Confessions of a Recovering Landlord

I am somewhat of contrarian. If everyone agrees on something, I'm usually the one to take the opposing view.

If I'm talking to my politically right-wing family, for example, I tend to bait them with the obvious benefits of universal health care, legalization of drugs and illegal immigration. If I'm with a bunch of left-wingers, on the other hand, I've been known to advocate the death penalty, abolition of the entitlement programs which keep the poor in their place, and deregulation of business.

It's healthy to have an opposing thought occasionally just to make sure you aren't falling into the trap of group think.

But does that work in marketing?

For the last couple of years, electronic marketing has been the rage - enewsletters, Adwords, social media, etc. I've sat through countless presentations on these subjects. Which got me to thinking....

If everyone else is running to electronic marketing, should I start a direct mail campaign just to stand out?

I don't get a lot of direct mail advertising in my mail box anymore. I don't get much of anything in my mailbox anymore. Most of my bills are handled electronically now too.

But it's just so easy to just hit the Delete button. My enewsletter goes to 2,400 email addresses every month. About 26% of those get opened up which is a little over 600. I'm told that's pretty good. But that means that around 1,800 never see it. 

If I were to send a direct mail piece to that same list of 2,400 people, how many of them would see it? Now this isn't a list I purchased. This is a list of people with whom I have had some contact in the last few years. I bet the percentages would be just the opposite - 74% seeing it and 26% lost or thrown away before being seen.

I am most interested in business services since that's what I do. My clients are companies that lease office space. As a tenant representative, I represent their interests when searching for space and negotiating against the landlord. I do this primarily in the Dallas area especially in far north Dallas, Plano, Frisco, Richardson and Carrollton.

So what do you think? Is direct mail dead or has its time come? Have you tried direct mail in the last 2 years? If so, how often do you send something? What have the results been? 

Most of my business comes from referrals. From past clients. From members of networking groups of which I'm a member. Occasionally, from other real estate agents - both commercial and residential.

Referrals are great. I rarely have to compete with other brokers for the business because the prospect already knows I'm qualified, competent and trusted. So I'm clearly a great fit for them.

But are they a great fit for me? Watson, we have a problem....maybe.

As a Corporate Real Estate Advisor or tenant representative, I represent companies which lease commercial space for their company use. My ideal client is a company which already leases space in a multi-story office building in North Dallas, Plano, Frisco and Richardson which have 10 or more employees in that office. I have underlined the key characteristics of the ideal client to be sure they can't be missed.

This is who I most want as a client. It is to these prospects that I will spend time and money marketing. I never spend time or money marketing to a non-ideal client. Ever.

So what do I do when one of my referral partners or past clients refers me to a company which wants to lease a warehouse or shopping center? Well, just because a prospect isn't the ideal doesn't mean I can't help them. It just means that I won't go out of my way to seek them out or spend money to find them. It also means that I will think long and hard before taking them on as a client. I have to ask myself, "am I the best solution for this company's needs?" If the answer is no, then I refer them on to someone who is a specialist in the service needed by that company.

Be sure you know who your ideal client is so you know who to ask your referral partners to send you. You can't serve everyone so be sure to serve the ideal first. If you have time left over, you can serve a few others occasionally. 

Yesterday, I attended a sales seminar put on by Chuck Bauer (www.chuckbauer.com).  Chuck is a nationally recognized sales trainer and coach who has worked with some of the largest financial institutions in the country. 

He asked the question, "What Causes Sales?" The audience threw out lots of suggestions, but no one got the answer he wanted. 

Qualified Appointments! 

That's what causes sales. Notice he didn't say "Appointments." He didn't say, "walking into an office to drop off a brochure for someone I think should be interested." He didn't say, "leaving messages." 

He said, "Qualified Appointments."

As you know, I am a Corporate Real Estate Advisor also known as a Tenant Rep. I provide leverage to companies when negotiating an office lease or renewal with a landlord. So what would a Qualified Appointment look like for me?

My Qualified Appointment would be with an owner, CEO, CFO or top executive of a company which already leases office space in Dallas, Plano, Frisco, Richardson, Addison or the surrounding areas with 10-100 employees in that office.

