Wednesday, November 25, 2009

Negotiating: Make it about THEM

I've historically pursued win-win negotiations. This approach has served me well, with everyone feeling like they gotten a fair deal. But there were those occasional deals (typically multi-million dollar contracts) in which the other side seemed to be reading from a different script and the negotiation was much harder. Understanding how those negotiating teams work was critical to learning how to succeed with them. Understanding them opened the door to greater success in all negotiations.

Here are a few observations I've made over the years. Many thanks to Jim Camp, author of Start with No, for helping me gel them into concrete thoughts. For the record, I highly recommend the book.


Neediness is deadly in a negotiation... you've got to become a master at recognizing the adversary's neediness. The need may be a business condition your solution will resolve, but just as often it's a personal compulsion by the other person to be perceived as smart, likeable, competent, or important. Listen for both need types, because the other party's needs will be the keys to success. Understand these needs - the areas they touch, their depth, their ramifications. Once you have a handle on them, frame everything in terms of these needs.

Regarding your own neediness, do all you can to avoid revealing it. Understand your corporate needs and your own personal needs (struggles?) and then commit to avoid any actions that would reveal them. When I was in technology sales, a key challenge was that once I committed myself to a deal pursuit, I needed it to happen. If it faltered, I had consumed corporate resources and time I could have used to meet my quota via other pursuits. In short, the political and financial price of failure was very high, and that made me need the deal.

How have I learned to recognize (and/or reveal) others' neediness? Listen for it. As is the case in so many other scenarios, he who speaks the most loses. When I'm talking, I'm guaranteed to share needs sooner or later - it's unavoidable. When the adversary is talking, they'll share theirs. Watch your own speech closely and encourage your adversary to talk by asking lots of questions about their world. Speaking of questions...

Question, don't state.
Who is a new person you met recently that you really enjoyed meeting? Seriously, stop now and think about it.

Note how you have to own the question and think about what matters to you. You're thinking about your world. Asking questions keeps your adversary focused on their world and the outcome they desire while giving you greater insight into the vision you should be promoting as you make it all about them. So ask good questions and listen to the answers. Here are a few great questions to consider:
- What is the biggest obstacle we face in this negotiation?
- What happens if nothing changes in your current scenario?
- What would you like for me to do?
- How can I help you succeed?
- What are your thoughts?
- Who will pull the right people together within your organization?
- Why did your boss want you and me to speak?
- What else needs to happen? (aka: Where are we in the process?)
- What role does Mary plan in this?
- How will what we're working on impact your business?
- How will you know if this was the right thing to do?
- How critical is the timing of this?

Also, avoid the urge to help them answer these questions. It's normal to feel an urge to tee up the anticipated answers, but it sets up a no-win situation. If you're wrong you look bad. If you're even close to being right, they'll grab your answer and you'll miss out on other insights you may have gained. The goal is to understand and step into their world. Remember, you may be helpful and look impressive if you show insight into their world but your job is to be effective, not impress them.

Another thought on Questions
When asked a question about an important negotiation variable or that touch on your needs, it's best to reverse it. Acknowledge it politely, and then reverse it. Gaining info before answering expands your understanding of their world while not painting yourself into a corner.

  • Q: "What do you think is the best thing for us to do?"
  • A: "I've been mulling this one over and haven't yet come to a conclusion. Your opinion matters a lot to me... what are your thoughts?"

  • Q: "When will you want access to the space?"
  • A: "That will be very important to my client, I'm glad you bring it up. What is the earliest you think it could be made available?"

What do I DO with their needs?
You are at the negotiating table because of what your adversary can do for your organization, but it is imperative to forget what your organization needs from them. Instead, think only of what the adversary needs. Throughout the negotiation, phrase everything in terms of their needs and remind them of how these needs are going to be met, whether the needs reside within the organization or within the individual. Paint a picture and keep painting it throughout. And keep tabs on these needs, as they may evolve through the negotiation or differ among individuals.

Here's to your continued success!

Wednesday, June 10, 2009

Office Space Leasing and Buying Expectations... set your bar!

