Real Estate Agent's Café

Your Home Is Still a Good Investment

The Tenant Went Bad. And It's Your Fault!

 

About five years ago I was the leasing agent for a building owner and leased his building to a transportation company through a co-broker. I don't know how it works in your neck of the woods, but here in New Jersey if the tenant renews their lease we're paid a commission on the renewal. Close to time of the tenant's renewal the co-broker contacted me and asked me to follow up with the property owner regarding collecting the renewal commission. He thought the tenant was in the process of renewing the lease. So, I emailed the property owner saying that I understood the tenant was staying and asked him for a copy of the new lease terms so I could prepare an invoice.

I was taken aback when I received his reply:

"The man is into us for $120K in back rent. I think that you and the co-broker should make good for getting us this stiff. How about those apples. When can I expect the co-broker's  and your first checks to compensate our losses?"

Geez, what a crybaby! This person wasn't what I would consider a professional landlord, but he was a prominent businessman and, I thought, sophisticated.

Shaking my head I politely responded with that although I was sorry he felt that way I successfully provided a service, and made no guarantees as to the tenant's ability to pay the rent. I also asked him that if he had invested in AIG or Lehman would he call his stockbroker and ask him to return his commission. I also said that owning real estate was just like any other investment meaning that there's risk. To make a long story short, I ended my message by inviting him to read my post  I'm Not Your Partner.

But what really irked me about this whole thing was how did he come to this conclusion in the first place? That somehow it's the broker's responsibility as to the tenant's ability to pay the rent.

If you think it through rationally, how does the broker have any control over the way the tenant conducts business? Is the broker suppose to pay a monthly visit to the tenant's office to manage his books, making sure that there's enough cash in the account and that the rent gets paid first? If the tenant's business starts to slip is the broker suppose to insert themself into a management position and effect a turnaround? Get real!

I'll tell you how he and a lot of other landlords came to this conclusion. The brokers have allowed them to come to it! The "Village Idiots", part timers, dabblers and the ones that don't know what business their in. If your reading this and don't know what I'm talking about then maybe your one of them.

Allow me to clue you in. We're in the service business! We provide a service by finding a tenant and negotiating the business terms of the lease. It's the landlord's choice to accept the tenant and if he does, he assumes the leasing risk that's associated with the tenant. The broker is not a partner with the landlord in the downside risk.

Now that you understand your role, some of you still won't be able to help yourselves. You'll go out tomorrow and in desperation to "get that listing", let the landlord bully or intimidate you into accepting some ridiculous commission payout and terms. Guess what? Your being set-up not to receive your full compensation just in case the tenant stops paying the rent. Nice hedge for the landlord if you allow it. 

So the next time you're confronted with your commission being tied to the tenant's performance, ask the landlord how does he expect you to enforce it?

I never did hear back from that property owner, and I doubt that he took the time to visit this blog to read the post I referred him to. After all it wasn't what he wanted to hear.

I did take a ride by his property and saw a broker's sign on the front lawn. One of those aforementioned brokers . I could only imagine what listing terms the broker had to agree to, but hey, they "got the listing". 

How To See Through Real Estate Broker Tricks

Forewarned is forearmed. This one really burns my ass. The problem is that this slick piece of propaganda will be believed to be true. You'll notice that it really doesn't advise the viewer on how to select a broker. It does a better job in scaring the viewer into going FSBO.

It says 50% of house hunters look on the Web for homes, but it doesn't say how many are actually sold that way. I get the feeling that the creator of this piece of work has a real ax to grind. Perhaps they were to stupid to pass the licensing exam.

I'm Not Your Partner

 

Commentary:

Before I begin, I just want to let you know that this topic is directed towards the commercial leasing brokers. I'm giving the selling brokers with no interest in leasing a chance to click out before they go any further. However,  If you're curious about one of the many special issues leasing brokers face continue reading.   

In my post Observations I listed "Somehow the broker is magically transformed into the landlord's partner when the landlord asks what happens if the tenant stops paying the rent, as it relates to paying the broker's commission".

It amazes me how often I'm asked by the landlord; What happens if the tenant goes bad? We all have choices in life including on how we conduct business. As leasing professionals we have the choice to work with good tenants or crappy tenants.

Me, I choose to work with good tenants. I highly value my reputation and I don't want to be known in the market as the broker that only cares about "making a commission". The, I'm here to jam this tenant down your throat, now pay me mentality my sub-par competitors practice. The ones whom I affectionately refer to as "The Village Idiots".

Now on-the-other-hand, the landlord has made his choice to accept all of the problems, risks and benefits that are associated with owning income producing properties. This also includes the leasing risk. When the landlord starts suggesting that somehow my commission is tied in with the stability of the tenant, he's looking to lay some of that risk off onto me. 

This presents itself in a couple of ways. Occasionally, the landlord just blatantly says that he wants to be reimbursed for the un-amortized commission from the time the tenant defaults, but most of the time they choose to use the more subtle approach of wanting to pay my commission out over the lease term either monthly or annually, setting me up not to be paid should the tenant skip in the middle of the night.

By accepting these terms I've, in essence, become a partner in the downside with no upside benefits.

When I'm confronted by the landlord with this question, my answer is always; "I'm not your partner". And I'm blunt about it. I go on to say that you as the landlord have a choice to accept this tenant, or if you're not comfortable, don't go forward leasing them the space. No hard feelings. I understand.

But once you've accepted them as a tenant I've "provided a service" and as the owner of the property, the risk is yours. I also go on to say that I expect to be compensated in a timely manner for that service. At this point I usually hear some blah, blah, blah whining, crying and complaining about how some broker stuck him with a crappy tenant. I sit and listen patiently, but the truth is that it's not my problem. He's the one who chose to be a landlord.

