That’s not negotiating… That’s begging!

I got a call from a prospective client the other day. He leases an office in the adjacent space to another client of mine. They had talked about how I had recently helped my client restructure his lease, and the prospect wanted to know more.

Shortly after the conversation opened, it was clear to me that the prospect wasn’t interested in hiring me, but simply wanted some market intelligence so he could confirm that the proposal from the landlord was fair. I tried to explain that getting a great deal is more complicated than just knowing “where the market is” but he was confident in his negotiating strategy.

But here’s the thing… Calling up the landlord and asking for a certain rate isn’t negotiating. Banging on the table and demoing a better rate isn’t negotiating either. When you’re depending on the acquiescence of a counter-party without applying any leverage, that’s not negotiating, that’s begging.

It’s the same strategy my daughter employs when she wants a new toy. She starts by asking nicely, then whining, and eventually devolving into yelling and stomping her feet. And I can’t speak for other parents, but the more screaming and yelling I get, the less likely I am to give in.

The same holds true when I’m negotiating with someone in a work environment. If a counter-party has something to offer and are looking to put a deal together, then we can have a discussion. If they just want to try and berate or intimidate me, I’ll just go somewhere else. I have to deal with two year-old behavior at home… I don’t have to put up with it at work.

Corporate real estate is evolving towards market efficiency

I had a couple of beers with an old-school guy in that’s active in the New Jersey corporate real estate scene the other day. We had a spirited discussion about where the value of a broker resides and the future of the industry.

I argued that brokerage has changed and will never go back to the way it was. The value that we traditionally associate with brokers, specifically “knowing the market” is increasingly irrelevant.  Costar, Loopnet, Trepp, RealCapital Analytics, 42 floors, Compstak, HiRise, etc, have all done a great job of aggregating basic market intelligence.

When I first started in the industry, brokers held the keys to the corporate real estate market. Costar was in its infancy and Black’s Guide was the bible. Brokers were expected to have encyclopedic knowledge of the buildings in the market, vacancies, rental rates, and tenants with pending lease expiration. But today, a lot of that information is publicly available, some of it free, some behind a pay wall. But it’s out there.

Today, it’s less necessary for brokers to know every minute detail about the market. Brokers still have to understand local market dynamics, but a solid grasp of negotiating strategy and what is necessary for getting tenants and landlords to agree to terms is paramount. But for both landlord and tenant brokers, there is also an expectation that brokers understand construction costs, know how to overcome challenges with technology, and be comfortable reviewing legal documents. I’ve also been asked to comment on space utilization, best practices regarding telecommuting, and the new trends around the “workplace of the future.”

This is all a lot more complex than keeping track of the vacancies in the market. Our value is much more about being consultative and much less about holding information hostage.

Greedy/Fearful

After more than a decade in the doldrums, Northern New Jersey’s corporate real estate market is starting to show signs of strength. Everyone is starting to feel better and the business mood has improved. Specific submarkets are experiencing an uptick in demand and landlords are starting to leverage that demand to hold the line on pricing and cut back on concession packages.

If history is any indicator, we’ll soon be seeing long-term deals getting done across the market. And whenever I see confidence start to tick up, I am reminded of Warren Buffett’s quote in his 2008 NY Times Op-Ed, and specifically his line, “Be fearful when others are greedy, and be greedy when others are fearful.” 

2009-11 was the time to sign long-term leases. Landlords were getting aggressive with their incentive packages and were reducing rates to secure or retain tenants. Leases included generous workletter allowances, huge chunks of free rent, and rental rate reductions just to stabilize the tenant roster.

Conversely, an accelerating market is not the time for a tenant to sign a long lease and take more space than necessary. I understand the temptation to buy into those good feelings and bite off a huge lease term. An accelerating market is the time to examine options, look for opportunities, and stay flexible. If business expands as anticipated, there will be always be options to accommodate that growth.