Monday, May 3, 2010

Generating Commercial Listings and Leads

In commercial real estate and investment property your leads for new business come from a number of sources. The more leads that you can generate and optimise, the more successful you will be in getting the best listings. In this market, the quality of the listings is so important given that the buyers and the tenants can be so selective.


When the market is saturated with owners and businesses that are struggling to keep afloat, it is the quality properties that you want to market. These are the ones that will generate the momentum even in difficult times. The banks are also not as reluctant to lend on the higher quality asset with established cash flow.

Does this mean that you turn your back on poor and unattractive commercial real estate listings? Perhaps you should for this time given that you want results to your marketing. It’s your choice, but at the very least, be selective as to what you list and how you do it. Your time is your only resource and how you use your time is essential to generating fresh and marketable listings.

What are the Sources of Leads?

We cannot cover all the sources of commercial real estate leads here as they are unique to your market in many respects; however it is worthwhile raising the main common ones so that you can have them covered. Importantly you must know what a lead or source of new commercial real estate business looks like in its early stages, and then you must know how to convert it to fresh momentum and a deal.

There is one main rule on the topic of leads; when you see a lead, you must react to it in a professional and timely fashion before someone else does.

Leads in commercial real estate are not just for the things that happen today; they can be for things that are potential deals in months or even years. The more clearly you see this, the further business you will generate for yourself.

So here is the most obvious leads generation list that you must have covered in one form or another. See how you score on these items and make sure that these foundational matters are under control.

1. Business Acquaintances locally - these are most particularly those people that you have known for some time and who are likely to cooperate as an extra set of eyes in the market place. Choose of these people with care and remain in contact with them constantly.

2. Professional Business People – in your marketplace, there are a number of categories of business people to whom you must remain connected. The highest on the list are solicitors, accountants, town planners, financiers, architects, local politicians, and engineers. All of these people have significant involvement with the commercial property industry and the property owners. They will likely hear about a commercial property transaction before you do. In many cases these people need the assistance of a good commercial real estate broker to help their clients in a variety of ways.

3. Local businesses – local businesses produce change and flux in the marketplace. As time progresses, you should constantly encourage ongoing contact with all the major businesses in your precinct. They are the ones that regularly need to buy, sell, and lease premises; this means all the local managers and business proprietors who are involved in property decisions and creating commerce generally in the community. Recognise that they do not normally know much about commercial real estate. You can bring them updates on rental and property prices regularly to assist them with a future property need.

4. Colleagues within your office – many commercial real estate offices are cooperative business environments with salespeople working productively with each other. This means that they share leads and opportunities in sales and leasing. Sharing part of your commission with other colleagues in your office is far better than giving the commission to another outside competitor an agent in the same region.

5. Building tenancy schedules – from time to time, you will see or obtain tenancy schedules or inventories that relate to major buildings in your area. Whilst they should be regarded as confidential documents, they will give you a wealth of opportunity if used correctly. Any lease that is to expire inside the next three years is a target for future contact. The relative tenant will need to do something to preserve the function and occupation of their business. It is surprising how many tenants leave such matters to the last minute. The ongoing contact with tenants of this type is highly productive. Your main focus with these people is to establish trust so that they come to you when they need you.

6. Competition agents and brokers – normally speaking, the competitor agencies in your area will cooperate on conjunction transactions with their exclusives. The commercial real estate industry is relatively specialised and such cooperation is common in sales and leasing of office, industrial, and retail property. Importantly, any conjunction arrangement involving other agent’s listings must have a completely signed and documented conjunction agreement before you proceed. Cooperate with other agents, but do so with care and professionalism.

7. Satisfied clients – your agency business, if it’s been operating for a number of years, will have a significant list of established happy clients from previous transactions. It pays to keep in contact with these people given that most transactions in commercial real estate happen every 4 to 10 years. The satisfied clients are going to need your services again.

8. Old campaigns – any commercial real estate campaign and marketing event will have created leads and people that ‘changed their mind’. All of these people should be on your constant contact register or data base. Feeding them regular market updates is essential.

9. Other Agents old deals - as a further extension of this item above, you can also monitor the transactions of other competing agents in your area. Any transactions that occurred through other agencies over the last 4 to 10 years should be monitored for future re-activity. It is interesting to note that many real estate agents and brokers are lax when it comes to keeping in contact with others.

