Tactic #12: Bulletproof the Transaction – Issues & Solutions

“Communication is a skill that you can learn – it’s like riding a bicycle or typing. If you’re willing to work at it, you can rapidly improve the quality of every part of your life.” Brian Tracy

This last chapter in SHIFT Commercial is one of the most important chapters in the book, especially in a down economy. Motivations change; thus brokers must communicate in order to stay top of mind when sellers are ready to sell. Sellers are not the only ones we have to communicate with – other parties to the transaction such as appraisers, lenders and attorneys – can derail a deal if we do not communicate.

“At any point, any seemingly innocuous detail could quickly become the downfall of the entire transaction…You can’t afford to lose even one transaction because of miscommunication or misunderstanding.”

We all know or have experienced the old adage that “time kills deals.” A shifted market has inherent issues built in them to prolong transactions. The successful commercial broker can anticipate problems and keep the closing process on track.

There are four key components to ensure getting paid outlined in detail in this chapter and they deserve to be explored in more detail.

1. Pursue only viable transactions

• Know the obstacles up front and create a game plan by talking to more experienced brokers or better yet, hire a coach.
• Concessions and contingencies are in more demand – but help set expectations up front.
• Qualify clients on the usual factors like motivation, urgency and funding, but also in terms of difficulties.

2.    Be systematically proactive

• Having a transaction management process can help successfully address challenges a shift can cause and make the broker more valuable to their clients. A six point transaction management and information process can be downloaded at www.kellerink.com/SHIFTCommercial (look under downloads).

3.     Align interest to Solve Problems

• When a client goes quiet, becomes unresponsive, is avoiding your calls or has a strange tone of voice, you can be certain there is a problem. Be willing to ask tough questions and address them early on. Ask what all parties really need and seek truth in the answer. Help all parties remember to begin with the end in mind. “Brokers are problem solvers, negotiators and mediators.”  Saving a deal from dying is demanded more than once or twice in a shifted market.

4.     Avoid the Commission-Ectomy!   These key components help you avoid this heartbreak.

• Negotiate on your own behalf before you negotiate for your client.
• Don’t be afraid to address commissions with clients and help them see perceived value.
• Make sure fee agreements are in writing!
• Be willing to be creative in your compensation – from traditional transaction model to a consulting fee model – the better you perform, the more you will make.
• Leverage other tools to protect your business such as engagement agreements, listing agreements, commission agreements, non-disclosures, LOIs, sales and listing agreements.

I’ve enjoyed reading and sharing my thoughts on SHIFT Commercial with you these past months and hope you found the information useful. If so, go out and get the book – there are more tips and expanded examples for you to learn and use. We here at Rich Commercial Realty are ready to help you in any way we can – contact us today!

In addition to bare economics, real estate design is a particularly important aspect, one which can allow a firm to nimbly adjust to outside forces and market shifts.  A law firm’s office should be designed to emulate their business, culture, and clients.  Strategically the office should be a marketing piece for current and future clients, employee retention, and recruitment.  According to Knoll, “A strong, dynamic real estate strategy – as a means for attracting and retaining talent, fostering collaboration, or boosting worker efficiency and morale – is the most effective strategy for an industry in transition.”

The Rich Commercial advisory team understands and anticipates the needs of law firms.  Through understanding how firms have approached their real estate in the past, and how firms will approach their real estate in the future, we are able to offer a thoughtful and comprehensive approach.  For example, Knoll also states that “while most law firms remain ensconced in a private office model, this arrangement is contradictory to the collaborative work process that needs to take place there.”  By utilizing universal offices, workplace systems, and a more collaborative environment a firm can develop a more flexible space and locate cost saving efficiencies.  Interestingly, according to law firm specific research, Knoll has determined that most individuals within a firm collaborate in open shared space.  According to that research, 39% collaborate in an office, 41% in a conference room, and 85% in open shared space.

As many law firm real estate decisions are thoughtful and long-term in nature, it is important to consider specific ever changing factors such as technology, flexibility (growth, contraction, design), security, health, amenities, and efficiencies.  Through design efficiencies, locational and site amenities, and expandable technology and infrastructure, a modern law firm can find impactful cost reductions.

