Browse Month: September 2011

A Good Motto for Commercial Real Estate Negotiations – Be Prepared!

The following is an excerpt from a blog post by Holly Schroth, Ph.D. – read the full article here

Preparation is the key to a successful negotiation outcome.  Here are some elements you should prepare before entering into a negotiation:

Resistance point: A resistance point is the point at which the negotiator will walk away from the table.  This bottom line value of a negotiator may also be referred to as resistance price or reservation price/point.  It is not just a monetary value but a total value assigned to all of the issues for an entire package. The resistance point is set prior to negotiating while the negotiator is in a rational state and should never be changed at the table because of influence (e.g., intimidation, attractiveness or confidence) exerted by the other negotiator (Galinsky, Mussweiler, & Medvec, 2002).

Aspiration point: An aspiration point is where a negotiator would ideally and realistically like to settle.  Similar to the resistance point, this is also set prior to a negotiation and is based on research.  The aspiration point sets the ceiling to counteract the power of the floor (resistance point).  Setting a realistic but optimistic aspiration point helps parties to work harder to think more creatively to find value in order to achieve their goals (Thompson, 1995).

Best alternative to a negotiated agreement (BATNA): The negotiators’ BATNA are the alternatives that are available if they walk away from the negotiation (see Fisher, Ury, & Patton, 1991, for review).  Those with a strong BATNA have increased leverage in a negotiation. If there are several alternative vendors who can supply the same part, the buyer is in a strong position to use leverage.  However, if there is only one vendor who can supply the needed part, the buyer has little leverage and is at the mercy of the other party.

Issues: Issues are what is to be discussed in the negotiation between the parties.  A common mistake that is made in a negotiation is to overly focus on one issue (e.g., money) which tends to lead parties to take on a distributive approach.  Including additional issues in a negotiation helps the parties to increase value (also known as expanding the pie), allowing for integrative negotiations to occur.  It is important for negotiators to put themselves in the other side’s shoes in order to understand whether there are issues of importance to the other side that may need to be considered.

Interests: Interests are the underlying reasons a negotiator has for holding a position in a negotiation.

Objective criteria: A standard or precedent that can serve as a benchmark for legitimizing the fairness of the current offer is called objective criteria (Fisher, Ury, & Patton, 1991).

Researching the other party: It is important to research the culture of the other party’s company, and the other party themselves, in order understand how they may approach the negotiation.

Learn more about strategic business negotiations and influence and meet Holly Schroth, Ph.D. on Friday, October 14 from 3:30 pm – 5:00 pm at the IREM Fall Leadership Conference

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Generational Preferences: A Glimpse into the Future Office

Today’s post comes from IREM and Dr. Mike O’Neill of Knoll, Inc.

Recently, Knoll conducted a global research project including over 15,000 workers in 40 countries, to gain insights into how office workspace will need to be designed to best meet the needs of the emerging Generation Y, who will represent over 50 percent of the workforce by the end of this decade.

We found that Generation Y rates the importance of having a secure, engaging workplace highest along with places for informal interaction, and quality of formal meeting rooms lowest. This was the opposite of Baby Boomers who rated privacy and quality of meeting rooms the highest, and having an engaging workplace the lowest.

Thus, the future workspace will need to evolve away from exclusively supporting formal work process and individual privacy. Instead, it will need to provide a secure, appealing, work “experience” that recognizes the social context of work, and is biased towards supporting group work and informal interaction.

Employers will gain specific ideas on how to tailor the design and furnishing of spaces to meet the preferences and work patterns of the emerging workforce.

Property managers can share the insights from this research as a “value add” with owners to help them keep spaces up to date with evolving market demands, and provide useful advice to tenants on TI projects.

Learn more about this intriguing research and meet Dr. Mike O’Neill on Friday, October 14, 10:30 am to 12:00 pm at the IREM Fall Leadership Conference. Check out the entire slate of professional learning experiences at this event.

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7 Tips for Networking to Accelerate Your Sales

Today’s post is from REALTORS® Signature Series Speaker Drew Stevens,  Ph.D. and President of Stevens Consulting Group. He is the author of Split Second Selling and the founder and coordinator of the Sales Leadership Program at Saint Louis University.


To obtain business in today’s ridiculously busy and competitive world requires being visible so that potential clients see you in action. One of the best methods but most feared is networking.