At your next real estate event – be it a relocation, expansion/reduction, or simple lease renewal – one of your first decisions will be whether you should manage the process on your own or engage professional representation. Instead of listing the benefits of professional representation, I thought I’d illustrate with some recent real-world success stories from the technology team. As you read, you’ll get a sampling of what kind of deals and deal structures the market is offering right now. All of these transactions occurred or will occur in the current calendar year.

Midtown Relocation. We helped a technology company find Class A office space in midtown for less than $17.75 per square foot, full service. TI monies were also included, along with a period of free parking and an early termination option. Over the lease’s 3-year term, the client saved $70,000 in direct costs.

Northwest Metro Expansion. A growing office furniture sales company needed additional square footage, but their landlord did not have any space to offer. We were therefore asked to find an offsite location. A review of their existing space and lease led to different path, however. We found a single space to accommodate their full needs and negotiated a rent abatement that essentially effected a buyout of the tenant’s existing lease. Our client now has a single space that is larger than the combined footage of their old space and overflow need, they have another 6+ months to use their former space, and they’re paying roughly the same rent they had anticipated for the two disparate sites,

Northeast Metro Renewal.
A business services company was within 9 months of the end of their lease, and the economy had reduced their space needs by roughly one third. When originally approached about a space and rent reduction prior to the end of the term, the landlord offered to reduce the space size and to keep rent constant if our client would extend their term another three years. Through the Lynx process, we have succeeded in gaining the space reduction AND in negotiating a 14% rent reduction, plus one free month’s rent… with these benefits on track to begin in the 3rd quarter of 2009 (6 months prior to their anticipated lease expiration).

Short sale. We’re scheduled for closing on the sale of an office building in which the owner’s lender was seized by the FDIC. See the “Struggling Banks = Owner Opportunity” blog entry for the full story on this ongoing transaction.

Wednesday, June 3, 2009

Struggling Bank = Restructure your Mortgage?

Potential opportunity is brewing for property owners willing to keep an eye on their lenders. The top 50 troubled Georgia Banks were recently ranked. At every one of these banks the value of the “problem loans” exceeds the value of that bank’s available capital (tracked as the “Texas ratio”), and a short sale opportunity may present itself.

Before I go into how the opportunity presents itself, let me tell you that my information is not based on theory but upon real-world events described later in this posting.

The opportunity comes into play when the FDIC takes over the bank, also known as a seizure. The FDIC is not interested in owning real estate… they want their money back (or whatever portion of it they can get). The moment that you learn that your loan-holder is being seized, it is in your best interests to quickly get in a position to make a settlement offer. Even if a loan is performing, you can expect a settlement offer to be considered. The FDIC short-sale option will go away, however, once the loan is repackaged for sale.

If you miss the FDIC window, don't panic… there’s still another chance. Your loan will be packaged with other loans and the FDIC will sell the entire package to a third party. That third party will buy the package for pennies on the dollar against the debt portfolio’s face value and will then begin servicing the performing loans and attempting to collect on the non-performing loans. Your final chance to reduce your debt comes when you get this third party’s letter of introduction. If you have a way to quickly pay off a reasonable portion of your loan balance at that time, present that plan right away. The thinking here is that the third party has just spent a significant amount of money and will jump at the chance for a quick return on a portion of their investment.

How do I know this will work? Because I’ve been living in such a transaction for several months now (you didn’t think this process would happen quickly, did you?) and this exactly how it has progressed. When we learned of the seizure, we altered the property's marketing approach to garner an offer that would equip us to satisfy the loan balance. Because we didn’t have a list of troubled banks like the one below, this process consumed our first window of opportunity… by the time the owner met with the FDIC, the loan had been packaged and was scheduled to go to market. But the FDIC did confirm that they would’ve taken it if it had come in sooner. And as expected, the third party buyer was very interested in the reduced settlement offer. The end of the story? We're on the road to a closing!

I’ve left out a few details in the interests of time and of protecting our client’s privacy, but I’m happy to fill in blanks if you’d like to reach out to me.
Curious to know which Georgia banks are at risk? So was I. I originally got the list below from a proprietary source and weren't able to print it, but the Atlanta Journal-Constitution did us a huge favor by providing the information in their May 17, 2009 edition. To maintain the integrity of their reporting, I’m including it exactly as they wrote it. Forgive the small text, but it was the only way to fit it in the blog's format.

