Handover of Commercial Premises

In commercial property the handover of premises is a critical time to take note of important issues and matters requiring attention.  These notes can later support the tenant or the landlord in any matters of debate or dispute.  There is a handover and the beginning of occupancy and again at the end of the occupancy.

In all respects the occupancy of the tenant and the premises handover should be in accordance with the lease.  This says that you as a property or leasing manager must read the lease and understand it.  Even in a single property with many different tenants, the leases can be different and usually are.  The ‘make good’ clauses and the ‘handover provisions’ of the lease are unique and should be understood relative to each tenancy.

Taking photos also is part of the documentation of premises at handover time.  It is recommended that the photographs taken are date and time stamped in the camera, and the photographs are later saved as ‘gif’ files and not ‘jpg’.  This is because ‘gif’ files are a more stable and fixed format that cannot be manipulated by software editing tools such as ‘Photoshop’.  If you want the photograph to be evidence of something important, then the ‘gif’ format is a reliable choice.

Whilst every tenancy is unique, let’s set some rules to give you some benchmarks to work with at handover time.  You can then add some other matters that may be applicable to the location or property that you work on.

  1. Take ‘gif’ format photographs as evidence of important things and levels of presentation
  2. When taking photographs it pays to put a scale reference such as a ruler into the picture
  3. Take notes of any comments or agreements from any parties to the lease
  4. Check all walls and painted surfaces for damage and or current condition, taking photographs as appropriate to record the current condition
  5. Check ceiling tiles and t-bars for ceiling presentation and integrity
  6. Look above ceilings for the satisfactory removal of any unnecessary cabling that should have been removed
  7. Check all floor coverings for any damage or deterioration beyond normal ‘wear and tear’
  8. Look for any floor or wall penetrations that exist or need to be remedied noting that any penetrations must be fire rated to the standards of the local building codes.
  9. Check air conditioning function and note any need for air conditioning balance due to fitout or altered or installed partitions in the leased space
  10. Check lights and light switches for function and safety.  It may be necessary to replace all tubes in the light fittings as part of the make good provisions of the lease
  11. Check all doors and locks for safety and security.  Do not overlook the need for doors and locks to comply with all building codes.  All keys to the doors should be provided or returned as appropriate.  If a master key system is installed in the building then check that the keys all comply with the master system
  12. Check windows for function, security, and safety
  13. Check electricity supply to the tenancy and any metering of consumed energy
  14. Check the installation and compliance of any signage for the premises and that such is in accordance with architectural rules set for the building.
  15. Look for any matters of change to the structural integrity to the building and the premises

As part of the checking process it sometimes pays for the landlords contractors to inspect the premises and provide a full report of any complex or sensitive issues.  This will support any later legal dispute over make good terms and conditions.

When keys are exchanged between the tenant and the landlord, or the landlord and the tenant, a receipt should be obtained as a record of handover of the keys.  The real estate agents actions in the handover to any tenant should also be supported by notes.  It is surprising how many disputes arise later when you least expect it; in such case your notes are invaluable.

Never hand back any bond money or bank guarantees to tenants until you are absolutely certain that all make good requirements of the lease have been satisfied.  It is also of note that all make good must have been done at and before the expiry of the lease; it is not something that is done after lease expiry.

Efficient make good and handover procedures are a critical skill for the real estate agent to develop and implement on every lease situation.  You can see more about this on our website here http://www.commercial-realestate-training.com/

Commercial Real Estate Coaching – How to List More and Close More Property Deals

Commercial real estate is such a diverse property type across industrial, office and retail property.  Closing and negotiating the property deal is therefore specific to the property type and the parties to the negotiation.  You have to be the best negotiator that knows the market, the deals, the people, and the regional trends.

The role and rules you set in the property negotiation are critical to your success and the outcomes you get.  The normal variables apply at the start such as:

  • Price
  • Rent
  • Lease details
  • Contract terms
  • Settlement dates
  • Occupancy dates
  • Subject to provisions of contracts
  • Availability of finance etc.

