Real Estate Agent's Café

Deal Economy 2010: Boyazny on Distressed Opportunities

Maria Boyazny, managing director and portfolio manager at Sigular Guff & Co. spoke at The Deal Economy 2010 about acquiring distressed assets. She says that corporate opportunities are only part of the picture. The residential mortgage market, commercial real estate, corporate distressed debt, consumer debt and municipal debt are all ripe for distressed acquisitions.

Funny Real Estate Sign #6

A Bright Idea for Wasteful Office Lighting

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". 

OH, CRE (OH, COMMERCIAL REAL ESTATE) - song parody

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Commercial Real Estate Going **BOOM BOOM**

Commercial Real Estate: The Next Hole in the Economy

Real Estate Babel (Part 2)

  King Nimrod

In my Post Real Estate Babel (Part 1) I put forth the theory that commercial property owners may be direct descendants of the peoples of Babylon and perhaps of King Nimrod himself.

Trying to find out what charges are in addition to the rent from most property owners that I've dealt with are, at times, excruciatingly and unnecessarily difficult. And I suspect it's this way everywhere.

It usually goes something like this:

What additional charges is my client expected to pay? 

Utilities.

That's it?

Yes.

Is the cleaning included?  

No.

OK. Is there anything else?

No.

Oh, by-the-way, what about property management?

Uh, that's extra too. Note: And this is only a partial list.

Then I'll ask for a  breakdown of the cost so my client knows exactly what his occupancy cost will be. No problem! I'll email it to you today. They rarely do. After a dozen calls and badgering I'll finally get something in writing. It still may be incomplete. Something invariably will be forgotten. I call it selective amnesia. Strickens the most lucid minds. Poor things.

I don't get it! What's the big secret? Do they think that these unmentioned expenses aren't going to come up later when the prospect gets the lease? And oh boy, the sparks really start to fly. Can't say as I blame them. Who likes surprises? Especially when you've done your planning and budgeting based upon a set of assumptions that you believe to be credible.

But in the property owner's mind the more time he can burn, the less options the prospect will have. Then he'll have em over a barrel. Or, if he tells them too much, the'll scurry away never to be seen again.

What a way to start a business relationship.

I propose that we get rid of all of this jargon and just spell it out. Think of all the extra time we'll have to focus on getting new business. But, I know the mentality. That would be too scary. Or perhaps it's that genetic connection to ancient times.

Real Estate Babel (Part 1)

You probably heard the story in the Bible about King Nimrod, who fancied himself as a real estate developer, deciding to build a tower to reach Heaven. Kind of like the mid-rise suburban office buildings that you see all over the place.

Well, it seems that God wasn’t in a humorous mood that day and sent all of the workers scattering speaking in different tongues, which is why we have communication problems to this day.

I suspect that this problem in communication has carried down through the millennia to today's commercial property owners.

Ask most Landlords (or real estate brokers for that matter) what the lease rate is, and you'll get a response that it’s “X “dollars per square foot net, modified gross, net net net, double net, or some other term that gives no information at all. 

Heck, even Tenant Electric isn't clear anymore. It used to mean lights and electrical outlets. Now, it could include heat (if electric) and air conditioning.

Between "gross" rent which includes everything with the base rent and "triple net" which includes nothing but the base rent, here are no universal terms to describe what charges are included or not included in the base rental rate.

More on this subject in my next post.