10. Industry publications – any newspaper or industry publication in your area should be reviewed daily for information involving businesses relocating, expanding, contracting, or merging. It is surprising how so many agents overlook this obvious source of listing. These publications will also frequently name the key people in a business such as the CEO, President, or CFO. In all cases these business leaders go on your contact list and get a letter on a regular basis. Note that I said a ‘letter’ and not an ‘email’. In this high tech world you want your correspondence to be seen and read; an email will not achieve this in most circumstances.

11. Other agent’s signboards –when another agent puts a signboard on a property, it is imperative that you contact the other adjacent and nearby owners of commercial property in that street. These people are likely to have an interest in competing with the property that’s just come on the market. They are also more likely to use you as a competing agent whilst the other agent’s property moves through its promotional period.

12. Financiers and bank managers – these people need property transactions for their business to survive. They are also receptive to working with professional real estate agents who understand commercial real estate and act professionally. If you can supply them with the source of a new large mortgage or property development, they are likely to offer you the opportunity for a listing or a sale with their clients in the future.

13. Planning approvals – keep close to the local council or office of the planning committee in your region, as they constantly consider new planning matters. Some of these offices have minutes of planning approvals that are available for public scrutiny. Check out these minutes and follow through on the opportunities that you can see. The historic planning approvals over the last few years are also great sources of leads and listings.

The inventory above comprises the most obvious categories of leads and opportunities. You will be able to add to this as time progresses in your marketplace. Importantly make sure that you have these items well under control as the essential foundations of your business.

Tuesday, February 16, 2010

Due Diligence

As you promote, sell and then document the property transaction you will soon come across the fact and event of ‘due diligence’.

This element of the commercial real estate sale is very common and will be the subject of most contracts with the exception of the auction method.

As you would expect the process of due diligence can make or break a sale. For this reason it is wise to question a seller well in the listing stage of the sale to ensure that no ‘deal breakers’ or problems are hidden in the cupboard. Due diligence will likely find most problems on and with the property.

So what can be looked at in ‘due diligence’? Consider these:
  • Due Diligence is simply a detailed checking process that is undertaken prior to sale and settlement by ‘experts’, to review all relevant data involved in the sale.
  • Usually solicitors and/or audit specialists are the nominated parties to undertake the work on behalf of the purchaser.
  • The concept of Due Diligence is that the sale and settlement of the property will only occur if the Due Diligence process is successful.
  • On large commercial properties it is not unusual for Due Diligence to continue for days if not weeks. A special condition of the contract will allow this to occur.
  • The process is undertaken under the strict control of the Seller. It usually occurs in the Seller’s property management office or at the Sellers solicitor’s offices, and is usually in a controlled environment (locked room). Only authorized parties are allowed into the room so as to preserve security and confidentiality of documentation.
  • A good Agent or Broker will provide total support to the Due Diligence activity. Expect Due Diligence to check just about everything involved in the sale.

The five professional areas usually covered are:-

  • Engineering
  • Environment
  • Finance
  • Legal
  • Management

Expect questioning and document discovery to include the following:-

  • Engineering: Includes verification that the property structures and building services comply with the Building Code of Australia and Local Government building Approvals. Questions will cover safety risks or non-compliance of structures, fire protection, air conditioning, electrical supply, hydraulics, lifts, escalators, and stand-by emergency power. Expect the questions to involve adequacy of structures, mandatory service compliance, remaining life expectancy, capital expenditure, and sinking fund requirements for future major repairs or replacements.
  • Environment: Includes a wide range of issues such as identification and analysis of environmental and physical risks to the property or land and its use. Issues will include site contamination, dangerous goods and hazardous substances, asbestos, hazardous industrial waste, trade waste, storm water management, occupational health and safety, heritage factors, and statutory requirements.
  • Finance: Includes all actions and dealings associated with property financing, review of taxation implications, substantiation of income and expenditure statements, arranging mortgages, financial analysis and modelling, company or entity investigations, plus all other supportive or related documentation.
  • Legal: Includes all conveyance documentation, easements, permits, titles, contracts, leases, searches, incentives to tenants, site details, compliance with any legislative requirements, outstanding litigation, and any town planning issues.
  • Management: Looks at any issues associated with ongoing asset management, facilities management, building management, lease management and negotiation, rent collection, arrears, financial reporting, insurance, car-park supervision, cleaning, pest control, landscaping etc.