But there is more.  The real ability to close more leases and sales deals comes from your ability to ‘inoculate’ yourself from the threats to the deal.  This means you must be prepared for the negotiation before you start.

To ‘inoculate yourself’ for the negotiation you have to know all the ‘BATNA’ elements of both parties.  This is a common term used by experienced negotiators and means simply one thing.  You have to know the ‘Best Alternatives to No Agreement’.   When you know the BATNA’s, you can have your answers ready and the strategy ready.

So how can you do this?  Both the buyer and the seller (or landlord and tenant if you are doing a lease deal), will have alternatives to fall back on if no agreement is reached.  The lesser number of alternatives they have the better, as it will keep the negotiation simpler for you.  Whatever their alternatives are, you need to know them.  When you work from this position, your negotiations can be more direct and successful.  Your property deals will be better as you will be the ‘clever negotiator’ that is well prepared.  You will be more aligned to the arguments you present, and it will be harder for the other parties to the negotiation to counter your proposal.

Your client will be one of the parties that you want to help with the BATNA concept.  To know their BATNA’s is productive from the outset, and they need to know that.  The concept should be discussed with them beforehand because you are to chase the best outcomes for them.

The third party is the person that will not always tell you the BATNA’s so you will have to work them out yourself through clever questioning at the time of property inspection.  Whatever BATNA’s they have should be lessened so that they have little alternative than do agree to the property offering.

So the moral of the story is to know the complete BATNA picture of both parties and then to negotiate from a position of strength into that picture.  You can see more about this on our website here http://www.commercial-realestate-training.com/

Rent Strategies in Commercial Real Estate

Not all rentals are the same when it comes to commercial property.  Property Investors and Real Estate Agents and Brokers should understand this when considering property leasing and pricing.  Use the right rental in the lease that suits the landlord, and the market.  Know the long term impact of a poorly negotiated rental.

So there are two main types of rental and they are:

  • Gross Rent
  • Net Rent

As the name suggests, a gross rental is an all-inclusive rent for the tenant.  They pay one amount of money to the landlord.  To strike a rent like this, the landlord has to carefully assess the outgoings or operational costs for the property and load them on top of what would have been a net rental.  There are some dangers in the process in that the landlord has to get their figures right from the start.  If they do not, then the rent reviews applied to the tenant during the lease term may not keep up with the prevailing market rent.  The property then becomes underperforming as an investment and will not be attractive at time of sale.  Visit our site here to get more detail on this http://www.commercial-realestate-training.com/

Commercial real estate is all about cash flow; today’s cash flow or that which you can get in the future.  Cash flow and rental are linked and the lease for the tenancy will protect the cash flow for the future.  When purchasing a commercial property the lease has to be reviewed for its future cash flow and stability.  An astute buyer knows this, and will want to see some advantage that the tenancy can provide.

Net rent is the base rent on top of which the tenant will pay outgoings for the premises.  Whatever the outgoings are, the lease will again be a part of the protection of payment of outgoings for the landlord.  Reading the lease will tell you exactly what outgoings a tenant needs to pay and how that will be done.  The more outgoings the tenant pays the better.

Should property investors read leases themselves or leave that to their solicitor?  The real answer is that a good property investor must know how to read commercial leases, and they should also have a good solicitor that will support them with a deeper review of the document as required and particularly before purchasing the property.  This is called ‘due diligence’ and is one of the checking processes before the settlement of a property it made.  Property Investors that are purchasing a property should make their contract and purchase subject to a satisfactory due diligence process.  Expect that the due diligence process will take days if not weeks depending on the size of the asset.

