Have Five Real Conversations a Day for CRE Success

Conversations Drive Commercial Real Estate Sales

Last night, I had to turn on my electric snow melting mats. Again. In March. So you’ll understand why I’m spending a lot of time this morning thinking about our Annual Conference in San Diego.

And what I’m thinking about is the challenge that our CEO, Kevin Maggiacomo, issued to everyone in the room: Have five real conversations a day, every day.

real conversations - lady on the phoneMany of you are reading this and thinking that this isn’t a challenge. After all, you talk to 10, 20, 30 people every day, right? As I write this, it isn’t even 7:30 am, I’ve already spoken to 3 people, and I’m not even in a direct sales position anymore!

Let’s look at what Kevin said one more time… “Have five REAL conversations a day, every day.” That one word – real – makes a big difference. A real conversation is one that you have with a person who is truly in a position to sign a listing, lease, or purchase agreement. Real landlords, real owners, real tenants or truly real buyers. To be clear, I define a real buyer as someone who already owns or leases commercial real estate.

And here’s another kicker… If you’re already doing a deal with someone and you have to talk to them anyways, they don’t count.

Now that we’ve narrowed down “real,” THOSE conversations are usually a bit more few and far between. So, if you aren’t talking to five of those people a day, starting to do that will revolutionize your business. And if you can talk to more than five (when I brokered, my goal was 10 and my average was 8!), you’ll do even better.

How to Have Five Real Conversations a Day

If you aren’t having five real conversations a day, you probably have two questions at this point:

  1. How do I find these real people?
  2. What do I talk about when I get them on the phone or in front of me?

First question… The real people are in your database. Anyone that you aren’t working with today is someone that you need to talk to today. And if you don’t have a database, there’s no time like now to get started (take a look at the first couple of lessons in the SVN System for Growth course on “Encyclopedic Market Knowledge” for help getting started). We can give you all kinds of strategies for how to strategically segment your database and build smart call lists.  But for now, here’s a simple three-step rule:

  1. Find someone in your database that you haven’t spoken to in a while.
  2. Call him or her.
  3. Repeat until you’ve spoken to five different people.

Second question… What do you talk about? Dr. Dotzour nailed it at the conference… Owners and landlords care about two things – will my building stay full and will my value go up. Anything that can impact values (or net operating incomes) or occupancy is fair game, and a great way to start a conversation. It’s that simple.

To learn more about how SVN can boost your brokerage skills and business, click here.

[bctt tweet=”Have five real conversations a day, every day. #CRE”]

Racing to the Finish Line with Your NNN Investment

It is Thoroughbred racing season, one of my favorite times of the year. It was a great Kentucky Derby and Preakness with the favorite, American Pharaoh, prevailing down the stretch for both races. There are some real similarities between horse racing and commercial real estate investing. In the next few paragraphs, I’ll talk about horse racing, and share my views on how it parallels NNN investing.

1. Distance of the Track – Length of Lease TermNNN Investment and Horse Racing

Commercial Real Estate Insight – The distances of the track for the three races is different: the Kentucky Derby is 1 ¼ miles, the Preakness is 1 3/16 miles and the Belmont is 1 ½ miles. This correlates well to a NNN investment lease term. If you have a longer term lease, then location is not as big of a concern. If you are buying, for example, a cell phone or mattress store that will typically have 10 year initial terms, then there needs to be a high barrier to entry and a strong corner location with great visibility and access.

Horse Racing Insight – Given that American Pharaoh had drawn the first door on the race track (one in which it is easy to get bottled up and stuck in the back) and the Preakness is the shortest of the three races (a sprint), I was not surprised to see that Bob Baffert instructed his jockey, Victor Espinoza, to take American Pharaoh right to the front from the start of the race. Otherwise he may have ended up in the back in a “bad location” and lost the race (not get his lease renewed).


2. The Jockey Really Matters – Carefully Time Your Investment

Horse Racing Insight – A Thoroughbred race horse weighs over 1,200 pounds. It is very important that the jockey has a strategy about where to position the horse on the race track and to regulate the speed of the horse. The jockey will only get one chance to “ask” (or kick) the horse up to full speed. I will never forget the 2004 Belmont Stakes where Smarty Jones was going for the Triple Crown. Smarty Jones was clearly the best horse, but the Belmont is the longest race at 1.5 miles – a full ¼ of a mile (one time around a standard high school track) longer than the Kentucky Derby, so it is crucial to manage distance in this race. Smarty Jones was in the front and pulling away, but his jockey may have “asked” him to sprint too soon, and Birdstone came out of nowhere. Smarty Jones never saw him, and Birdstone passed Smarty Jones at the end to take the Belmont.

