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Thursday, January 21, 2016
You can’t get every #CRE deal
Our company works hard to get every commercial real estate lease that comes along.
These leases are a combination of new business, renewals, expansions, downsizes, etc.
No matter the situation, we diligently work to “win” each lease with an approved tenant.
However, you can’t get every commercial real estate deal.
We are all in business to make money. (Duh!)
Because we are in business to make money, some deals just cannot be attained.
For example, we recently lost a long term national tenant who chose to sign a new lease at another property.
Was it anything we did wrong? Nope.
Could we have put them in a similar building or built a similar building? Yep.
Would we have made any money on the deal, short term or long term? Nope and possibly.
Our tenant, let’s call them Widget Sales, was in a multi-tenant building.
Widget Sales had a showroom, office and warehouse space and was looking to expand. They needed a showroom double the size, office 50% larger and warehouse space 150% larger with high ceilings. Widget Sales also wanted a standalone building.
Our company priced a new building for Widget Sales competitively. Our contractor went back to the drawing board a couple of times to get the price as low as possible.
However, Widget Sales was not interested in signing a long term lease.
Our company told Widget Sales that we could not sign a short term lease for a brand new build-to-suit building. To make matters worse, there were some specific details that would have made this building hard to retrofit for another tenant without spending a substantial amount of money.
The problem was that Widget Sales was not necessarily looking for a brand new building. They just wanted their wish list items met, whether this was in a new building or not. And, Widget Sales had a budget that was drastically lower than what we could offer for a build-to-suit.
Our company tried to make the numbers work every which way.
But, as mentioned above, we are in this business to make money.
Sure, we would have made money had Widget Sales stayed for a few renewal terms but the return on our initial investment would have been far lower than any deal we have ever signed. Plus, if Widget Sales left our property, we would have been in a bad situation with a building nobody could use.
Our company offered existing space in another multi-tenant building at prices comparable to what their budget was.
Widget Sales insisted on a standalone building.
Finally, a standalone building came on the market with nearly identical specifications to what Widget Sales required.
Our company could not compete with the pricing offered on this new building.
Widget Sales gave us the opportunity to match the price of this other commercial property, but there was no way we could even come close.
The owner of the building Widget Sales was interested in was from out of town and was only interested in keeping the building leased. Thus, the owner was willing to accept a less than market value price to keep the building occupied.
We admire the owner for pricing the building below market value – he was able to sign a national tenant to a space with minimal renovations for what could be an indefinite landlord-tenant relationship.
The main problem was our company did not have what our client was seeking.
When that happens, it is awfully hard to reach an agreement where both parties can benefit.
Our company could not benefit so we had to pass on this tenant.
After all, our company can only stay in business by making money. And sometimes, that means passing on a commercial real estate deal.
Please feel free to leave comments. We promise to read them all. You can also email us with any questions/comments at email@example.com. As a reminder, we provide office space for rent and warehouse space for rent in Gulfport, Mississippi. For more information, visit our website at www.seawaybusinesspark.com or call us at (228) 575-7731.