The Reata BizBlog

Are we in a recession or not? Is this a tenant's market? The answer to both questions is obviously, "Yes." But you wouldn't know it sometimes by the way some landlords are acting. It's like they think it's still 1999.

I am a Tenant Rep or Corporate Real Estate Advisor so I spend my days talking to landlords on behalf of companies which need to lease office and warehouse buildings in the Dallas/Ft. Worth area. But I used to be a landlord agent. So I understand both sides of the table very well. The landlord and its leasing agents are suppose to treat tenants and their tenant rep brokers as the customer and make the transaction as easy and smooth as possible. That should be the case regardless of which party the current market conditions favor.

Now I'm not talking about what the rental rate should be or how much the TI (tenant improvement) allowance should be. Those issues are determined by the market. But I am talking about simple things like sending the lease document out as a Word file which can be edited instead of a pdf file or paper documents. Clients usually have 2 or more people involved in the transaction and they are often in different states. And their attorney may be in a totally different place. Paper and pdf files are not helpful. Send a document as a Word file. The old excuse of wanting to have control of the content of the file is ridiculous with today's software that allows for instant comparisons.

And then there is the leasing agent who offended because we requested some changes to the original lease document and the commission agreement for a tenant who plans to renew in their current warehouse. If this was a new tenant moving into a building, there wouldn't be a question about negotiating the language in both documents. Isn't an existing tenant worth more to a landlord. No down time between tenants. Less TI's. Treat them with every bit of respect and deference that you would for a new prospect.

I want real estate brokers to be viewed as professionals who add value, make the transaction easier, and put their clients' interests before their own. It chaps me when others ruin it for those who are trying to do it right.

Okay, the rant is over.

I wanted to let you know about a great opportunity.  A golf tournament fund raiser on Tuesday, April 28 will benefit a great non-profit organization called My Possibilities.  This non-profit helps adults with serious disabilities (Autism, Down Syndrome, Aspergers, Prader-Willi, Head Injuries) develop life skills and become more independent after they graduate high school and have nowhere else to go.  When these people reach the age of 21, they must leave the school system.  Too often they end up in front of a TV all day.  My Possibilities provides a constructive alternative.  And yhey are a client of mine.

We really need golfers so if you can, come out, have some fun and play.  The tournament is at the Westin Stonebriar Resort in Frisco and I hear it's a great course. It's $170 to play and it's tax deductible!  I understand that it's normally $122 to get on this course and that doesn't include lunch, drinks, or tax deductibility.  Bring a guest or just send a client.

To sign up to play, just go to http://www.mypossibilities.org/ and you can pay with a credit card.

Thanks so much and let me know if you have any questions.

The Dean of the Cox School of Business at SMU, Albert Niemi, spoke at an economic summit the last week of February.  He focused on our current economic situation and how it compares to the Great Depression and other recessions.  So how does a REcession end up as a DEpression?  You might be surprised

First, the Great Depression was a uniquely American problem.  It did not extend around the world as our current problem does.

Second, our current recession has been going on for 15 months now. This compares to the recessions of 1973-75 (24 months), 1981 (16 months), 1991 (6 months) and 2000 (8 months).  Predictions are for the current recession to continue for 24-30 months total.

Third, the only reason that the Great Depression turned into what it was instead of just a recession was because of the response of the Presidents and Congress at the time.  Herbert Hoover and Franklin Roosevelt both decided to cut spending and raise taxes during the 1930's.  They couldn't conceive of operating in the red regardless of the advice of the famous economist John Maynard Keynes.  This is what sent the country into despair. 

So that brings us to today.  Our most recent and new presidents and Congress have all demonstrated that they aren't afraid to spend.  They are doing that at an unprecedented pace.  And Mr. Niemi supports that saying he would have voted for the stimulus packages had he been in Congress.

But his biggest fear is that President Obama now seems intent on repeating the same tax mistakes of the 1930's.  He plans to let the current tax breaks expire and increase taxes on the "rich."  Forget that the top 1% of Americans already pay 40% of the taxes and the top 50% pay 97% of taxes while the bottom 40% pay nothing at all.

The problem with taxing the rich is that they stop spending on luxuries and those luxuries are often provided by those at the bottom of the economy.  He gave the example of Jimmy Carter's luxury tax on boats.  The rich stopped buying boats opting to rent them instead which resulted in 200,000 unemployed New Englanders who no more reason to build boats.

Mr. Niemi had many more thoughts and the stats to back them up.  I'd be happy to hear your thoughts on this issue.  Please give me a call if you'd like to talk more.

Ever lose a file that you hadn't backed up? That can ruin your day.  I had been using an external hard drive to back up my computers, but it was manual and I would often go for weeks without doing it.

Then my friend, Jeff Rudluff with Online Performance Marketing, clued me into Syncplicity.  I checked it out and signed up immediately.  It is one of the best things I have ever done.