The problem with networking is that many individuals don’t enjoy it because it takes them from their comfort zone. Most people are more comfortable conversing with those they know and meeting new people is simply an annoyance.

However meeting new people has three positive effects:

1.      Lessen labor – meeting new individuals allows you to prospect less as more individuals get to know you.

2.      Increases Productivity – the more individuals you meet the more often you express your value to others.

3.      Increases Visibility – The more often you network allows others to understand your value and tell others, therein building your referral network.

Apart from escaping the comfort zone, individuals actually need to understand that networking helps business as long as there is true socializing and expressing value. With that in mind there are some things to consider when networking.

  • Express Value – Too many today introduce themselves by stereotype and labels. The only way to provide an expression of interest is to use a value proposition to help differentiate you from others. Using an audio logo or value statement allows creates emotional interest.
  • Being Active Networking requires physical involvement at events. If the flowers on the wallpaper are more noticeable than participants there is an issue.
  • Genuine Interest – A myth of networking is geared to the transactional end meaning that many attend expecting immediate business. Networking is about creating relationships that build trust and respect. The notion is to become a trusted advisor this does not happen overnight.
  • Follow Up – Attending the event is only the beginning. Networking requires follow up and meeting people in between events to continue conversation and allow for better understanding between individuals.
  • Listening as Art – When we attend events it becomes easy to want to assimilate conversations and share agreement with ideologies and background. But what really establishes the best methods for networking are becoming interested in others simply by listening. We all want to tell but sometimes listening is more important. We discover more information this way.
  • Remaining Neutral – As we get to know individuals there is an expression of personal tastes however many of which do not belong in purposeful conversation. It is best to remain neutral and offer as little personal opinion until there is mutual trust.
  • Have a plan – Attend events with a goal in mind. There might be a desire to meet several individuals or simply one. Be strategic so that networking provides you with a return on your time.

There are several methods to help increase visibility and marketing attraction but networking is the most efficient because others experience you in action. Illustrate value, become interested and you will attract clients at every networking event.

© 2011. Drew Stevens PhD. All rights reserved.

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Economic Risks Look Set to Stall the U.S. Office Market Recovery

Thank you to Ross Moore, Chief Economist at Colliers International for contributing this blog post today.

The U.S. office market looks set to finish the year on a more cautious note than earlier in 2011 and halt what had been a modest recovery characterized by a measured degree of optimism and a series of occupancy gains. A clear deceleration in economic activity and a near absence of job creation, however, has cast a shadow over the office space market. With the economy possibly coming close to stall speed, the outlook for the office space market has once again been called into question.

The lack of job creation of any significance lingers as a particular concern. Many metro areas are still far from firing on all cylinders, reflected by only lackluster growth in total non-farm employment: August data showed year-over-year growth of just under one percent. More encouraging, however, is office-using employment, which for the year ending August was up 1.5 percent, but two of the last three months were characterized by job losses in this key sector suggesting the annual growth rate is sure to come down in the coming months. Indeed, for the first eight months of 2011, monthly office-using job creation averaged 29,000, compared with 16,500 per month in the same period in 2010.

Despite these modestly favorable office job numbers, the outlook for the office space market is far from assured. Uncertainty is now a key feature of the business landscape. This is causing many business leaders to place expansion on hold or at least to scale back planned growth. Significantly higher energy costs are a distinct possibility, further monetary easing is in question and any additional fiscal stimulus is unlikely due to the policy paralysis that is characterized by the leadership in Washington. Combined with the ongoing European sovereign debt crisis, the brakes are now being applied to what was only a nascent economic recovery. The global economy, which had been a key source of growth, has clearly come off the boil and calls into question the vitality of U.S. exports which was one of just of a few bright spots.

Year-to-date data confirms our view that the U.S. office market landscape will continue to be uneven in nature and unusually volatile. Manhattan, Washington, San Francisco and Boston have led the country on the road back to a more normal market, however, Dallas, Denver, Houston, Philadelphia, Raleigh, San Diego, San Jose, Seattle and West Los Angeles are also showing encouraging signs. Beyond this relatively short list of cities, many markets have seen little pick-up leasing activity and continue to be characterized by a clear excess of space and no pricing power on the part of landlords. Any substantial increase in office rents is unlikely to occur in 2011, or 2012, and perhaps even into 2013.