If I'm not getting through I'll say something like; I'll tell you what, go to your lawyer, your architect and to your contractors and suppliers that will be involved in this transaction and constructing the space for the tenant, and get them all to agree to take their fees on a monthly basis too. Who, buy-the-way are receiving those fees directly brought about through my efforts.

The reply is usually; Uh, I can't do that. (No shit Sherlock! They'll all tell you to go F... yourself! So why then should I agree to it?).

Another response I use if things start getting testy is; Ok, but I want a percentage of the building's cash flow. A percentage of any tax deferred cash you pull out when you refinance, and a percentage of the gain should you sell the building. After all, you're inviting me to be your partner. Shouldn't I have a share of the benefits too? (with a smile) Oh, I almost forgot, I want to be a limited partner so I don't have the lay out any cash for repairs or improvements. (Hey, what's good for the goose and all of that.) Then I sit back and watch him pop his eyeballs back into their sockets and pick his jaw up off of the floor as the vein in his neck pulsates.

Believe me, if the conversation has deteriorated to this point the meeting has gone sideways anyway, and I'm just having some fun or maybe inflicting just a little sadistic torture.

I love this business.

 

 

 

 

 

OK, So What's With The Pictures?

 

Commentary:

Let me start by saying that I am one of the least photogenic people on the planet. I'm amazed at how some people can apply just the right amount of muscle tension to form the perfect smile every-time. For me, I can't hold it together for more that two seconds. And it never fails, the person taking my picture invariably takes a second too long to snap the shutter, just as I feel my face distort under the pressure.

Then there's the reality check of actually having to see myself in the photo. A point in time that shows me what I actually look like to the world. I prefer to look a myself in the mirror and allow my mind to delude me into thinking that I look much better than I actually do.

This is on my mind because I need to have a professional photo taken for a project that I'm working on. So with this looming, I can't help but notice the photos my competitors are using.

I find that most are very well done. Some are very natural and obviously are the ones that are lucky enough to have the right gene switched on in their DNA that I referred to earlier. And then there are the ones that had professional photos taken that look good and work very well.

Then there's the other category.  

I know that this has been addressed numerous times, but I can't help it. I have to ask; What's the deal with the props?

Showing off one's prowess using the telephone doesn't impress anyone. We all know how to use one. I recall one local broker in particular that I'd see in those home magazines posing with a french phone. Although, I haven't seen her around in a while. Maybe she moved to France?

With the advancement in telephone technology it was inevitable that the cell phone would be the next bright idea. Pictures of agents (mostly the younger Guys) holding their cell phones up to their heads looking busy. On the run. A new and improved model over those agents still in the dark ages using desk phones. A Real Estate Agent Action Figure. Collect them all. (cell phone, blue tooth headsets for each ear, push-to-talk walkie-talkies, satellite uplink sold separately. Batteries not included)

This next group I just can't figure out. The "through the haze glamor shot". It's as if someone smeared petroleum jelly over the lens of the camera. When they meet with their prospect in person do they hand them a pair of glasses with the same substance smeared on the lens, or do they apply it directly to the prospect's eyes to create the same effect?

Then there's the photos that fall into the category of; What the hell are you thinking? You're suppose to attract business, not scare it away!

Some of you (mostly Guys) look like you stumbled in from pulling an all-nighter at the neighborhood pub. And good Lord there was one poor woman; deer-in-the-headlights eyes bugged out, wound so tight that you could see her bobby pins popping out of her hair. There's no way I'm getting into a car with someone that close to the brink for fear that the first stop on the property tour would be the Bates Motel!

For the full effect click the play button.

In all fairness, photographic faux pas aren't exclusive to real estate agents. The business world, in general, has their share of "pompous posers".

Anyway, I called a professional photographer that I know to see if he can work some magic. He told me that he was "taught the proper techniques for posing and lighting so I was going to get the best of the best". He also said that he wasn't a miracle worker. (Oh well.)

 

Have Some Consideration, Please!

Commentary:

What is it with some people?  Anyone who uses a cell phone knows that when you call someone while they're talking with someone else, both sides get a beep to let the recipient know that you're trying to reach them, and to let you know that the recipient is having a conversation with someone else.

When I call someone and and I hear the beep, I immediately hang up knowing that they're on another call. I don't understand why some people insist on letting that beeping go on. As we all know each beep cuts out words in the conversation.

For me, it usually happens when I'm negotiating a deal or making an important sales call. Each beep seems be perfectly timed to block out the most critical information. It's really a high tech way of interrupting someone while they're talking. You wouldn't act rudely in a face-to-face conversation. Well anyway most of you wouldn't. Why then do some practice bad manners with the phone?

I know what you're thinking. Why doesn't he just press the ignore button? Because, I'm focused on my conversation and by the time I have a chance to break and press it, a couple of three beeps have messed up the call. And besides, I shouldn't have to program myself like Pavlov's Dog. 

Hang up when you hear the frist beep! The call log on the phone will let the person know that you've called. Unless of course you have Block Caller ID. Which brings us down another road.

Block Caller ID is a form of high tech anti-social behavior. What is your problem? Who are you hiding from? America's Most Wanted?

When I receive a business call and I see Block Caller ID on my phone, I get the creeps. I feel like the call is coming from the deepest region of Hell and the Prince of Darkness is on the line. Come to think of it, only the Prince of Darkness has the right to harass someone with that infernal beeping. That's his job.

Again, when you hear the first beep, hang up. Call me back later. And creep me out a second time.

     

 

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.