Rich Commercial Realty has extensive law firm advisory experience and has developed individualized, thoughtful strategic plans which have created flexible, efficient and effective work spaces, while strategically working to reduce occupancy costs.

Contact us today to find out how Rich Commercial Realty can help you!

Catch the segment here ]]> http://www.richcommercialrealty.com/michelle-rich-goode-on-my-carolina-today/feed/ 0 http://www.richcommercialrealty.com/master-the-market/#utm_source=feed&utm_medium=feed&utm_campaign=feed http://www.richcommercialrealty.com/master-the-market/#comments Mon, 09 Apr 2012 13:28:15 +0000 tawnie http://www.richcommercialrealty.com/?p=1294 “The survival of the fittest is the ageless law of nature, but the fittest are rarely the strong. The fittest are those endowed with the qualifications for adaptation, the ability to accept the inevitable and conform to the unavoidable, to harmonize with existing or changing conditions.”  Dave E. Smalley In Who Moved My Cheese by [...]]]>

“The survival of the fittest is the ageless law of nature, but the fittest are rarely the strong. The fittest are those endowed with the qualifications for adaptation, the ability to accept the inevitable and conform to the unavoidable, to harmonize with existing or changing conditions.”  Dave E. Smalley

In Who Moved My Cheese by Spencer Johnson, Haw gives his friend Hem a message – “If you do not change, you can become extinct.” Haw knew that the cheese was gone and that he’d have to adapt to survive (as his friend Hem would also have to adapt, too). As specialization dries up, we have to follow that profound fable’s advice to survive, adapt and diversify.

As investment sales and credit continue to dry up, many brokers have learned to adjust or risk being shifted right out of business. Competition grows fiercer each day and some of the best income streams have dried up, too. With more complicated transactions dominating the market and more experts arriving on the scene daily, it’s important to expand your knowledge of market specializations first and to identify trends you can leverage, properties you can purchase and prospects you can convert.

The second step is to focus on critical lines of business you can grow :

1. Tenant and Landlord Leasing Representation and Property Management
2. Turn-key Consultation on Distressed Assets
3. High-Quality Property Sales

Tenant and Landlord Leasing Representation and Property Management

The great thing about 5 year leases is that 20% of those leases will expires every year while investment sales vary. Leases are less volatile since Tenants need space, Landlords need Tenants and leases can be extended or renegotiated. They are the bright spot in an otherwise cloudy picture. Tenants need help to find the best deal and Landlords need help securing and keeping quality Tenants.

Operating costs are the second biggest line item for business and many Tenants don’t realize how much an experienced Tenant Representative can help shift that number or help profit and loss. They need to know that they hold power, but they don’t know the nuances of the market the way an expert broker would.

Brokers can also help with or recommend a property management. Dual knowledge of property management and investment sales can create feasibility assessments for a fee which creates another revenue stream.

Turn-key Consultation on Distressed Assets

According to the Mortgage Brokers Association, in 2 years $1.2 trillion in commercial loans are coming due. Lenders want a turn-key solution that provides “all facets of service for the property, from receivership to property management, asset preparation and either leasing or sale of the asset” notes Kristan Cole of Wasilla, Alaska. Annie Pearl from Boca Raton, Florida agrees saying that “the ability to truly deliver on accountability as well as direct access to the information sources is key to working with distressed asset clientele.”

High Quality Property Sales

Multi-family, medical andNNNleased properties with A+ credit, like Walgreens, McDonald’s and Family Dollar, etc. are “safe” generators of passive income. Most Brokers making the most Gross Commission Income (GCI) are those who embrace change and focus attention, resources, efforts and expertise-building in areas where income is more likely and more consistent. One way I have chosen to embrace change since the Commercial SHIFT is to work withNNNLease Investment Transactions or NLITs.  Through the KW  CommercialNNNStrategic Partners group I am learning all kinds of new strategies from my 26 partners in 13 states who are experts in this arena.  My own 23 years experience in selling investment properties has been enhanced as I assist many of those investors with converting older investments which likely have depreciated into newer investments with greater yields.  As much as human nature hates change, it must not only be embraced, but implemented immediately to stay on top of this shifted market.   SHIFT Commercial is full of great strategies, examples and techniques that can help create win/win scenarios if you are willing to take advantage and grow yourself and your business.