The U.S. national office vacancy rate did nudge marginally lower during the first six months of the year, shifting 20 basis points to the downside. At midyear, office vacancies registered 15.26 percent and are on track to finish the year at or near 15.00 percent. During the first half, downtown vacancies decreased eight basis points to register 14.05 percent. Suburban vacancy rates pushed lower, falling 24 basis points to 15.91 percent. Over the past 12 months, the U.S. national office vacancy rate has fallen 41 basis points.

The keys to reading the U.S. office market correctly are still job growth, energy prices, monetary and fiscal policy and stable financial markets. Currently none of these variables can be predicted with any degree of certainty. For the near term, and quite possible the medium term, job growth will likely remain sluggish, energy prices elevated, monetary policy loose (although QE3 is unlikely), fiscal spending increasingly restrictive, and financial markets volatile. As a backdrop to office space demand, these signs are not altogether encouraging. For most landlords, attracting new tenants will be a challenge with little or no pricing power. Tenants, on the other hand, will enjoy at least another twelve months where they are clearly in the driver’s seat.   This is not to suggest the recovery will never materialize, but with the domestic and global economy gearing-down, the new macro-economic environment has pushed the timing back to 2012 and quite possibly 2013. Not an overly optimistic outlook, but in all probability, realistic.

 

 

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Transaction Volume Is on the Rise

Thanks for reading today’s guest post from CCIM Institute.  We invite you to share your feedback on what’s happening in your market.

 

 

Transaction volume for properties valued over $5 million increased among all commercial real estate sectors, with retail and hotel transactions nearly doubling the previous quarter, according to CCIM Institute and Real Estate Research Corp.’s 3Q11 RERC/CCIM Investment Trends Quarterly. Deal volume also increased among all property types for transactions valued between $5 million and $2 million and closings under $2 million.

Investors continue to view commercial real estate as the highest-rated investment alternative, according to the report, which aggregates CCIM members’ transactions and investment conditions sentiment with current property market data. The next highest-rated investment alternative is cash, indicating that investors are focused on the safety of their investments overall and find commercial real estate and cash most attractive for that purpose, explains Kenneth P. Riggs Jr., CCIM, chief real estate economist of CCIM Institute and president of Real Estate Research Corp.

“With volatility in the U.S. stock markets, volatility in European economies, and lack of confidence in the political climate and capability in Washington, D.C., investors are looking for safety and stability wherever they can find it,” Riggs says. “Although there is plenty in the commercial real estate market to worry about, especially in markets hard hit by high unemployment, real estate is tangible and transparent — it is real, and it is something you can actually see.”

CCIM members who were surveyed rated apartments as the most stable investment during 2Q11, followed by industrial properties. Investors are also looking for safety in their property holdings, says Riggs, adding that apartments provide security due to the depressed single-family home market, pent-up demand from first-time renters, and restrained new supply.

The search for safety is further demonstrated by CCIM members’ return vs. risk ratings, with the apartment sector achieving the highest rating of 6.7 (on a scale of 1 to 10, with 10 being highest), indicating members’ views that this sector offers higher return levels compared to investment risk levels. Industrial ranked second with a return vs. risk rating of 5.1.

The outlook for commercial real estate continues to hinge on the broader economy’s performance.

“The commercial real estate market has been improving in the coastal areas, and we were starting to see some improvement in secondary and tertiary markets. The big concern now is whether the recovery will be delayed due to the recent economic downturn,” Riggs concludes.

 

 

 

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7 Hot Tips for Successful Presentations

 


This week’s IREM post comes from Shannon Alter, CPM.   Ms. Alter works with real estate management companies to strategically grow their businesses and implement client solutions. Find out more about Alter Consulting Group.

 

 

1. Start with a Bang! Grab your audience’s interest with a story, quote or an interesting bit of information at the start and they’ll stay with you for the long run.

2.  Get focused: You’ve gotta start somewhere, so begin by zeroing in on your topic. To make sure you’ll stay on track, outline, outline, outline. Use paper, a whiteboard or your smart phone, but do it. Once you’ve accomplished that, take out your pen and edit, edit, edit.

3.  Know your audience: Who are you there to talk to? Whether you’re talking to a potential client, a team of employees or a huge group, knowing what your audience is looking for in advance can make a world of difference.

4. Know your stuff: Your ship will sink faster than the Titanic if you don’t know your material backwards, forwards and yes, even upside down. Do your homework and make sure your material is bullet-proof.