That's who I really want to meet. So if I have an appointment that doesn't meet all those criteria, it isn't a Qualified Appointment. It may be a networking meeting intended to develop a referral relationship. It may be a social call. It may be a waste of time. But it's not a Qualified Appointment.

I need Qualified Appointments because I need sales. Do you?

As Chuck says, "Do What Matters."

Several years ago I was talking to a friend and mentioned that I had sold my house as a For Sale By Owner (FSBO).  He was surprised that it was possible to buy or sell a house without a residential real estate agent.  I was shocked that he didn't know he could trade real estate without a broker - however ill-advised that might be.

Brokers can only negotiate the sale or purchase of a house, right?  Aren't they all the same since they have access to the MLS?  Even though I've been in the real estate business for over 27 years now, these misconceptions still surprise me.  I didn't have access to the MLS until a few years ago, but I hardly ever look at it and I've almost always hired a residential agent when buying or selling the homes I've lived in.

Real estate brokerage has evolved in the last 30 years to become a highly specialized industry.  Many brokers have essentially become real estate advisors providing financial analysis, demographic studies, market analysis, site selection research, business planning, portfolio analysis and management, marketing plans, and even construction management in some cases.  This is more the case for commercial brokers, but residential brokers have also become specialized.

For example, residential agents usually specialize based on geography first and then by the price range of the house, type of house (single-family, high-rise condos, etc.), type of client (owner-occupant or investor, buyer or seller), and type of service (sales or property management).  Many will be a combination of these specialties - seller agent for high-rise, luxury condos in the Uptown area of Dallas.

Commercial brokerage is far more specialized than residential.  Agents will often specialize based on 4 factors.  First, by geography.  North Dallas or Collin County.  Plano or Addison.  Second, by product type.  Office, industrial, retail, medical, hospitality, or multifamily.  Within this category there are subcategories as well. High-rise office or office condos, for example. Third, by client type.  Seller or buyer.  Landlord or tenant.  And finally, fourth, by services provided.  Investment sales, tenant rep, project leasing or property management.

These criteria can be cumulative, of course.  So an agent may focus on Plano, office buidlings, for tenants, for lease.  One broker I know only represents church properties, but does so throughout the country.  Another only sells large office buildings on behalf of owners in Dallas.  While yet another handles only corporate real estate services for corporate tenants in Collin, Dallas, Tarrant and Denton counties.

The degree of specialization is often a function of the size of the market.  For example, a commercial broker in Amarillo may have to represent both owners and users of several product types because there isn't enough business in any one specialty to make a living.  In Chicago, on the other hand, it's more likely that a broker would focus exclusively on owners or users with further specialization by product type.

Rarely do you see brokers cross the residential/commercial line, though many of the national residential brokerage companies have attempted to create commercial divisions with mixed results. 

The good news is that owners and users of real estate have an incredible array of options when hiring a broker to represent their interests.  The greater the specialization, the better the quality of service in most cases.  It's important to find an agent who specializes in the area, product type, client type and service that fits your assignment.  The agent must be of impeccable integrity, be willing to listen to your needs, have no conflicts of interest and have the time to focus on your assignment.  Don't be afraid to use one broker to help your company lease space, another to find a house to buy, and yet a third to handle your investment property.  Ask for referrals even from a broker you have used before.

Oh, and by the way, there is no law saying you have to use an agent at all. But's it's always a good idea to have an expert on your side of the negotiation.

People are constantly talking about Facebook, Twitter and YouTube. But what about LinkedIn? That's where business is supposed to be done, right? While I want to keep up with my friends, I really want to drive more sales. So why isn't LinkedIn more popular and talked about? 

I ran across an article from BusinessInsider.com through a link on LinkedIn of all places called How Linkedin's Lousy Sex Appeal Could End Up Killing It. You can read the whole article here: http://www.businessinsider.com/heres-the-no1-problem-at-linkedin-right-now-lousy-sex-appeal-2011-11.

So what do you think about LinkedIn?