One other matter that affects leases and rentals is the existence of an incentive in the tenancy.  This incentive would have been created at the time of lease commencement to influence a tenant to take the lease of the premises.  Incentives are common when the property market is slower or there is a lot of space available to lease at the time.  Incentives could be:

  • Low rent start
  • Rent free period
  • Fitout payment
  • Cash payment
  • Discounted rent, etc 

If in doubt ask questions.  Incentives can exist for months and possibly years after the commencement of the lease, and on that basis a purchaser of the property has to know about them prior to purchasing the property.  The purchaser may choose to get the seller of the property to payout or discharge the incentive at time of sale.

Commercial Real Estate Agents – The 7 Steps to More Market Share

New business prospecting in commercial real estate has to be part of your daily activity.  If it is not so then you have some problems from the start and your stay in the industry will be short; your success in the industry will take longer.  If you want to change things then read on.

Whilst it sounds sensible, not many salespeople do the prospecting well.  On that basis it is worthwhile discussing the 7 qualities of the great people in the industry.  A bit of self-assessment is then required.

So the 7 key skill elements of great real estate prospectors are:

1. Less time in the office – Coming in to the office should only be a 2 or 3 hour event each day.  That would be for cold call prospecting, meetings, and time where you are required by others in the office.  Given the variety of technology today, you have little excuse to come into the office.  Develop a mindset that the office time is a waste of time.  It is better to be out in your property precinct or territory meeting the people, the people that will give you business and listings in the future.  This practice also helps you relate more to your market and the properties located therein.

2. Interpretation – This is your ability to see opportunity before your competition.  Many triggers exist in the market that can be interpreted towards new business.  They could be:

  • Sales by owners
  • Property that has been held for a long time
  • Things that have not sold and then taken off the market
  • Open listings
  • Other agents signboards
  • Time on market
  • Leases expiring
  • Properties purchased over 3 years ago (they are the most likely to come on the market in the next 2 years)

3. Talking to others with intent – Every time you meet and talk to new people, be aware that they will sometimes know more about the local area than you do.  Ask them questions about what they have seen going on in the property market and businesses locally.  Do they have an interest in property themselves from a business or investment angle?

4. Prospecting every day – This means setting aside 3 hours a day to make new and fresh prospecting calls. Regardless of how much business or listings you have at the moment you must start this prospecting habit and keep it moving ahead.  Your prospecting should be creative and consistent.

5. Keeping great records – Technology allows us to keep great records.  Your database is your responsibility in every respect.  You have to grow your database and be accountable for its accuracy.  Keeping your prospects in the back of your diary is not the way to generate massive business; in fact you will be loosing ground to those agents that have the diligence in keeping their database up to date at the end of each day.  Your database will build your income.  Get computer savvy and use the computer to your advantage.

6. Follow up on all leads and discussions – Great salespeople follow up all opportunities and stay in there for months if not years until the real need evolves.  Most listing and deal opportunities in commercial real estate happen after the 5th contact with the right people.  Unfortunately many salespeople only stay in the contact loop for 1 or 2 calls.  After that they forget who the person was.  The stark reminder comes when another agent puts a sign on the property or it appears in the internet or paper.

7. Work the streets and the properties – When you diligently prospect in a logical way, you are in control and your prospecting has direction.  This means that in addition to your cold calling from the office each day, you should be systematically working the streets that contain the properties that you consider are target listings in the future.  Use a street directory for this process only and carry it with you in the car.  Highlight the areas that you have been in and keep good records of your findings.

So this list is an equation of ‘success in prospecting’ for commercial real estate people.  Every part of the equation works with the other, and should not be overlooked.  Your success in commercial real estate awaits you, and only you have the key to the door.

The more people that say ‘no’ to you, will put you closer to the ‘yes’ that you need.  Do not take the easy way out of delegating your cold calls to a telemarketer; only you really know how to talk to your prospects on the telephone, telemarketers are not high converters of new business.  You are the key to your own success.

Cold Call Prospecting in Commercial Real Estate

In commercial real estate you have to make many cold calls every day.  The people that make the most income and take the best listings are the ones that make the calls.  Everyone else, and that is the majority, are earning smaller commissions and getting less listings.  You have a choice.