Syncplicity is effortless synchronization, backup, and sharing. Install it on one computer and all your important documents, photos, and music are backed up online, complete with web access from any computer connected to the internet. Install it on additional computers and Syncplicity will synchronize your files -- your important files will be wherever you are.

I have it on my home computer, my business laptop and my wife's business laptop.  Now we have all our files on all our computers all the time.  In addition, it keeps all prior versions of any files I have revised.  And it all runs in the background without me having to think about it. 

And it's cheap.  I get 50 GB of storage for only $9.99 a month.  If you want to try it for free, they'll give you up to 2 GB on 2 computers for free.

I don't get a commission or anything, but you have to get this.  It has given me huge peace of mind.

Why should I be thankful? 

I just lost 40% or more of my 401k and have no prospects of retiring before my kids reach retirement age.  I really don't want to open the envelope when the statement comes in the mail at the end of this month.

I'd like to replace some of the furniture in my house and the carpet needs to be replaced as well.  But last year I made less money than I'd like to admit so replacements will have to wait. 

And I'm supposed to be thankful?

But then I have been pretty busy lately.  It's even looking like 2008 may be my best year since I started Reata.  I wish I didn't have to work so hard though.  When I was in the corporate world I didn't have to put in as many hours as in my own business. 

But I sure don't miss being on an airplane every couple of weeks and missing my kids' games and activities.  Now I get to sleep at home every night and don't even have to fight traffic since my office is only three miles from the house.  Getting laid off means you lose all your income, but now if a deal dies I only lose a little income.  Maybe there's more security by working for myself after all.

It sure makes for a better home life.  My business life and social life are starting to get blurred and I can't tell where one stops and the other starts.  With Jan being in business again, we get to go to lots of business events together.  A couple of weeks ago I got to sit and hold her hand while listening to Beatlegras at a benefit concert for Crossroads Family Services.  Crossroads is a non-profit client and also our daughter's employer. 

As we walked back to our car we discovered a place called Cadillac Pizza on the square in McKinney with a live blues band.  I love the blues.  We wanted to take our kids to hear some blues in Chicago while we were on vacation last summer, but Blue Chicago no long has the family friendly basement blues.  Thursdays are open blues jam nights and you just might see an 11-year-old boy on the drums.

And then there's Toots who is more excited when I get home than I can believe anyone could be.  She is our 5-pound Pointer mix SPCA surprise that turned into a 50-pound Pit Bull/Pointer mix.  I wouldn't trade her for any other dog now, of course.  Our morning runs wear me out, but are apparently just a warm-up for her because she brings the tennis ball to play as soon as we walk in the door.

Now that I think about it, I've got so much to be thankful and so many people that care about me.  And I haven't even mentioned that my parents and my in-laws are all still living and married to each other, that I have plenty of food to eat, that I have a home to go to every day, and that I was wanted so badly that someone was willing to die to be sure I could spend eternity with Him.

Happy Thanksgiving.  I bet yours will be as good as mine...if you just think about it for a minute.

Thank God I'm in Texas.  Texas is certainly taking some hits while the economy in the US as a whole is suffering.  It is certainly not hurting to the same extent.  DFW is the 4^th largest metro in the US, but it created 83,600 new jobs in 2007 (3^rd in the nation) and 54,300 from September 2007 to September 2008 (2^nd in the nation).  Unemployment stood at 5.3% while the country as a whole was around 6.1%.  These numbers may be adjusted later as often happens, but they show that it's a good time to be in Texas.

Costar reported that the 3^rd quarter of 2008 ended with 16.6% vacancy in the office market - a slight 0.1% increase over the 2^nd quarter's ending rate.  While absorption year-to-date posted a positive 2.8 million square feet, vacancy is expected to increase as the economy slows and 6.2 million square feet of new properties are delivered.  Subleases are becoming more of a factor as well with 2.6 million square feet now available.  As sublease space increases, greater pressure is put on landlords to decrease direct rental rates to compete. 

What does this mean for corporate tenants?  There will be more options for tenants for sure.  And it probably makes sense to start testing where the bottom is for rental rates.  For example, I recently completed a transaction where the landlord originally quoted $11.20 per square foot.  When I told him that the high-credit, international tenant was focused on another building he continued to pursue the deal anyway and eventually made an offer at $9.05 with a construction allowance 25% higher than the original offer.  He got the deal.

The following is an article sent to me by a friend.  It was written by Roy H. Williams. the Wizard of Ads.  You can find him on the web at www.wizardofads.com.  This article clearly explains why "expensive rent is the cheapest advertising your money can buy."

"Follow the Sound of Bulldozers
and the Smell of Fresh Paint

By Roy H. Williams

Commercially speaking, where are things happening in your town? Move to where the action is. Follow Best Buy, Home Depot, Starbucks and the other Big Boys who have already done the research. 

Nothing draws a crowd like a crowd. 

