You'd Trust Uncle Joe, Right?

Many years ago (when I was in a different business), I was negotiating a contract with an attorney from the Disney Company.  I was an experienced, knowledgeable, sales director for my company. He was heavy-set, poorly dressed, rather unkempt and he had sort of a "Mayberry" way about him (if you're old enough, picture Uncle Joe from Petticoat Junction or Charlie Weaver). He was friendly, unassuming and extremely likable, kinda like your Grandpa. We sat down and in a slow southern drawl, he told me  "We think you are entitled to make a profit, but it's gonna jingle, not fold." Nothing more clear than that, right?

Well, he surprised me by agreeing to our asking price almost immediately. While I was popping champagne corks, he proceeded to bury me in a litany of terms, conditions and clauses that I had never even considered.  I realized right there that I was an unarmed man in this battle. 

I later found out that his only job at Disney was to negotiate contracts with vendors. He did it all day long and became very good at it. He didn't know anything about the products or services that he was negotiating for and he didn't need to.

Lesson learned! He got the better of me that day, and while it was still a huge win for my company, it could have been bigger.

I often hear tenants say that they have a great rapport with their landlord and they will work out a lease renewal without a broker because the Landlord said he will "take care of them". Similar story for a new lease. The landlord tells them they will get a better deal without a broker involved.  One thing is for sure; the Landlord will get a better deal without a broker involved. How much "rapport" do you think you'd have with your landlord if you stopped paying rent? Unless he's your father-in-law, this is a business relationship and your lease is a long-term business contract. Do you honestly think your Landlord is trying to get you a better deal?

Your Landlord will gladly give up 25 or 50 cents a square foot to make you feel like you got a good deal. But if the only thing you are focusing on is the rent per square foot, you are not seeing the whole picture. It's not the rent, it's the occupancy cost. There are a least a half-dozen other profit centers for the landlord, and he's betting that you can't identify three of them. In a future edition of this blog, I'll show you at least six or seven landlord profit centers and discuss how a good tenant rep can protect you from them.

Don't get me wrong...Landlords are not the bad guys...they're just business people, like you. Some of them are even my friends :) (at least until they read this). They took a huge risk in buying a property. If they can fill it with credit-worthy tenants, they expect to make a profit (it should jingle, not fold). Absolutely nothing wrong with that. There's also nothing wrong with you being fairly represented in your negotiations.

Till next time, you can always reach me at rbenzakein@cresapartners.com or 631-424-4888 ext. 302

Thanks,

Ralph

The Easy Way Out Is Also The Expensive Way Out

So, if you recall from last time (if you don't, just scroll down and have a quick read)...you hastily renewed your lease and you thought to yourself..."Great, one less thing to worry about. Now I can get back to trying to running my business."

Well, here's the thing...For most businesses, real estate costs are second only to salaries as the largest business expense. So a vital part of running your business, is intelligent real estate strategy.

You renewed your lease without changing any of the terms that were unfavorable to you. You accepted a rental rate dictated by the Landlord. You didn't get an allowance to refurbish or freshen up your space. You didn't analyze your space to see if still makes sense for you. You took what you thought was the smart and easy way out. I don't blame you. It's pretty overwhelming to try to figure these things out while you're running your business.

Let's look at the rental rate as an example. Let's say your were paying $25 per square foot when you signed the lease 5 years ago. You had agreed to 3% annual escalations, which at the end of the 5 years became $28.14 per square foot. You just renewed and agreed to continued escalations, which at the beginning of your new lease will have you paying almost $29 per square foot. To put it in perspective, if you were in a 5,000 sf space, that would be $20,000 more per year. You think, OK, everything else has gone up too, right? Wrong.

Rental rates have dropped in the last few years, and even if they hadn't, you're an existing tenant, you should get a better deal than a new tenant. A new tenant coming into your building might be asked to pay $23 per square foot and get a few months of free rent on top of that. Why should you, an existing loyal tenant pay $6 more per square foot than a new tenant. Don't blame the Landlord, this is your fault. You waited until the Landlord knew you had no other options, you didn't enlist the help of an expert, you didn't research the market. In short, you let your guard down. Now, I'm not here to scold you, I just want to give you some better ideas.

First, plan way, way ahead. For space under 3,000 sf, you will need at least 8 months, 3k - 15k - a year, more than 15,000 sf should be looked at around 18 months ahead of time.

Next, hire an experienced tenant representative who can take all of the pressure and time required off of your plate and onto his. Aside from the rent, there are a hundred more things that need to be considered before you sign a lease. A good tenant rep will look at total occupancy costs rather than just the base rent. Make sure that his interests are aligned with yours, not with the Landlord and that his allegiance and fiduciary responsibility is to you. You won't have to pay anything out of pocket for this, his compensation comes from the Landlord.

Some people prefer to represent themselves. Next time, we'll look at reasons for and against hiring an exclusive broker to represent your interests.

In the meantime, you can always find me at rbenzakein@cresapartners.com or 631-424-4888 ext. 302.

Thanks for your time.

Where did I file that lease?

Here's the scenario: You just realized that your lease will be expiring in a few months and you start to think about what that will mean. For the most part, your current space works for you. You might need more open space or a couple of additional offices; the carpet is starting to show some wear; the walls have been marked up a bit. But, it's close to home and you have a comfort level (the car practically drives itself to the office).

So...now what. You didn't get into business to have to worry about this stuff, but now you need to. You decide there is plenty of time to address this and go about doing "more important" things.

At the same time, you begin to notice all of the "Available Space" signs on your way to and from your office. You call one or two of them and discover that although there is a sign in front of the building, there isn't necessarily any space that would suit your operation, but the broker representing the building would be happy to show you other buildings. It then occurs to you that those signs never really come down and that they are really just a lead generation system for the broker.

More time goes by and brokers are calling you every day to pitch you new space or tell you much free rent they can get you. Nobody has really taken the time to evaluate what your business needs are and how they can be aligned with your real estate needs.

It all becomes a little overwhelming and with about 30 days left on your lease, you contact your current landlord and "ask" him if you can renew your lease. He says, "Sure, I'll send you a renewal letter, just sign it and you'll be good for the next 5 years."

Wow, talk about the path of least resistance. You think to yourself, "Done deal". You read it, you notice the part about continued escalations (seems reasonable), you sign it, and it goes back in the drawer for another 4 and a half years.

You, my friend, are a Landlord's dream come true!

I'll tell you why next time. Or, feel free to contact me to discuss.

The USGBC Gala is a done deal - HUGE SUCCESS!!

Just when you thought the Green Movement had taken a back seat to the world's other pressing problems...The Long Island Chapter of The USGBC pulls in about 400 people to attend its annual gala. Great numbers!!!

Long Islanders showed that they still care about green. Michael Dowling's speech was moving and you'd have to be a rock not to feel his passion.

Though there is a long list of others who did the "heavy lifting" to make this work, I am extremely proud to be a board member for such great organization.