Commercial Real Estate is a Team Sport…We Need to Work Together to Win.
We’ve been strong advocates for the professional community of brokers, attorneys and managers since starting Tenavox and now, subsequently Otso. One of our founders spent over a decade as a tenant rep and investment broker in Houston, so much of our thinking in the industry comes from that multi-minded view only a seasoned broker can provide.
Today, we’ll be walking through the best things a broker and property team can do for you, whether you are a Landlord or a Tenant. In light of the current crisis, the role of a broker is more critical than ever. Now is an excellent time to source the advice of professionals, not only in brokerage but in the property management and legal world as well.
A good property is handled and run by a team, ensuring tenants get honest and consistent communications, services and met expectations. The forefront of everyone’s mind in the industry is what can be done to mitigate the damage to businesses and property owners in this crisis. For businesses, we’re hearing heart-breaking stories in this shutdown (due to no fault of their own) and seeing massive layoffs, unemployment and staggering statistics like this one. At the same time, property owners are not getting relief from lenders or the government in order to maintain their own mortgage payments.
3 Ways CRE Teams Can Help Businesses
Brokers can help you in a crisis!
- Looking to lease space? If you have never worked with a broker, yes, now is a good time to engage one. Here is a great guide to finding and hiring. We have not seen the affects this crisis will have on commercial real estate…yet. We do know that businesses are facing unprecedented challenges though. Here is a great article on how to hire a great broker. If you were considering space before this crisis you should know rental rates, market conditions and properties are changing rapidly.
- If you already have a lease? Well, you should be talking to your broker about solutions to mitigate existing obligations AND your attorney about any actions/remedies you may have in the lease. Sadly, most leases (even those negotiated by brokers and attorneys on your behalf) are still very Landlord-friendly. For good reason, Landlords take on a good chunk of risk and cost to sign a lease. That being said, communication and honesty are key. We’ve covered this in-depth in our comprehensive leasing guide for Tenants.
- Thinking about sublease options? Subleases are historically difficult to find due to marketing in commercial real estate being incredibly expensive and bifurcated. You know who ALWAYS knows about the sublease market? Brokers! Brokers have access to very expensive data-mining tools that allow them to track these vacancies (and direct ones) better than most businesses will be able to do on their own.
Subleases can be a solution…and we’re about to see a lot more of them.
We are very likely to see a glut of second-generation sublease space hit the market from some businesses that elect to not move forward after this. For restaurants they are estimating 1 in 5 may not return. It’s a sobering reality. However, if you’re a retail tenant of any sort (or plan to be) there will likely be opportunities for you in the near future to take over leases on spaces that would normally not be available, these may even be at below market rental rates. The biggest advantage to a sublease is that the space is normally improved, so massive savings for businesses on build outs.
Note: If all these terms are over your head, visit our comprehensive guide to CRE leasing.
Negotiation on a sublease space can be a challenge as well. Not only are you dealing with a struggling tenant (who is turning into a landlord) in 99% of cases you also need approval from the direct Landlord as well. In these uncertain times Landlords will be more likely to work with folks who are extremely prepared, having a broker helps you do that. In addition, be ready to have the following:
- Financial documents on your condition, Landlords will be more sensitive to this than ever. The good news is that if they are leveraging solutions like Otso, they can collect these in a matter of minutes.
- Business plan and use for the space documents. Be prepared to show the direct Landlord how you plan to use the space.
- Potential extension of term/long term plans. Oftentimes, subleases are short so be ready to discuss taking the space for more than the initial term of the sublease.
It’s a complex negotiation with multiple parties with multiple motivations and desires. Brokers help this process enormously, especially when market conditions are rapidly evolving.
3 Ways CRE Teams Can Help Landlords
Do you lease and manage your property on your own? As it relates to moving forward, now is an excellent time to consider updating your systems and bringing on a team where one may not have existed before. If you have existing tenants facing challenges (and you almost certainly do) it’s high time to rely on the advice and counsel of your brokerage, management and legal team to work on a path forward for the tenancy. Every property is different and will require a unique perspective. Brokers and managers can help you collect the information and ammunition you need to gain relief from debt obligations in the short-term, potentially helping tenants in your properties.
- Marketing is Their Expertise. A good leasing team is going to market your property (at their costs) FAR more effectively than you can, it’s the flat out truth. Most deals happen with the help of at least one broker, often two. With a tide of vacancies and rent losses on the way, now is the operative word. Interview several local teams to get a sense of how they would value your property in the current environment.
- Research and Data. A quality brokerage firm is going to provide baseline research but will (and should) tailor their thoughts and strategies to your property and portfolio. Commercial real estate leasing is not rocket science but putting yourself in a position to “see” as many deals as possible is critical. This planning needs to happen urgently, do NOT wait for this crisis to “be over” to chew on these things. It costs you nothing to discuss options and that’s what we’re advocating for here.
- Property Management. A good team often provides management expertise as well. Property managers have one of the toughest jobs in the business. They provide layers of security, accounting, communication and enforcement for ownership that are essential. We believe leasing is the driving force behind most successful properties, so start with a broker. They will almost certainly have you consider engaging a manager to assist you.
We’ve also covered the economic effects and mitigation measures in more detail here.
Note: You can also consider returning existing deposits to help your tenants, we can assist in facilitating this while giving you enhanced security against defaults.
One more thing: Technology can be a path forward…
Lastly, consider leveraging technology in light of the current environment. New software to streamline communications, accounting and leasing are coming into focus every day in our industry. Humbly, consider adding Otso to your stack. We can help you assess financials from businesses fairly and efficiently (in minutes). We set your property up for maximum leasing success by not requiring (and returning) deposits.
Here is a resource list on some amazing innovation being done by companies in CREtech, every day. Building systems, energy efficiency, tenant satisfaction and more…you will find something to improve your building.
This crisis will not last forever and it’s never too early to consider ways to not only mitigate the “now” but to set yourself up for the best bounce-back possible.
Stay strong! We will persevere.