Investment Analysis

Negotiate to Win

Hard work is the secret to closing a deal.

I used to think that I was a good negotiator. I thought that I had been born with an instinctive knack for negotiation, imbued with gifts that made me capable of representing my clients better than anyone else out there.

As it turns out, I was wrong. What I discovered along the way was that great negotiations require nothing less than donkey-work. Embracing the drudgery involved is the best thing that any truly committed negotiator can do.

My experience detailed below sums up the critical importance of putting your nose to the grindstone when it comes to real estate negotiation. In all likelihood, you’ve experienced something similar. Since commercial real estate professionals are involved in negotiations at every turn, why not learn how to do it the right way?

The Deal

Recently I represented a landlord who was anxious to lease 62,000 square feet of office space to the American Red Cross — no small coup. This was during a very critical time for the landlord’s business park. Having recently lost three high-profile tenants, the complex was effectively 72 percent vacant, with one building entering foreclosure. The landlord speculated that brokers were resisting bringing new clients into the park.

Because we were willing to do the necessary legwork, our team succeeded in leasing the space to the Red Cross. The donkey-work gave us a concrete understanding of the decision-making process of both sides. Through this, we were able to map out the landlord’s range of acceptable terms, the tenant’s specific needs, and all of the alternatives open to us.

It wasn’t a quick or simple process. Negotiations lasted almost 12 months. But in the end, we were able to serve up a win-win solution that assured the tenant a fair price and also enabled the property owner to re-establish a momentum that eventually led to leasing 180,000 sf and stabilizing the business park.

A Learning Experience

We didn’t do everything right and not everything went smoothly. There was an excessive amount of time spent responding to a 96-question request for proposal. In addition, a lot of time was wasted running around collecting information that turned out to be unimportant.

But we learned from our mistakes. If I had a chance to turn back the clock and cast a to-do list into my unknowing hands, this is what I’d include:

• Take copious notes from the beginning. You’ll never regret taking too many notes.

• Work toward a clearer understanding of the issues important to both landlord and tenant. For example, I have vivid recollections from the tenant showings about important lease terms, but I was getting different messages once the meeting was over. Also, I assumed that the landlord would dig in its heels and stick with the terms that it required in the past— but this time it was different. Probing both sides led me to change my mind about the range of parameters for the deal.

• Ask those sometimes-awkward questions that are necessary to understanding each side’s best alternative to a negotiated agreement. I start every showing by asking the broker how much time is available. If she answers “20 minutes,” I say to her client, “In 20 minutes, what will you have to see to either rule this space option out, or put it on your shortlist?” Then I show them those specifications.

• Insist on a face-to-face meeting to discuss a lengthy RFP before responding to it. In-person meetings can accomplish a lot, not the least of which is a better understanding of the landlord’s full set of interests.

Avoiding Deal Fatigue

Successful real estate brokers share aninnatedoggedness that’s critical to getting across the goal line when deal fatigue sets in. However, that very same level of persistencecan become a trap, causing a broker to lose sight of the forest for the trees. To prevent this, it’s imperative to back away and take the necessary time to prepare before launching headlong into negotiations.

During the negotiations for the American Red Cross deal, I employed the principles laid out in a negotiation worksheet developed by my company that we have coined the “Prepared to Win-Win” worksheet. This habit enabled me to accomplish a number of things, including a constant focus on my client’s objectives and an understanding of the tenant’s needs and viable alternatives that served its best interests.

After using this negotiations worksheet for nearly five years, I have found it to be an incredible resource. It allows me to prepare with confidence, especially when juggling multiple transactions. Most importantly, the worksheet helps me formulate the right questions to ask to stimulate dialog and foster novel solutions.

John Culbertson is founder and partner of Cardinal Real Estate Partners LLC in Charlotte, N.C. Contact him at jculberston@cardinal-partners.com. To download a copy of the “Prepared to Win-Win” worksheet, visit www.cardinal-partners.com and click on Resources.

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