Wednesday, April 1, 2015

Think Outside the Box to Succeed in #CRE

Think Outside the Box to Succeed in #CRE

Image courtesy of Master isolated images at FreeDigitalPhotos.net

Thinking outside the box is a crucial skill for any #CRE professional.  This holds true for landlords, tenants and brokers alike.  There is not a playbook for every situation.  Sometimes, it pays to attack a real estate deal from a different angle.  And at times, all that is required is one crucial skill: listening.

Let us give an example.  In late 2013, our office received a call from a prospect looking for office space.  They had outgrown their space and were looking to expand their footprint by about 20-30%.

The main problem (for us and other landlords alike) was their existing landlord was giving them a pretty sweet deal.  The landlord was allowing them to extend their lease on an annual basis and was not increasing the rent.  They were even allowed to cancel the lease at any time, giving them no immediate incentive to move out because if they found a new location in the middle of their term, they could give notice to vacate.  Their rent had not increased since they moved in several years before.  Thus, the tenant was anchored in their thinking that the rental rate was comparable to the rest of the market (it was not).  They also felt that because they only needed 20-30% more space, their rental rate should likewise increase by about 20-30%.
                      
Like we said, this tenant was getting a really sweet deal and was not going to be rushed into signing a new lease agreement.

When this prospect first contacted us, we had an office space that had just become available.  The space was a little bit larger than they required.  However, trying to make the deal work to get started with a new tenant, we priced the office space so that the rental rate was comparable with some of our smaller spaces.  The prospect said, “Thanks, but no thanks.”  That price was way more than they were willing to pay.

This was also not a small tenant.  They had been in business in our local area for about 20 years and had an established, reputable business.  And they were not strapped for cash; in fact, they had plenty of cash reserves to move to any office space that they wanted.

After several months, we heard from this same prospect again.  The previous space we offered was leased at the time, and we had a smaller space available.  We went through the same ordeal.  We priced it aggressively and were told, once again, “Thanks, but no thanks.”

Another six months passed by, and wouldn’t you know it, we heard from the prospect a third time!  At this point, the business owner realized that their current rent was a good deal but they were still unwilling to pay much more than their current rental rate.  We told them our vacancy and applicable rates.  “Thanks, but no thanks.”
                                                                                                               
This was very frustrating for our company.  We felt that we had done everything we could to make the deal work.  We had showed them a few vacancies over a 12 month period and priced each office space very aggressively.  Again, we wanted to get started with this new tenant because they were a good fit for our business park.  However, we could not come to an agreement.  We told ourselves: That’s just business; not every deal is going to work.

Then, one of the members of our team got creative.  We went through their space requirements.  This was not a tenant that needed any kind of fancy office or any type of storefront.  In fact, this was part of the reason that our office spaces were priced too high (our offices are in brick buildings and have a storefront look to them).  Rarely did customers come to the tenant’s office.  And the occasional customer that came by was not going to care what the outside (or inside for that matter) of any office space looked like.

We had an office/warehouse that pretty much met their office requirements exactly.  Sure, it was 50% office and 50% warehouse, but we thought it might work well for them because they could use the warehouse as storage and maximize use of the office space.  Our office called and proposed this scenario.  The business owner came out and fell in love with the space.  This was a cost-effective manner to get them into our business park because our office/warehouse space is commonly less per square foot than pure office space.  This was the ultimate win-win scenario.  And it all came from listening to the space requirements, the business type and clientele.

One month later, a new long term lease was signed.  The warehouse is being used as a break area and for file storage.  The office is being fully utilized and gave the tenant some room for growth.  Win-win.

You see, the tenant told us they wanted office space so we only thought about our office buildings.  We had to think outside to box and really listen to their space needs to come up with this solution.  Sure, this will not work for every tenant looking for office space (or even most tenants looking for office space).  Most tenants for office space need a presentable office for clients.  They want and need the brick and/or glass building.  But this tenant was able to go into an office/warehouse and solve all of their space needs at a rental rate that suited their needs.

Conclusion


Every situation does not have a script.  Most leases are pretty straightforward: Tenant needs office or warehouse space.  Landlord has office or warehouse space.  Tenant and landlord come to terms and sign a lease agreement.

However, not all transactions are cut and dry.  Sometimes, you must get away from your normal line of thinking.  We cannot provide a list of different items to be mindful of when thinking outside the box (after all, then it would not be thinking outside the box).  For the above example, it involved listening to our tenant’s wish list for space requirements and coming up with a unique idea.  If you get to a standstill or are unable to come to terms with your tenant or landlord, take a step back.  Try to attack the problem from different angles.  You might be surprised at what will work for both parties involved.

You can email us with any questions or comments at leasing@seawaybusinesspark.com.  As a reminder, we provide office space and office/warehouse space in Gulfport, Mississippi.  For more information, visit our website at www.seawaybusinesspark.com or call us at (228) 575-7731.