5.  Weave in examples: Straight lecturing can be sleep-inducing. People want to learn from your experiences. It’s much more valuable if you can use stories or examples to illustrate and support your points. They want to hear about what has worked and what hasn’t worked. Try it and see how your topic comes to life!

6.  Don’t read! Nothing can kill a speech or meeting faster than if you read your material. Your audience can do that for themselves. It’s your job to fill in what’s between the lines and tell them the real story.

7. Get in front of a mirror: Your speech may not always come out the way it’s written, so try your talk in front of a mirror to see how you sound and look. Better yet, videotape yourself. Rehearsal ALWAYS pays off!

Learn more about successful presentations and meet Ms. Alter on Friday, October 12 10:30 am – 12:00 pm at the IREM Fall Leadership Conference.

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Minimize Losses after a Tenant Enters Chapter 11

You’re a retail center manager. One of your tenants informs you that they are filing for Chapter 11 bankruptcy. What can you do?

First, don’t panic! As a real estate manager, you can help mitigate damages by becoming familiar with the process. First, start thinking about the market demand for the space; the current market rent and how that compares to the lease rent; how the loss of the tenant could impact the owner’s obligations to the mortgagee; and the costs to replace the tenant.

When a tenant files for Chapter 11, you must act quickly by filing a Notice of Appearance and Demand for Notices through counsel. This allows you to receive notification of important events in the case, including the tenant’s submission of a budget in order to secure a debtor in possession financing. You can use this information to ensure that the rent is included in the tenant’s budget, and to ascertain whether the tenant is capable of fulfilling outstanding lease obligations.

The tenant will have an opportunity to “assume,” “reject” or “assign” its leasehold interests.

A tenant who assumes a lease intends to fulfill the remaining lease obligations. Tenants who want to assume leases must:

1.      Cure any monetary defaults
2.      Compensate landlords for damages stemming from monetary defaults
3.      Furnish adequate assurances that remaining obligations will be fulfilled
4.      Satisfy all remaining obligations.

    Rejection releases the tenant from rental payments as well as other continuing lease obligations. Rejected leases are regarded as having been defaulted just before the bankruptcy filing. When a lease is rejected, the landlord is entitled to a rejection damage claim, typically yielding only a fraction of the face value of the claim.

    Tenants may assume and then assign a lease to another entity. This typically occurs when the existing lease is at a below average rent, so the tenant can sell the lease and earn money for the bankrupt estate. Luckily, the bankruptcy code provides obligations that help protect the landlord in such cases. Shopping centers in particular are singled out with strict obligations to protect the landlord and the viability of the center.

    By understanding the provisions of the bankruptcy code, you can enhance the value of spaces leased to bankrupt tenants, their neighbors’ leases and your owners’ properties. The ability to make the most out of a bad situation is a skill worth cultivating.

    Read more about Chapter 11 in the July/August issue of JPM

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    Dual Designations: Are Two Heads Better Than One?

    The following is a Guest Blog Post by the REALTORS® Land Institute, and features an article in Terra Firma. To read the full article, click on the link at the end of the post.

     

     

    In problem-solving, it’s often said that “two heads are better than one.” In the real estate world, two designations may be better than one as well.

    A PARTICULARLY POWERFUL COMBINATION of dual designations is the Accredited Land Consultant (ALC) designation of the REALTORS® Land Institute coupled with the Certified Commercial Investment Member (CCIM) designation of the CCIM Institute.  ALCs are recognized experts in the land discipline. To achieve the ALC designation, these land professionals complete a rigorous LANDU curriculum, covering subjects such as land development, site selection, and creative land planning. In addition, they demonstrate their experience by providing a closed transaction portfolio. CCIMs, too, complete an intensive core curriculum, focused on the in-depth analysis of commercial real estate investment, and submit a portfolio of closed transactions. As part of the process, both designations require the successful completion of a comprehensive exam. The end result is that the real estate specialists who achieve the designations clearly have demonstrated proficiency in both theory and in practice.

    Slightly more than 200 real estate professionals hold both the ALC and CCIM designations, so these dual designees represent an exclusive network of the best in the business.  This article features some Q&A with a few of these dual designees to see how they put their designations to use in their daily business.

     

    To access the full article click on this link to Terra Firma.

     

     

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