Toughest call I’ve had in a while…

I spoke with a prospective client today about next steps after our initial pitch meeting. He started the conversation aggressively and it soon became clear that he wanted to really understand and challenge my value in the lease negotiation.

His argument was essentially three points. First, he thinks that brokers will inherently favor the landlord and would be predisposed to cutting a quick deal. Second, he wanted to know if we really add any value, as he is a good negotiator. Third, using a broker is going to add time to the process.

My counter-argument was:

1. I’m going to be engaging the entire market, not just talking with his landlord. If I don’t do a good job negotiating on his behalf, he’s going to see it in black and white. Negotiating with multiple providers creates an active bidding process and ultimately drives price discovery. It’s impossible to favor one landlord over another if the bidding process is transparent to the client.

2. Regarding his negotiating ability, I’m sure he’s very adept. But real estate is the landlord’s arena. It’s impossible for a tenant to know as much about real estate and all of the associated nuances as the landlord. The tenant might secure a great rental rate, but not know to push hard on free rent or other concessions.

3. It will be quicker to do it himself if he is okay with leaving money on the table. But if he really wants to negotiate the best possible rate on his own, the amount of prep he’s going to undertake will far exceed the time commitment of using a broker.

Its easy for a tenant to call up the landlord and secure a quick extension on their lease. But hiring a competent broker will help ensure you’re getting the best possible terms.

The opacity of the market

I’ve written before about how companies like Compstak, 42Floors, and Loopnet (the granddaddy of online listings) among others are trying to create transparency and simplicity to the corporate real estate market, which is typically very opaque. And while I believe that improving transparency in any market is good, I also understand that real estate is not a true commodity. Pricing cannot be dictated on a strict supply/demand model like stocks, bonds or commodities, or even an Uber ride across town.

By example, I am currently working on a project for an industrial user. They need 75,000 square feet of warehouse space. The general specifications are 26’ ceiling heights, 8 loading docks, 1,000 amps of power, and 5,000 square feet of office space included. And all of this had to be reasonably close to their current location.

While there were 15 buildings that could theoretically accommodate the requirement, we discovered that 12 of them wouldn’t work. They either had structural issues that were undesirable, were geographically difficult to access, or had deals in process.

Buildings are not commodities. Even two identical buildings that are on opposite sides of the street can have dramatic differences that will impact pricing. While I appreciate any effort to add transparency, there are still significant differences between properties that could impact pricing. And brokers still have a role to play in helping clients understand these intricacies.

The importance of communication

Whether it’s leadership or doing deals, I have seen no better indicator of success than communication and alignment of goals. I’ve never heard anybody say, “Whoa, you’re over-communicating here… I don’t want to know your objectives.” 

As brokers, we can either be brought into the fold and provided transparency to the client or we can be treated as a tool to be deployed as the client sees fit. While I have worked in both situations, an open line of communication and transparency has always resulted in a smoother process while achieving an optimal outcome.

Two examples:

I worked on a large headquarters project for a consumer goods company last year. At the project outset, the client was very open about his goals for the project, his board’s expectations, and what his staff needed to be successful. From there, we set out to establish a blueprint for success including milestone dates, identification of key deliverables, and buy-in from other stakeholders.

The deal went about as smoothly as they can go. While it wasn’t an easy deal, there were no surprises and each hurdle was tackled appropriately. The project was a success and everybody was thrilled with the outcome.

By contrast, I had an industrial client that kept their project objectives close to the vest, doling out information only has he saw it. While he understood the need for a broker, he felt that if he kept us at arms-length, he would be able to manage us and by extension the deal. It left us struggling to communicate his needs to the landlord and constantly going back to him for more information, which he would spoon feed as necessary.

Every hurdle we encountered took additional time to clear and it required much more back-and-forth and was really necessary. While the project did end with the client securing the space they needed, everyone left feeling frustrated.

I understand that it’s sometimes difficult to determine what should be shared and what should be reserved. But when in doubt, a frank conversation and open communication will go a long way towards creating a cohesive team that generates a positive outcome.