Media costs are escalating and the public is hiding from ads. These are just two of the reasons why a great location is more important today than ever before. 

Expensive rent is the cheapest advertising your money can buy. 

Is Walgreens able to afford great locations because they do a big volume, or do they do a big volume because they always secure great locations?

A high-visibility location communicates leadership. It implies that you do things better than your competitors. 

The goal of advertising is to become familiar to your customer, to become part of their world so they think of you immediately when they need what you sell. All else being equal, customers choose the familiar over the unfamiliar. A great location makes you familiar to the public.

Are you in retail? Cut your yellow page ads dramatically or altogether. Add these dollars to your occupancy budget. (The yellow pages are a service directory. Don't waste your retail exposure dollars there.) 

Cheap rent is seductive and insidious. It ensnares even the brightest people. 

Two weeks ago I was listening to a man tell me about his business when I abruptly told him that his problems were the result of a bad location. He hadn't yet told me anything about his location when I made the statement.

"What makes you think I have a bad location?"

"I knew the moment you told me which parts of your company were profitable and which were struggling."

"But I didn't think the location would matter for a business in my category. We're a destination. We don't need drive-by traffic."

"How much do you spend for occupancy and how much are you spending for advertising?"

"Two thousand a month for rent. Seventy-five hundred a month on radio ads."

"What would it cost to be where the action is?"

"About four thousand a month."

"Take the extra two thousand from the ad budget. Four thousand for occupancy and fifty-five hundred on the radio will make you a lot more money."

Your location tells the public what you believe about your company in your heart.

How proud is your location?"

Roy H. Williams

Today I was looking on a popular business networking site when I saw the following question posted:

“I will pay $35 for an appointment with a CEO, small biz owner, or investor interested in real estate purchases and investments.

We have a client willing to pay $35 per appointment with ANY large corporation in Arizona that is looking to buy land. If your contact ends up making a deal with our client, you will receive 35% of our client's commission or at least $2,000 as a success fee (along with that initial $35 for the contact information and introduction you provided).

Let me know if you can assist!”

Paying for introductions or appointments may be fine, but paying based on closed business may get you in trouble.  Here how I responded to the questioner. 

Be careful that you don't violate your state's real estate licensing laws.  You can pay someone to set an appointment.  That has nothing to do with the real estate transaction.  But if you pay the referring party based on closed business, now they are receiving compensation for a real estate transaction and that probably requires a license in most states. 

I am a licensed broker in Texas specializing on providing corporate real estate services.  I contacted the real estate commission to see if I could pay a portion of my commission to my client's favorite charity.  I was told in no uncertain terms that that would violate the law.  Rebates to principals in the transaction are legal, but not to third parties.  So I can give my corporate client a portion of my fee, but I can't give it to the president personally, to his favorite charity, or to the person that referred me to him.

So you should check with the real estate commission in the states in which you do business to see what their rules are and you may need to find a way to tie the extra compensation to something other than the closing of the real estate transaction.

I just finished reading an article by Jim Gillespie, a commercial real estate coach, in which he discusses peak oil and its impact on the commercial real estate business.   But first of all, what does Peak Oil mean? 

Jim describes it this way.  “When oil fields are new, and petroleum is beginning to be extracted from them, they continue to produce increased amounts of petroleum every year until the production from the field reaches its peak level. Then after this peak amount of production is achieved, the field will only be able to produce lesser and lesser amounts of petroleum every year thereafter. This is the very nature of the petroleum extraction process.”

Jim says that US production peaked in 1970 and says that many experts think that production in Saudi Arabia is peaking right now. 

So what, you might say.  Well, declining production means less supply.  At the same time, demand is increasing rapidly in developing countries like China and India.  Put the two together and you have a formula for enormous upward pressure on oil prices.  And that means much higher gas prices.  Jim’s article quotes an oil industry expert who says it will go to $10 a gallon.

Here are Jim’s thoughts on what impact this might have to real estate.

1.  The values of homes and residential rental properties in and closer to major cities will probably do better in the long run versus those located farther away in the suburbs.

2. Office buildings will experience a major increase in heating and air conditioning costs, especially those located in areas with severe winters or very hot summers.

3. Commercial and industrial properties closer to the major cities will...command even more of a premium in the future when compared with commercial space in the suburbs.

4. There will be a need for a much greater amount of housing near the central business districts of major cities.

5. Industrial businesses will transition away from shipping and receiving their goods by truck and towards shipping and receiving them by rail which will be more economical for them.

6. Manufacturing businesses that already have substantial energy costs right now will be hit very hard with the coming increases in these costs and will find it increasingly difficult to remain profitable.”

To read Jim’s full article, go to http://www.realestatesalescoach.com/peakoil.htm.  He also has an audio interview here: http://www.realestatesalescoach.com/Energy_Interview.htm.

So what do you think of this?  Agree?  Disagree?  Don’t care?  Let me know your thoughts.