Legal Aspects

A major pitfall for Commercial Real Estate Agents and Brokers when they first begin to list the property is that they inadvertently find themselves delving into aspects of law without the necessary deep experience.


 
Interpreting, creating, or even modifying leasing documents before a sale is the field of legal specialists and in particular the landlord’s solicitor. You will be regularly involved in negotiating new leases and changes to documentation to prepare the property for sale; hence a good working relationship with that solicitor is important.

 
Some lease proposals and leases are easier to create and process than others. Be aware of all potential problems, and take the precaution of getting your office manager’s approval on every lease proposal you negotiate. Take special care with retail tenancies as they are impacted by separate leasing legislation in most locations.

 
Never proceed to create a lease proposal or lease strategy unless you understand all the issues, and never alter any signed and final documentation.

 
Follow these fundamental rules; you then are not likely to slip into any legal minefields.

 

  1. Never rely on oral agreements. Put everything in writing.
  2. Keep a log of all contacts with buyers, sellers, landlords and tenants. Record and date all information obtained from these sources.
  3. Never permit your company’s approved forms to pass from your control. If you give a blank proposal or lease to prospects, you run the risk that they may modify it or use it for some unauthorized activity. In such a case, your firm might be held legally liable for the consequences.
  4. Choose your cooperating or conjunction agents carefully, and put all agreements with them in writing before you get involved with them.
  5. Consult your manager whenever you find yourself in an ambiguous legal or ethical situation.
  6. Remember that all written agreements must be signed by both parties to the agreement in order to be enforceable, and each signatory must receive a copy of the agreement.
  7. Never alter a proposal without your manager’s approval, and never change an original signed document without the full knowledge and consent of all the parties concerned. It is prudent practice to never change an original signed document, but to seek a fresh document as its replacement.
  8. Never sign a document of any type on behalf of your client (the Landlord or property owner) without the absolute written and correct authority to so act. It is prudent practice to always get the client to sign any critical document such as a contract or lease. If the Landlord is a corporate structure (Company) it is likely that the ability to sign on behalf of your client is not an assignable matter anyway. Certain ability to sign in those circumstances is governed by common and corporations law.

   
Make sure you understand your Appointment to Act well and use it to its fullest advantage. Never step outside that authority to act and the duties it describes.

 
Every property should be considered as unique. All of the items in the Leases and all the ‘standard’ conditions need to be tested against the particular circumstances of your client, your client’s tenants, the property with its services, and the requirements of local and regulatory authorities. This is done before you move towards sale. This will ensure a tailor-made sale process and that the best marketing and negotiation processes are achieved.

 
Some Recommendations

 

  •  Sort out any tenancy situations or problems early in any sale listing appointment. This may require the assistance of the Landlord’s legal advisor.
  • Undertake your own ‘Due Diligence’ process of the seller’s property. Start with the current title search. Also look at the lawfulness of existing uses and lease and search the Local Council and the Environmental control bodies. 
  • Workplace Health and Safety issues should also be looked at to ensure compliance to the current regulations, and if food handling is involved in any of the tenancies, inspections by the local health inspectors may be prudent
  • Do not rely on disclaimer clauses. If a document was entered into as a result of misleading conduct, the disclaimer clause will not help or protect you from any legal action.
  • A disgruntled tenant will not only target the actual Landlord, but will most likely join the Selling Agent in any action as a third party.
  • Poor tenant relations should be understood before the sale promotion starts as many a tenant has impacted a property sale and price. Buyers will usually talk to tenants about the property before they sign a contract.

Monday, February 8, 2010

Property Lease Negotiation

The structure of a lease negotiation and tenancy placement is very much related to the financial requirements of the owners, so information is essential if those negotiations are to be successful. You need to understand what lease priorities exist for the client landlord and how those priorities will need to be integrated into the tenancy mix and lease models. You also need to know about the property and its ability to serve the tenants and customers into the future.



