It Only Takes One

Last week, the Houston Rockets signed Jeremy Lin to a three year contract. While the Knicks had the opportunity to match the offer, they declined, ending Linsanity in New York.  While Lin's meteoric rise from obscurity to stardom is a great story, keep in mind, he was cut several times before being given his opportunity with the Knicks.  Yet the outrage in New York was tremendous. The Rockets have a long history of marketing Asian players with Yao Ming being the centerpiece of their team for years.  So, did they sign him because he's good for the team or because he's good for the bottom line?  Did he sign with Houston to try and force the hand of the Knicks to match?  Did Lin give up significant endorsement opportunities by going to Houston?  Whatever the reasons, they were likely well thought out by both sides, but we will never know the deciding factors.  The Knicks didn't think it was a good deal, but Houston obviously did.  It only takes one team to make a player an offer he can't refuse, no matter what the other teams thing. 

When Alex Rodriguez opted out of his contract several years ago, Brian Cashman said that the team would not restructure his deal or give him a new contract.  He was overruled by the Steinbrenners and the Yankees gave him a new 10 year, $275m contract which runs through 2017 and includes bonuses for milestone home runs.  The Yankee owners were sure that they could monetize ARod as the new home run champion through not only merchandise, but television ratings for their very successful YES Network.  Given the ARod steroid admission, it's unclear how his ascent will be received by the public and if he will even get to 763 home runs, but at the time, the Yankee brass thought it was a smart deal even though no one else was bidding.  Again, it only takes one.

The same thing is happening in real estate.  We have seen some landlords stretch for certain deals.  Since the economic crisis that began in late-2008, we have seen tenants take advantage of record concessions offered by landlords in what has been a prolonged "tenant's market".  Just recently, we have seen deals in the market with 22 and 24 months of free rent.  But those were isolated incidents of large tenants with good credit.  When negotiating on behalf of some of our corporate clients, I have been known to tell landlords, "someone in the market will give us a stupid deal if you don't..."  You'd be surprised how little negotiating needs to happen after you set the tone the right way.  It only takes one landlord to stretch and make the tenant an offer they can't turn down.

However, no matter what the industry, buyers buy for their own reasons and those reasons are not always clear.  Tenants have plenty of choices and the building they choose isn't always the one that offers the best deal.  Sometimes, it's the building that they think will help drive revenue.  As service providers, we can make our recommendations, but as I have said in the past, the best decisions are typically where the business drives the real estate, not the other way around.

The Rockets may have wanted Jeremy Lin because they saw something special in the game in which he scored 38 points against the Lakers.  Or they may have wanted to exploit the marketing opportunities to maximize revenue.  Maybe the Yankees might have thought that ARod was a good investment due to his past performance and the revenue potential of a home run chase.

It's not always apparent why landlords stretch for certain deals and not others.  It may be the structure of their debt; it may be that they have a relationship with the tenant in another market; it may be that they are charging their equity partners fees for leasing...or 100 other reasons.  

The point is, finding the right match of player and team, tenant and landlord, whose interests are aligned is the key.  After all, it only takes one.

JN