Do you use it to prospect for new business or keep up with client and referral partners? If you use it for prospecting, do you actually contact people through LinkedIn or just use it for research and contact the person through other means?

I had over 820 connections on LinkedIn, but that number is falling as I delete people who I don't really know. When I first got on LinkedIn I thought I should connect to anyone who invited me. I now realize that I should only be connected to people I actually know. So I'm deleting and am down to 750. I probably have another 100 or so yet to delete.

Let me know your thoughts.

By the way, if any of your LinkedIn connections work for companies which lease office space, I'd like to be introduced to them...the old fashioned way - email or phone call.

So the economy has been bad for 3 years now. What has been the impact on office leasing?

There are a few trends that have become apparent.

First, tenants are trading up to nicer space. When rental rates fall companies often move into higher class office buildings for close to the same price as they have been paying in lesser buildings. I have seen this occur in previous recessions as well.

Second, while they may be moving into nicer buildings, they aren't leasing excess space betting that their company will grow.

Third, when signing new leases most companies are using their space more efficiently. This translates to less square footage. So with falling rental rates and less square footage, they can often move into nicer space and still save money.

Fourth, companies that are stable and can predict their space needs are locking in today's lower rental rates. The alternative is that you give the landlord an opportunity to benefit from a recovering market in 2-3 years. For companies who can't predict the future or the certainty of their pipeline, they are opting for flexibility in their leases instead.

Fifth, small tenant demand is returning to the market. With job layoffs, comes pain. But it also tends to spark the entrepreneurial spirit and people start striking out on their own. New businesses need office space, but usually small space. 

There's no question that the economy is still bad and unpredictable. But therein lies (lay?) opportunity for those strong enough or brave enough to grad it.

It sounds like I'm in a 12-step program, doesn't it? Well, in a way, I am. After working for landlords for 20 years as a Property Manager, Leasing Agent, Construction Manager and Asset Manager, I switched sides and now use that experience strictly for the benefit of tenants who lease office and industrial buildings.

It's really what differentiates me from all of my competitors. No other Corporate Real Estate Advisor (Tenant Rep) that I have ever met has had such extensive experience on the other side of the table. This really gives the tenant an advantage because by using me as their representative they get in-depth knowledge of how a landlord thinks and what motivates the landlord working for them. 

And this isn't just during the lease negotiations. It's during the entire lease term. When I was an Asset Manager I would get calls from Tenant Reps who would say, "Bob, my client just called me about the letter you sent them. They don't understand it and want me to explain it to them. But I don't know what it means either. Can you explain it to me so I can explain it to them?"

Of course, I was happy to do that because Tenant Reps are considered clients of landlords too. Landlords market to Tenant Reps because 95% of tenants will have a Tenant Rep handling their lease.

The main point to all this is that a tenant should have representation that is at least as knowledgable as the landlord's Leasing Agent and Property Manager. Be sure to interview the Tenant Reps being considered for your lease assignment or that you are referring to your clients. Make sure they have the relevant experience for the lease negotiation and throughout the lease term. Don't refer someone just because he/she is a friend or nice person. 

"Once I have mine, I want to make it more difficult for others to get theirs." That seems to be the mantra of most professional licensees and holders of professional designations. It makes sense. Those who have put in the effort and education to earn a license or designation want to increase the prestige of that by making it more difficult for others to achieve. This has the added benefit of making it more exclusive. 

The Texas Real Estate Commission  (TREC) has passed new regulations which do just this. In a press release dated September 9, 2011, TREC will require two additional mandatory 30-hour classes for new sales license applicants. Those classes are currently optional - TREC Promulgated Contracts and Real Estate Finance. This becomes effective September 1, 2012.

In addition, beginning January 1, 2012 applicants for a broker license will be required to have 4 years experience as a licensed salesperson up from the current 2-year requirement. They will also have to demonstrate "practical competency" by providing a list of brokerage activities that the person has been engaged in.

Also on September 1, 2012, brokers will be required to take a course called Broker Responsibilities in addition to other required continuing education classes to renew their licenses. This course will be required every two years as are courses in Legal and Ethics.