Christie Barbee, Executive Director of Carolina Asphalt Pavement Association, is one busy woman!  She is constantly on the go and has little time for more than the priorities of the association she directs, especially when the NC Legislature is in session.  The need to deal with an office lease is a hassle and interruption she does not need!

Christie had utilized the services of Rich Commercial Realty on two previous occasions and knew the value they provided in streamlining the process of locating the best space to meet her needs.  She learned in October that the space she was leasing would not enable her to renew and therefore she would have to relocate.   She did not hesitate to call Rich Commercial for their expert tenant representation services especially since they would get the space in an area that was convenient and negotiate all the terms that would be attractive for her to sell to her board.  Proximity to the legislature was a key priority along with parking for her staff and her board without additional cost.

Results

After providing a market survey of options, Rich Commercial Realty located an option that perfectly met the requirements and was a considerably more efficient space than their previous location. Terms included free concessions, turn-key over-standard improvements and finishes, and other flexible terms important to the tenant. Within 90 days they relocated to their new offices at the historic Pilot Mill.   Their space required a spacious board room and the interior design provided a galley kitchen accessible to the board and the staff as well as a large gathering space showcasing an incredible view through the 10 foot historic window feature of the space.  Staff offices also have over-sized windows with views and plenty of free and unassigned parking.  Being only 5 blocks from the legislature makes for a nice walk on most days.

“Since they know us so well from previous representation assignments, Rich Commercial was able to identify options for us that really worked well.  They are definitely a critical vendor relationship we have come to trust that saves us time and money!”

-Christie B. Barbee, Executive Director, Carolina Asphalt Pavement Association

Regardless of your business, industry, or personality, we are all, at the end of the day, in the people business.  The people business runs on knowing your customers, clients, and co-workers.   That is, knowing that their children are seniors in high school, that their son just got married or even that they just changed their hairstyle.   Technology is ever present and has never been so important, but while technology enhances and increases efficiency, creativity, and productivity, it does not get deals done or make business happen.  Face time is vital for laying the foundation for a long lasting relationship.

Last month’s newsletter discussed the new interconnected and efficient workplace.  In addition to cost savings, the idea of designing a more efficient and connected work environment is to create an element of buzz, of interaction, of face time.  This trend in office design is also technology driven to allow for Skype, WebEx, and other communication technologies.  According to René Shimada Siegel of Inc.com, these technologies “are convenient and create the illusion we’re actually having a meeting — but nothing beats the power of a truly personal, face-to-face connection.”

As a tenant representation firm, for Rich Commercial Realty face time in a client’s office is invaluable.  Rather than simply understanding the basic infrastructure needs of your office and employees, we are able to delve into deeper questions and pick up cues.  How is your location really working for you?  What is your short, medium, and long-term real estate strategy?  Is the landlord maintaining the exterior and interior common areas?  What is the first impression of your lobby and reception?  Is your office layout and design leading to increased productivity?  Is there a lack of storage?  None of these questions could be adequately understood or projected via an email, text, or Skype call.

According to well cited research by Dr. Albert Mehrabian:

• 7% of message pertaining to feelings and attitudes is in the words that are spoken.
• 38% of message pertaining to feelings and attitudes is paralinguistic (the way that the words are said).
• 55% of message pertaining to feelings and attitudes is in facial expression.

These statistics conclude that though there are many ways to communicate your message, and likely a combination of face time and technology is ideal, face time remains the most effective form of communication.  René Shimada Siegel sums it up well by concluding, “I love new technologies that allow me communicate with others more freely and quickly. But as a business owner, I try to remember customers want to work with someone they can relate to, not just buy from.”

Tactic #10 Expanding The Options – Creative Financing 

“Life is constantly providing us with new funds, new resources, even when we are reduced to immobility.  In life’s ledger there is no such thing as frozen asset.” Henry Miller

We have a new norm in the lending environment thanks to regulation of banks.

