Industrial Deal Blooms From Ongoing Relationship
As James Palmer, CCIM, knows from experience, maintaining relationships helps power successful commercial real estate transactions.
“CCIMs should remember to stay in touch with all their customers over their entire careers,” he says. “It is easier to keep a customer than to get a new one, and if they stray, don't give up on them.”
Palmer, a broker with Re/Max Metro-City Realty in Ottawa, illustrated this fact when he closed an industrial property transaction last summer. His client was a man to whom he had sold a house nearly 25 years ago. At the time, the house needed serious renovation; however, the client/buyer owned a landscaping company and “wasn't afraid of taking on hard physical work,” a trait that would be beneficial later on, Palmer says.
The two men kept in touch over the years. They saw each other at events, and their daughters were in synchronized swimming together. Palmer also sent the client calendars every year as part of his marketing strategy.
The client took on Canadian government positions as groundskeeper for the Governor General's residence and then the National Capital Commission's landscaper, responsible for maintaining federal land in Ottawa. After a new government privatized landscaping and garden maintenance, the client formed a company called Terrapro and won the government contract. Palmer was invited to Terrapro's opening, and his son worked for the company one summer.
Business flourished. The client's company soon outgrew its space, and he asked Palmer to locate an appropriate property.
Searching for a Property
The client wanted an office/industrial property near downtown Ottawa with at least 1 acre of yard space for the company's equipment. However, “finding industrial space close to downtown Ottawa is not easy,” Palmer explains. “Finding yard space with it would be nearly impossible. But I knew that [my client] could make over a property to suit him, and he would take reasonable financial risk if it was explained to him.”
Before researching properties, Palmer counseled his client to obtain financing with the Business Development Corp., a federal lending institution that offers small businesses high-ratio financing. “I had success with BDC recently in a major renovation project for another customer and advised [my client] to set up an appointment and get to know his lending officer,” Palmer says. “If there is a relationship with the lender, and a lot of the paperwork gets done before the offer goes in, everything will move faster.” In yet another example of how relationships further deals, the client knew the lending officer from a previous job, and “[the lending officer's] previous experience told her that Terrapro was a good risk,” Palmer says.
Palmer and his client viewed leasing possibilities at about a dozen properties, but each was either too far away from downtown or lacked secure long-term tenancy. His client's company “wanted a home where it could dictate the rules and control its facilities. … The idea of owning — made possible by the BDC loan — was much more appealing [than leasing],” Palmer says.
Yet they encountered a dearth of properties for sale as well: There was “an absence of possibilities” to even inquire if they would come on the market, Palmer says.
However, one industrial property that had been on the market “at an excessive price for too long” caught Palmer's attention. The former printing plant was aesthetically unappealing, with razor wire strung along the roof and few windows, but it had the requisite yard space and was near downtown Ottawa. Unfortunately, a hardware company already had made an offer to purchase the property, conditional on a report concerning soil contaminants. Yet soil test results were not satisfactory to the hardware company's lender, so the transaction lingered.
During the winter holidays that year, a pipe burst in the building causing water damage that was unacceptable to the hardware company. “Because I knew [my client], I knew it was an incentive to him,” Palmer explains. “He loves to renovate and solve problems.”
A Diamond in the Rough
Although it appeared that the deal with the hardware company would fall through, Palmer advised his client not to make a backup offer. “Our offer might have been used as the catalyst to solve someone else's problems,” he explains. “Why step into a fight if you are going to get the worst of it?”
Eventually the hardware store lost patience, and Palmer's client made an offer, conditional on seeing the environmental reports that had caused so much trouble. Surprisingly, “the irony of it all was that the report held no terror for Terrapro or its lender,” Palmer says. A small amount of benzene was found at one corner of the property, although no one could figure out how it got there. “It was a small issue that got blown out of proportion, and then rumor and supposition took over,” Palmer explains. “After all, the place had been a printing plant and think of all the toxins [it was] capable of producing.”
Palmer's client purchased the property for $549,000, less than half of the original asking price. “There was a lot of relief, not just satisfaction, finding the only industrial facility close to downtown that could work. I haven't seen another one since,” Palmer says.
The property is still a work in progress, but the client has renovated the interior into offices, staff facilities, and workshops. The new staff lunchroom overlooks a cultivated garden, which previously was a weed-ridden yard. The former lower-level warehouse is now a mechanical shop accessed by a ramp.
From Residential to Commercial
Palmer began his career as a residential real estate agent with a major independent brokerage in Ottawa. He switched from residential to commercial real estate “because I wanted more time off. It was definitely a lifestyle choice,” he says.
The transition took time: “I made my switch at a very hard time in the middle of a recession, but I kept at it doing small deals,” he says. Palmer's breakthrough was a referral to WorldHeart Corp., a medical-device manufacturer that was seeking headquarters space in Ottawa. Palmer leased them an approximately 23,000-square-foot building and learned he could close “decent-size deals.” At Re/Max Metro-City Realty, Palmer focuses on leasing and selling office and industrial properties in a city fueled by government and high-technology industries.
Palmer began taking CCIM courses while conducting residential brokerage, “convinced by a coworker who was always looking for a way to stretch his brain.” Palmer learned how to use the HP 12c calculator, and he was hooked. “I became a CCIM because using the tools was fun,” he says. After switching to commercial real estate, Palmer renewed his training and took more courses because “sometimes just the slightest little bit of information can be immensely rewarding to a customer, and that gives me as much satisfaction as just making a buck,” he says.
Palmer's expertise benefited all parties in the printing plant transaction. “It is always fun to see a client succeed and do well,” he says. “Owning a substantial building is a landmark for my client and a kick for me.”
Also, “With all the rumors flying around about the property being terribly polluted when, in fact, it was not, it gave me a sense of my own ability to look beyond and to the facts.” Palmer recommends this approach to all commercial real estate professionals. “Deal with the deal. Learn the facts. Deal from a basis of reality.” And maintain those relationships.