Effective September 1, 2011, all property managers must be licensed whether they are managing a high-rise office building or a bunch of houses. Leasing agents have always had to be licensed, of course. But it's good to see the commission finally require property managers to be licensed. They often lease properties in addition to managing them. Besides, any time a fee is collected for a real estate service, the person providing the service should be licensed to help ensure that the client is professionally represented. The only exception to that is that anyone who owns property should be and is able to continue managing and leasing his/her own property without the requirement of a license. But when they are acting as the agent or fiduciary of someone else, a license is a must.

There are other new regulations, but these are the most important ones. I support these changes for two main reasons:

1. This will weed out the weekend real estate agents who aren't willing to spend the time and money necessary to get and maintain a license. When they aren't working full time, agents aren't as likely to take a long-term view of the profession.

2. I think real estate agents suffer a poor professional image in the minds of the general public at times. These regulations should help increase professionalism and weed out some agents who don't have their client's best interest in mind. That can improve the image of the profession overall.

So get your license quickly if you haven't already done so because it's about to become a little more difficult.

I was driving through Dallas the other day with a client and we were talking about how new developments these days are more dense and involve multiple uses - office, retail, apartments - all in the same project. These developments are much more dense than in past years. This has typically definied the central part of cities and when you think of the greatest cities in the world, they are always quite dense - New York, Hong Kong, London, etc.

Density seemed to be viewed as a bad thing by most cities in the US though - at least in the suburbs. But that is changing as people demand services within walking distance of their homes or places of business. Most of these developments balance out the density with green space, ponds or other open gathering areas. This provides a place to meet friends, play, and relax. 

What's interesting is that density is happening inside as well. For the last couple of decades, companies have been putting more people in smaller space. The average square footage per average worker in 1994 was 90-115 square feet (SF). Managers had about 151 SF each. Today those numbers have dropped to 75-95 SF for average workers and 120 SF for managers. 

But these companies often create more meeting space, break areas and other open areas within the office where collaborative work can be done. One of my clients is a tenant in Plano has the typical conference room, but they also added a conversation pit. This room is where the "corner office" would otherwise be and it has a faux fireplace, leather overstuffed chairs, side tables and a big coffee table in the middle. It's a great room to enjoy with co-workers or clients without the behemoth table in the way.

Design should reflect the company's personality. This includes the design of the development in which the office is located and the design inside the space itself. Density plays a roll in that as well.

Want to save a bundle on your next office lease? Try to find a sublease. Subleases are often priced 20-50% below what the landlord is charging for direct leases. So a building charging $20.00 may have subleases in the range of $10.00 to $16.00. The closer you get to the expiration date of the sublease, the lower the price goes. 

Other factors affecting the rental rate will include how long the space has been on the market and whether furniture and equipment are available for the subtenant. Many subleases have furniture, phone systems, equipment, and maybe even art and plants in place already. While the tenant (sublessor) will try to sell these things, the subtenant will almost always ask that it all be given to the them for free as part of the deal. 

But there are a few risks of taking a sublease. First, if the primary tenant stops paying the rent and the landlord terminates the lease, the sublease will likely be terminated as well. You may not have an office. So you need to underwrite the credit and financial situation of the primary tenant. The landlord could allow you to stay and just pay the subrent to him. Or the landlord could say you can stay only if you start paying the rate he is quoting for leases in the building.

Second, you usually won't get any money for improvements to the space. So you have to find space which is already configured in a way that works for you. You might negotiate for improvements or decide to pay for them yourself, but the landlord must approve that work first.

Third, you typically won't get a renewal option, termination option or any other kind of option. Options often are "personal" to the primary tenant and can't be extended to a subtenant. If you must have those things, you need to negotiate for them and be sure the landlord agrees to give you that right. That's not easy to get unless the landlord feels like they are getting something by having a subtenant in place.

Subleases can be really great for the bottom line, but be sure you know the risks. 

To see the excess space our clients have on the market, please go to the Properties page of my website. We have one in Dallas and one in Plano right now. We have a new listing for sale coming up in Rowlett shortly.