Monday, April 23, 2012

How to Tenant Your Building in Today’s Dynamic

by Chris Norwood, cnorwood@nainorwoodgroup.com
Spring is here. The clocks have been set forward and the flowers are blooming. The Red Sox are dusting off from last season and the B’s and C’s are planning for the post season. As we look forward to some late season action, we got to thinking: How is tenanting your building much like a late season or post season sporting game?

At the end of the 2004 season, Terrell Owens at the prime of his career with the then NFC Champion Philadelphia Eagles was set to play the New England Patriots in the Superbowl. We all know that the Pats went on to win that game, but on the losing side of the ball, Owens played one of the more dramatic roles in a Superbowl loss. Owns snagged nine receptions for one hundred and twenty two yards in a loss, on a broken fibula. Win or lose it was the last game of the seasons so he went out there with a broken leg and played.

Game six of the American League Championship Series against the New York Yankees in 2004. In a must win scenario, Curt Shilling takes the mound for the Red Sox with his injured ankle. It was “do or die” and in those situations anyone is available. Any player, injury or not, rest or not is available to pitch or be in the field, because “there is no tomorrow”.

As bleak as “there is no tomorrow” may sound, it has its applications in real estate as well. When positioning your property to the market and to prospective tenants what are your realistic terms to get the property leased. Would you take a short term lease? What about the credit of the tenant you are seeking? Would you consider a gross lease? What about pricing? What role does your lender play? Often times properties are marketed like it is an early season baseball game. We will field our team and see what happens, if our pitcher gives up a few hits, we will leave him in and see if he can work out of it.

We feel that today’s market is much closer to a post season game. You want to leave some players warm in the dugout or in the bullpen, but make sure you put your best team on the field. Consider lowering the price, or furnishing the space. Not all lease negotiations are about the rental rate.If you would consider improving the space, why wait, do it now to attract the tenant or have a conceptual or a rendering done. It makes sense to have these discussions before the property is put to market and before the marketing has been created.
Most real estate plays out that a landlord will put property out there for lease and a tenant comes along and puts in an offer. The landlord, feeling he has some negotiating room puts in a counter offer, figuring that there is one more bite at the apple. But the apple never comes back, the tenant relocated to another building. Negotiations in today’s economy are one or two innings, not nine like they used to be.
Most importantly in today’s market, once a tenant is found and has some interest in the space, give Shilling the ball. Put your best foot forward, bloody sock and all, and give your best offer to the tenant. The Sox had a game seven that year and went on to win the World Series for the first time in generations. A landlord may not have the luxury of a game seven.