 
The Landlords Focus

 
In relation to lease documents, landlords are generally basic and particularly concerned with:

 
· The period of the lease

 
· The level of rent

 
· The type of rent

 
· The renewal of the lease

 
· Landlords costs to establish a lease

 
· Tenants make good requirements at the end of the lease

 
· Permitted use of the premises

 
· The frequency and method of adjustment of rent

 
You should take this further and be focused on the calibre of the tenant and the suitability of the tenant to other tenants within a building. This is the start of tenancy mix considerations and real strategy.


 
Good Leases are Essential

 
Some clients will overlook the essential terms of the lease and think that ‘any lease will do’. This narrow view is wrong and must be shaped to encourage good lease and tenant placement outcomes. Good tenant placements are supported by great leases. Underpinning this is a good solicitor who knows how to write a good lease that suits the needs of the property and its future for the client.


 
Choose Generic Leases or Great Leases?

 
First and foremost, if the Solicitors that are responsible for doing the leases for the property are not fully aware of the property in reasonable detail, it is wise to encourage them to inspect the property with you and the client so that all key issues and potential problems are identified for the client allowing the lease to be designed to suit. A great property and tenancy mix are supported by a great lease. Generic leases do not suit the purpose well because they do not relate to the special issues that the individual property needs or creates.

 
A final word on generic leases is that they are commonly used where the landlord (client) is trying to save money on legal costs. This is not a positive practice. A good lease matches the property and the client’s investment model. It then makes it easier for the Agent to undertake the leasing process and the tenant mix. All the key issues of occupancy are already on paper in the lease.


 
Features of the Property

 

 
Details of physical and other features of properties should be noted in your inspections so that you can build on the opportunities and positive aspects of the property with potential new tenants.

 
All the information gained should be included on an appropriate and organised listing form and recorded as both hard copy and as part of a computerised listing package. Ultimately you will be producing a leasing brochure and information package to present to potential tenants. All positive aspects of the property should therefore be well understood and documented.


 
Preferences
 

 
All investors and owners of commercial property have differing investment and ownership needs. They could want the property to produce certain levels of growth or stability for their investment needs. They could also want to hold the property for a period of time.

 
These issues then lead to the core decisions that they will make when you locate a tenant or adjust the tenancy mix. It could be that the client has a preference to hold the property for a short period of time and then undertake a redevelopment or expansion of the property. This will have significant impact on how you would construct the tenancy mix and lease profile for the property. You may need redevelopment clauses or relocation clauses in the lease to give the client flexibility.

 
To handle these facts you will fully interview the client and discuss the investor’s property requirements before proceeding with any part of the professional leasing and tenancy services that comes with commercial real estate. You must match your leasing and tenancy services to their needs.

 
Your skill is in assessing the potential leasing and tenant balance of the property and then shaping the leases to support the rental income needs is essential.

 
What’s the lease impact and potential?  What size and type of rental can you get from the property? When looking at the potential return of the property from the tenancy mix angle, the cash flow aspects requiring future awareness include:

 
  1. • rent review profiles 
  2. • lease expiries 
  3. • lease term 
  4. • rent types 
  5. • incentives 
  6. • option periods 
  7. • outgoings recoveries 

 
The more tenants you have in a property the more complex this gets. Lease elements such as these will affect the potential income from the property into the future. Look for the peaks and troughs as well as opportunities in tenant mix and placement.


 
Tenant Lease Events

 
You should explore the ramifications of all such tenant events, and all others in the relative property leases, so that the property is carefully prepared for any later sales activity, leasing opportunity, and all other future income opportunity.

 
Seek to minimise major 'dips' in cash flow and the threat of vacancy periods.

 
The lease and the balance of all the leases against each other is therefore a big part of tenant balance and your service.

 
You would not normally want or have a number of leases falling vacant at or around the same time. This is only done when you want to remix or redevelop the property and hence the only way to achieve that would be through the creation of vacancies.

 
The best way to consider and construct the multiple tenant activities and plans in a complex property is to graph the tenants in a calendar or graph display. You can then see where you need to handle cash flow exposure issues created by lease vacancies and expirees. You can then give the landlord client some real logic in doing a certain type of lease at a certain time.

You can get more detail on this at our website http://www.commercial-realestate-training.com/