Commercial Real Estate Insight – You have to manage your lease term for a NNN investment. If you NNN Investment Commercial Real Estateplan to sell, it is best to sell with ten years left or a minimum of five years. If you have less than five years remaining, you may need to hold until the renewal or be prepared to take a significant discount. It’s important to have a plan in place when you purchase a NNN investment as to how long you will hold and when to exit the investment.  A real estate investment professional can help you evaluate the best time to dispose of an investment in light of the market conditions.


3. Horses Have Personalities – Know Your NNN Investment Assets

Horse Racing Insight – If Smarty Jones had been eye-to-eye with Birdstone as the jockeys “asked” their horses to sprint, there is no way Smarty Jones would have lost. Horses know if they are winning or losing, and if Smarty Jones had been head-to-head with Birdstone, his heart would have pushed him for the win.

Commercial Real Estate Insight – Tenants have personalities, and there are some store managers and district managers who have livelihood riding on your real estate. With today’s technology, they know day in and day out whether they are winning or losing. Make sure you know how the store is doing and get to know the manager. They will share a wealth of information that will help with your long-term planning.


Click here to view my bio/listings and click here to view my other blog posts. 

Understand Your Lease, Avoid Unexpected Expenses

It is not uncommon for our office to receive phone calls from commercial tenants whose leases are nearing expiration and who feel they did not get what they bargained for when they originally signed their lease. Often, these tenants incurred significant unexpected charges or expenses during their lease term, which soured their relationship with their landlord and motivated them to find space elsewhere rather than extend their lease.

I feel the majority of these situations are not the result of intentional wrongdoing or purposeful deceit on the part of the landlord, but rather they emerge due to a lack of knowledge and understanding, primarily on the part of the tenant. This makes sense when you consider that landlords typically generate the lease documents and are therefore very familiar with their content. In addition, the majority of landlords have signed numerous leases with many tenants over many years. In contrast, a business tenant may only be a signatory on a commercial lease a couple of times during their entire career, and gaining an in-depth understanding of an unfamiliar and complicated multi-page legal document packed with small print can be a daunting task, not to mention an unwelcome interruption to running a business.

signature-389933_640I would say that many landlord/tenant financial misunderstandings relate to “operating expense” clauses in the lease. Property investors (aka landlords) purchase commercial property in anticipation of a projected return, and they, quite logically, seek to reduce risk and maintain that return over the life of the investment. Therefore, it is reasonable that landlords typically look to pass property operating expenses on to their tenants by way of a “net” lease. The problems arise, however, when, due to the complexity of the property operating cost language: 1) tenants do not understand what they are signing and the affect that operating expense clauses will have on their total rental expense; or 2) the tenant is suddenly hit with a crippling increase in operating expenses due to broad and open-ended lease provisions that were not negotiated or limited to any degree. If tenants take the time to understand the true financial implications of their lease up front, or secure representation from experts such as real estate attorneys or commercial real estate brokers, then they will have the opportunity to negotiate lease terms that are realistic and acceptable to their business needs, or alternatively, choose another building that falls within their budget.

Property operating expenses generally fall into three primary categories – property taxes, insurance and maintenance. The term “triple net” (or, “NNN”) relates to these three expense groupings. A triple net lease therefore would be a lease where your base rent payment is “net” of taxes, insurance and maintenance charges, but where these expenses are billed to you separately in addition to your base rent. A “net” lease rate will, therefore, typically be less than a “gross” lease rate which already has operating expenses built in.

To avoid unpleasant and financially burdensome surprises when considering signing a net lease, I recommend the following:

  • Request from the landlord a detailed breakdown of the property operating expenses over the past few years. From this, you should be able to determine which expenses are actually being passed through and whether there have been wide swings in the amount of total expenses each year.
  • Examine closely the lease language defining “operating expenses.” Operating expenses should NOT include things like: i) capital expenditures (a tenant should not have to pay for the landlord’s brand new roof); ii) personal property (the lawn mower the landlord bought primarily for his home); iii) income and capital gains taxes; iv) expenses for which landlord is reimbursed by any third party, other tenant, or insurance proceeds; v) loan fees, mortgage payments; vi) un-earmarked reserves; vii) various other costs that sometimes appear in leases but that do not relate to typical building operating expenses.
  • Pay special attention to any property tax related lease clause(s) as property taxes are often the most expensive component of operating expenses. Can items such as municipal improvement bonds be included with property tax pass-throughs? If so, be sure to know what these items total. If the property sells at a much higher price than currently assessed, are you fully obligated to pay the entire tax increase when the property is reassessed?
  • Request that triple net charges (sometimes called “CAMs” or common area maintenance fees) be estimated annually and billed in equal monthly installments that can only change upon prior written notice by landlord.
  • Attempt to negotiate a reasonable cap or limit on the amount that operating expenses may increase each year. If you are paying $.15 per square foot in triple net charges and then they suddenly increase by 100 percent to $.30/sf, this could gravely affect your operational cashflow.

To learn more , please contact Lock Richards, Managing Director of Sperry Van Ness | Highland Commercial at Lock.Richards@svn.com or 530.470.1740.