It is interesting that many salespeople avoid the cold calling process and rarely do it every day.  There are some averages which show that you need to make about 100 calls to get one good listing.  The calling process creates a funnel of opportunity that revolves every day.  Without you making it happen, the business will not come.  If only more salespeople had the discipline to make the calls.

Taking the 100 call number, I recommend that the salesperson has a system of calling that allows them to call about 50 people a day.  It will take about 2 to 3 hours if you are organised.  Understand this, you will not be able to get to 50 people on the telephone, in fact you will only get to about 15 to 18 people, however of those people you are likely to get 2 or 3 appointments.  That is where the business starts to grow.  It’s all up to you.

When you get good at the calling process, and that will take about 2 weeks of struggle, you will be converting more appointments, and that will lead to listing opportunity.

To make the calling process work for you there is a base plan which should be considered:

  • Plan your calls the night before so that nothing holds you up in the 2 to 3 hours
  • Start your calls at the same time every day regardless of any other pressures.
  • For the first few weeks of making the cold calls, do some practice each morning before you leave for the office
  • Do not use a fixed script, but use your own words.
  • Find a private area with no distractions to make the calls
  • Choose a simple group of words that guide your conversation
  • Get used to people saying ‘no’, as there will be a lot of that
  • Make the call simply to see if they have a need, not to push where there is no need
  • Only make appointments with people that have an interest in what you are saying – your time is too precious to do otherwise
  • Keep a tally of calls made and appointment converted as you proceed, the numbers will encourage you
  • Businesses in the area are a great source of call targets and you can get those from the telephone book

So if you are new to commercial real estate and you want to generate market share the best way to do that is to talk to many people each day on the telephone and then later in face to face meetings.  Use the technology that sits on your desk to its fullest capability.  Good hunting.

Lease Details Matter in Sales

As the opportunity for listing commercial investment property arises, we can sometimes be too eager to take the listing without getting all the important facts that effect price.

Check the leases on a commercial investment property before you talk about price on the property as the leases may assist or hinder the sale.  They can also dictate a sale strategy.  This says that a good commercial real estate broker or agent must know the structures of a lease and what makes a good lease.

Depending on the age of a property, the next phase of its lifecycle may be refurbishment, demolition or remix of tenancies.  Every phase is different.  The demographics of the region in which the property is located will also have something to do with the future of the property.

A property that has a majority of leases that are soon to expire may be attractive to a purchaser that wants to owner occupy the property or a developer that wants to change the site and create a new building.  On the other hand the same property in such circumstances will not be attractive to a new investor unless they want to undertake refurbishment works and re-position the property with new tenants.  Decisions are based around strategy needs and timing; as agent or broker for commercial property you need to be the ultimate strategist.

When looking at the potential sale of the property, the lease aspects requiring future awareness and understanding in the sale include:

  • Rent review profiles – are they strong and well timed or do they just gear to the consumer price index?  Also look for the market rent reviews and see if they are well timed or
  • Lease expiries – these are always a concern if the property requires stable cashflow, so look for multiple lease expiries that are close to each other and that may consist of a majority of the lettable space in the building.
  • Option periods – from a landlord perspective, lease options are not always a good thing to have as they can frustrate the future of the property; it really depends on what the landlord thinks that they want to do with the property.  It is of note that many large shopping centres and malls do not allow lease options for that very reason.
  • Details of any current incentives with existing tenants – some lease incentives carry on impacting the property for some months or even years.  When the property is to be sold, these incentives must be offset or discharged at settlement as the future purchaser may not want to take over the burden of such.
  • Outgoings recoveries – leases and most particularly net leases will allow the landlord to get back some of the building operating costs.  It pays to check the leases to see exactly what those recoverable items may be as it can impact the property sale or buyer interest
  • History of income and expenditure performance – I always go back at least 3 years to check these numbers and to see what have been the major changes in the outgoings.  What you are looking for is overly large imbalances in outgoings from year to year that indicate that something major has impacted the property or a strategy has changed.  Get reasons for any changes of this type so that any astute buyer can be given logical explanations.
  • Current budget of income and expenditure performance – every commercial investment building of any type should function to a budget each year and the details should be available for your review.  Parts of the expenditure that impact greatly on the property are the rates and taxes as they take up on average a full 33% of most building expenditure.  You need to know that these rates and taxes are on average with other properties in the region.