Rather than the 20% equity investment and even as little as 10% equity investment in the hey-day, the new norm is more like 30-40%. It’s not that banks are not lending, but the requirements make it unfavorable for borrowers to put up that much precious cash.  Therefore investing is less appealing.

The strategy is to have a creative financing team aligned with you and investors who can make it happen.  Buyers do have cash in hand and lots of it in the form of high net-worth individuals, venture capital groups who want to invest in real estate, managed real estate funds, and other individuals and businesses who have built equity and can take advantage of depressed prices and interest rates.

Some of the nonconventional sources of funding in a shifted market can be:

1. Small Business Administration (now 10% down if 51% owner occupied with 40% of loan to value fixed for 20 years).
2. International investors – these investors require a great deal of due diligence, but when tapped can be a great source of funding.   Brokers take on more of a consultant role.
3. Owner financing – can be the bridge to making the deal if even for a short term.  Some owners find this more advantages, particularly if they have a low basis in the property.
4. Private lenders – careful here to look out for red flags on behalf of clients.
5. Institutional lenders – takes a lot of hard work to find the right answers, know the brokers doing the transactions and learn where the funding came from.

Capital is always waiting to be invested, particularly if it can be put to better use with  higher yield.  As brokers it is our job is to locate the capital and parameters to make the transaction work.

Great examples of each of these non-conventional sources of funding can be found in Chapter 10 of Shift Commercial by Buddy Norman, President of KW Commercial.

If you want to learn more about the advantages of owning real estate and to learn if this move is right for your business, make sure to attend our Lease vs. Purchase for Small Business Seminar Using the SBA 504 Loan on March 20th. Seating is limited so click here to register.

Tactic #9  Create Urgency!  Overcoming Buyer and Tenant Reluctance 

“A simple rule dictates my buying.  Be fearful when others are greedy and greedy when others are fearful.”  Warren Buffet

As much as most people admire and respect all that Warren Buffet has accomplished in his life as an savvy investor, wouldn’t it be great if every tenant and buyer who seems to respect him would overcome their fear and act!  They rely on real estate professionals to be the experts in their market and help them know the best time to take advantage.  Helping them overcome their reluctance and fear is in their long term best interest.   Two strategies that can help you with investors and tenants outlined in chapter 9 of SHIFT Commercial, a book by KW Commercial President, Buddy Norman, are as follows:

1)  Become your client’s economist of choice and educate them on the market and business realities.

2) Help them tap into their “why” to highlight opportunities ready for the taking.

If we as brokers focus on the client’s business needs rather than on the transaction, we can be the expert they trust  and  help them make an informed decision that is best for their business model.

One of the highlights from the chapter about becoming the expert of choice include how to know when the market has hit bottom.  Everyone seems to want to wait until the bottom of the market when actually there is no real way to know when the bottom occurs until it has past.  The bottom is always known by hindsight.  Once past “the best deals disappear and buyers and tenants flood the market, competing to take advantage of the low before it becomes the high.”

Our role as brokers should help clients understand their fear in order to summon the courage they need to act and take advantage.   Helping them look at other points of analysis, statistical data about the market and understand the financial concept of dollar cost averaging is key to helping them logically make an informed decision so they can act.  As Sam Zell once said, “Fear and courage are very closely related.  Anyone who does not understand fear does not know courage.”

Remember that most entrepreneurs, investors and asset managers, are people first.  All people have different tolerance levels of risk and getting the facts from an expert is what they are seeking to enable them to act!

Tapping into their “why” is the second step that comes into play so you understand their needs and know their motivations so you can help them see opportunities. They either have a pressing business concern that needs addressing or they understand the benefits to be gained in a down market.   Economics is often not the only motivation for tenants and buyers – frequently getting more for less, obtaining a better image or a long term investment  they can use as an exit strategy for their business are other  possible motivations for tenants and buyers.   The bottom line, as experts we need to uncover those motivating factors and show them properties that work to their advantage.  It can be a win/win for everyone!

Contact us to tap into our market wisdom today!

