Is the Process Broken?
I’ve been known to write and comment on the importance of “process” in commercial real estate transactions. Years ago, one of our long time clients told us that the process, many times, was more important than the outcome. With a tight process, it’s hard to question the results.
However, while entrepreneurs and companies who make life easier for us are getting rich, the real estate process is getting more difficult.
Increased scrutiny in both corporate America and among institutional landlords has led to longer timelines for deals of all sizes. Weeks can go by with seemingly no movement waiting for someone to approve a counterproposal. Space plans are tweaked repeatedly to accommodate the user group or the decision maker, turnkey deals are impossible to finish because the plan is always changing, thus the budget changes too, and sometimes the process takes so long that key stakeholders are replaced in the middle of the process, creating even more work.
How do we stop the madness?
In my opinion, the catalyst will be the landlord and I could see it happening two different ways.
On one hand, an overly accommodating landlord can win deal after deal by giving in to the demands of the tenants, realizing that many don’t cost money and certainly those contained in the lease document may never be addressed during the lease term. Simply saying yes throughout the process works, right? But what if the tenant doesn’t like your location or your building?
On the other hand, the landlord who simply says no is in the unique position of actually having leverage in the negotiations. That landlord will dictate many of the terms regarding how the deal will get done, the build out, and the language in the lease.
Both landlords, while seemingly polar opposite in their approach, will accomplish the same thing: They will make the process easier for tenants.
In my practice, I represent landlords who lean towards each extreme. The “yes” landlords get deals done faster because they have removed the back and forth associated with much of the decision making process. By simply negotiating the main points and agreeing to the rest, they are a pleasure for tenants to work with.
The “no” landlords get deals done, too. However, the process is painful and they have to wear the tenants (and their brokers) down. Many times, the building is chosen by the user group, or it’s simply the last building in the submarket that has available space.
Believe it or not, many times, the “no” landlord can charge more on a per square foot basis. However, they have to wait longer for their deals and in the long run, receive less rent on an aggregate basis.
A few weeks ago, I wrote about the disruption of our industry. If someone really wants to disrupt the industry, they will figure out how to remove the inevitable back and forth, strip out as many of the variables as possible, and offer a solution that streamlines the process, breaking it down to the bare essentials. And once someone does it, everyone else has to buy in.
Until then, the “yes” landlords will continue fight it out with the “no” landlords, the “no” landlords will continue to fight with the tenants and everyone will engage in a process that in many cases, is broken.