 

Property performance elements such as these will affect the potential income from the property well into the future and will also dictate the best time to sell the property.  In an ideal world you would time the sale so that the income is optimised and the outgoings are controlled to acceptable levels.  This cannot always be done especially in markets like that which we have today, but you should know where you stand on the property performance before you proceed into a sales program.  Strengths and weaknesses of cash flow should be identified and logical reasons provided before any sale campaign starts.

High Value of Real Estate Agency Advice

Some clients in commercial real estate are unaware that they have a problem with their property, or do not really know or can define specifically what the problem is.  They struggle to find the way ahead; they do not really know or will admit that they cannot get themselves out of a property problem.

Do you think there are some businesses and property owners out there at the moment with problems? Of course there are, and you as the real estate agent or broker have to be the relief to the property pain.  You can only be so when you really know what you are doing.  That means a really good knowledge of property types, leases, and rents, building costs, regional demographics, and operating costs.

It is not sufficient to think you know how to sell or lease a property.  That skill is not enough as most other agents will think the same.  After coaching agents for many years, I know that the reality is most of your competition is very ordinary in knowledge and property understanding.  That is the leverage you should work with to generate a massive real estate sales and leasing business.  Serve your clients as the best choice in the industry.  Is that hard?  Perhaps it takes more personal effort and certainly more study, but the rewards are significant.

Let’s just look at the types of clients you could have for a moment; they are landlords, business owners, tenants, and investors.  Within those groups you have differing relationships to the property improvements, rent, lease, location, operating costs, tenancy mix, and the list goes on.  So what do you know about these things?  What should you do?

Become an expert in every sense of the word.  Supply the best and most important information about property that you can for the client.  Make sure that you are better than the rest of the real estate people in the local area.  Become the property strategist and not just a salesperson; know what are the real reasons for a sale or lease, and help the client understand them.  Provide the best timings to use in the sale or lease processes.

The problems and challenges that these client groups have are radically different than each other.  Your solutions and responses should be set accordingly.  The best model for a real estate agent or broker in a client relationship is to become an advisor that is trusted.  Your knowledge should stand head and shoulders above the rest.  There are three stages to the process.

  1. Seek to become the clients trusted advisor from the outset.  This means building the relationship before the client really wants to do something with their property.  Prospecting is essential every day of your business life.  Your database is the tool to progress.
  2. Get the client to agree that there is a need with their property or business.  Knowledge of the property types, performance issues, lease strategies, development alternatives, tenant mix alternatives, are just some of the things to learn.
  3. Plan your solutions around the problems.  When the client fully understands the problems that you have identified with the property, and that you really know what you are doing, the choice of property agent becomes an obvious choice.

Stop thinking that as an agent you must discount your commission, or pay all the advertising costs for the client just to win the new business.  These clients are not the ones you want.  In most cases they are the hardest to deal with because their motivation is ‘cheap’.  Logical decisions are not part of their mindset and negotiations are therefore harder with these clients.  More often than not the listing does not sell because the client will not listen to the market trends and choices (they think they know better).  Time does invariably take care of these unreasonable clients, with no sale resulting and a distressed property sale or lease later on.  You can then move back into the picture to offer your special services.

Be the best real estate agent out there and make sure your clients know it.  Chase the quality listings owned by quality clients that will listen to the market trends and choices that you offer.