One year prior to their lease expiration, Whitley Law Firm engaged Rich Commercial Realty to help them assess their pre-negotiated option to renew that was provided in their lease and compare it to current market transactions.  Their ideal location offered dynamic monument sign on a major corridor that would be hard to match, but there seemed to be no way for them to grow contiguously.

The strategy was to determine if there was existing property they could purchase or locate a new lease opportunity that gave them more space, some signage on the building or monument sign and competitive terms given the current market. Several purchase options were presented, but were eliminated due to the extensive renovation needed for their use.  We also explored several new lease options that enabled the firm to take advantage of the soft market and leverage those proposals to negotiate better terms with their landlord.  Their decision needed to be made within six months prior to their lease expiration to notify their landlord if they wanted to exercise their option to renew.

Results

The landlord agreed to engage an interior designer to determine if the current space could be redesigned to add more work areas and a second conference room.  This exercise enabled the firm to divide one large office into two smaller offices, relocate an open work area to an under-utilized storage/hall space for a shared open work area and turn the former work area into a second small conference room off of the reception area.  After pricing the revised plan, the landlord agreed to make the modifications at his expense with minimal disruption during business hours. He  also agreed to lower the rent from the previously negotiated rates and provided market rent concessions as part of the negotiations.  An option to cancel was also negotiated for the firm as a safety net in case the space no longer met its needs prior to the  end of the new lease term.

Value Add

The savings yielded the law firm over $16,000 in yearly rental rate reductions from its previous lease and flexibility for the future as the firm grows.  The savings in productivity and relocation cost were added benefits to renegotiating the current lease.

“There was never any doubt that we had the best broker negotiating on our behalf.  Rich Commercial Realty did an incredible job for us and enabled us to focus on our client matters.” 

–Benjamin H. Whitley, Esquire, Partner, Whitley Law Firm 

In 2012, we have witnessed both encouraging and discouraging economic indicators.  The economy seems to be moving forward, but there is without question, continued uncertainty in the ranks of many executives and business owners.  Companies are continuing to analyze the cost of one of their largest business expenses, their office space, often asking, how can we reduce costs and increase efficiency.

In many offices, daily office utilization averages a number near 50%, which can partly be attributed to the increased mobility of employees and job descriptions, not to mention possible reductions in employees.  This indicator is significant, and one reason why companies are seeking ways to redesign and more efficiently utilize their office space.  The uncertainty and strained economic position of many companies has further pushed the idea of investigating ways to “do more with less”.  Rich Commercial Realty has successfully assisted many clients in creative reductions of office space, through lease renegotiations, facilitating a sublease of space they no longer use or need and helping them reconfigure their space for optimal work space, in an effort to help reduce costs.  In addition to the need or desire to reduce real estate costs, many companies are realizing additional benefits from creating a more open, creative and collaborative work environment.  These benefits include collaboration, attracting a new generation of top talent, and building brand and culture among others.

In an article by Steelcase, an office solutions company, the company outlined how they were able to successfully merge three departments by cutting the total real estate square footage nearly in half, a reduction from two buildings to one.   This transition effectively reduced the companies “[f]loor space per person…from 191 to 154 square feet. Desk-sharing ratios went from one desk for every person to one desk for 1.4 to 1.9 people, depending on the group.”  The article went on to describe how Steelcase employees’  “can work more productively, communicate more easily, collaborate at a moment’s notice, and adjust their environment to their work.”  According to Nancy Hickey, a senior vice president and chief administrative officer with Steelcase, “[t]hat’s good for business now and in the future.”

According to a study performed by IBM, “80 percent of organizations want workers to collaborate more.”  As companies and industries continue to transition from file cabinet based document storage to Dropbox or other platforms, there will be less and less need to have a private office and desk.  This is a trend that has become more common due to economic factors, but one that will continue as more and more companies and industries find ways to increase productivity, collaboration, and costs through creating a well designed and thought out integrated office layout.

Contact Rich Commercial Realty today to analyze your real estate efficiency and help bring your office into the next generation of efficient and interconnected work places.

To read about how a law firm created more efficiency in their work space, see our most recent case study on lease renegotiation for Whitley Law Firm.