.

Multiple listing service entry. As discussed in previous missives, our MLS services are walled gardens. Only practicing brokers have the key. However, we do submit the listing data to CoStar, ILS, The Smith Guide, Loopnet, AIR, and Xceligent. The information is readily available to agents in the market.

Signage. Once upon a time, if you didn't have an available sign in front of your vacancy, you were invisible - as prospects drove around and wrote down phone numbers. Today, you must have two signs - one painted and planted in front of your building and also a digital sign as 90% of all searches start on line.

Advanced notice. We like to send the agents in our office and the local tenants or owners an advanced notice of the availability. Akin to the "coming soon" in resi parlance, our advanced notice alerts the market to coming attraction.

Marketing process. Ok. Let the games begin! In our experience, a cooperative effort works best - meaning broaden the net with social media, video, and email. Deal with all inquiries fairly and timely. Show up for the tours. If the offering is correctly priced, laden with amenities, and owned by a reasonable decision maker, the task should be smooth and speedy. Any variance will test your skill.