I've lost count of how many times I've come across the wise guy that listens to all of the real estate market gloom and doom that the media spews out and expects to "steal" a deal.
Case-in-point; I'm speaking with a lawyer (of course) who is looking to relocate his office. In the market he's considering, space is ranging between $21-$23 per sq. ft. As we go through the candidate buildings, he, naturally, zeros in on the most expensive building in the market. He then instructs me to submit a proposal to the Landlord for $12.00 per sq. ft.
I explained to him that the offer is too low to be taken seriously and I didn't think $12.00 would even cover the landlord's mortgage payment. He snapped back saying that he didn't care and that the "Landlord should go to his lender and renegotiate his loan". "The market's in the tank". "Something's better than nothing".
Yeah right! Go through all of that brain damage just for the honor of having this wise-ass as a tenant. Or run the building at a loss just to accommodate (subsidize) his business.
If a rational person thought it through, a landlord willing to take a steeply discounted deal would, in my mind at least, be suspicious. I'd wonder if he was already planning to let the building go into default and pocket the rent money for as long as he can.
What's it mean for the tenant? Services to the building get cut.
But, the tenant got what he wished for: Cheap space in what used to be a class building.
I think on the flip side of this is when you meet a property owner who says that he's interested in selling his building, and when you ask him what price he has in mind, he says "bring me an offer".
Be Careful What You Wish
Commentary:
I was reading an article in the Wall Street Journal about the billions of losses locals banks may experience on the potential default of commercial real estate loans
Another article in the National Real Estate Investor talked about how the major commercial real estate brokerage companies were wringing hands waiting and hoping for a new business line of distressed property work to come their way.
It reminded me of the late 80s and early 90s during the savings and loan crises when the Fed set up the Resolution Trust Corporation (RTC). Many property owners and developers lost their properties through foreclosure during that time. Although some developers formed REITs.
I don't think we'll have another RTC. Although, I do think what some people are forgetting, or what some of the newer real estate agents out there may not realize, is that in all probability some troubled property owners will file for Chapter 11 Bankruptcy prior to foreclosure. This will most certainly delay the distressed property work from coming down the pipeline as it works through bankruptcy court.
But more importantly, brokers that are owed leasing commissions will be relegated to the status of an unsecured ceditor, and in all likelihood may never collect the commissions that they've earned. This was the case for many leasing brokers during the days of the RTC.
I can't help but wonder if the brokerage companies that are fortunate enough to eventually get this distressed property work, will actually be working twice for the same amount of money.
Posted by Gary Lowe at 08:30 AM in Commentary | Permalink | Comments (0) | TrackBack (0)
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