"Mounting bad loans and foreclosures landed more Georgia banks on a list of troubled institutions as measured by the “Texas ratio.” The formula, which dates from the savings and loan crisis centered in Texas in the 1980s, points to higher risk if problem a bank’s problem loans total more than 100 percent of its capital available to absorb losses. Atlanta-based FIG Partners calculated the ratios. "

Security Bank of Gwinnett County....Suwanee........773%...335%
Southern Community Bank.............Fayetteville...532%...311%
Security Bank of North Metro........Woodstock......490%...236%
First Security National Bank........Norcross.......444%...340%
First Piedmont Bank.................Winder.........443%...373%
McIntosh Commercial Bank ...........Carrollton.....354%...229%
Neighborhood Community Bank.........Newnan.........353%...218%
Community Bank of West Georgia......Villa Rica.....293%...NA
First Coweta Bank...................Newnan.........291%...150%
Buckhead Community Bank.............Atlanta .......241%...165%
Chestatee State Bank ...............Dawsonville ...233%...231%
United Security Bank ...............Sparta.........217%...172%
Gordon Bank.........................Gordon.........210%...175%
First Commerce Community Bank.......Douglasville...201%...143%
Security Bank of Bibb County .......Macon .........187%...123%
Habersham Bank .....................Clarkesville...186%...167%
First National Bank of Georgia .....Carrollton.....176%...166%
Tattnall Bank.......................Reidsville.....163%...125%
Century Security Bank...............Duluth.........161%….131%
First Cherokee State Bank...........Woodstock .....159%...153%
Georgia Heritage Bank...............Dallas.........152%...156%
McIntosh State Bank.................Jackson .......147%...117%
Bank of Hiawassee...................Hiawassee......146%...114%
Security Exchange Bank*.............Marietta.......146% ...79%
Hometown Community Bank*............Braselton .....145% ...81%
Gwinnett Community Bank*............Duluth.........144% ...94%
Montgomery Bank & Trust*............Ailey .........143% ...65%
Peoples Bank........................Lithonia.......143%...162%
Bank of Lenox.......................Lenox .........142%...102%
First State Bank ...................Stockbridge ...142%...156%
American United Bank*...............Lawrenceville .139% ...79%
Douglas County Bank.................Douglasville...137%...121%
Security Bank of North Fulton* .....Alpharetta.....130% ...87%
Community Bank & Trust West Ga......Villa Rica.....130%...118%
Security Bank of Houston County* ...Perry .........128% ...82%
High Trust Bank* ...................Stockbridge ...126% ...59%
First National Bank of Griffin .....Griffin .......126%...126%
Community Capital Bank .............Jonesboro .....124%...131%
First National Bank of Barnesville*.Barnesville ..119% ...82%
Legacy State Bank...................Loganville.....118%...115%
North Georgia Bank .................Watkinsville...115%...104%
Farmers & Merchants Bank ...........Lakeland.......115%...121%
Peoples Bank & Trust*...............Buford.........115% ...92%
Oconee State Bank...................Watkinsville...113%...105%
Northwest Bank & Trust .............Acworth .......112%...102%
First Covenant Bank.................Norcross.......110%...108%
Bank of Soperton ...................Soperton.......107%...120%
Unity National Bank.................Cartersville...106%...108%
Providence Bank* ...................Alpharetta.....104% ...85%
* New on the list in the first quarter

Friday, May 15, 2009

Current Large Company Real Estate Strategies

Nobody knows what’s going on like the men and women in the trenches. As an active agent, I’m living the events and trends today that the papers will report on next month or next quarter. While my experiences are real and valid, I can never be sure if they’re being shared across the market/industry or if they’re specific to my current business dealings. It’s good to have a chance to hear the perspectives of others in the space.

That’s why I was pleased yesterday to join a small group for a panel session comprised of senior real estate leaders from AT&T, Wachovia, and Ernst & Young (E&Y), plus the head of the Corporate Services division from a national firm that manages a significant amount of space for others. Here are a few of the highlights from that meeting:

Long versus short term thinking
Where it’s strategically sound, lock yourself in for favorable long-term deals that capture today’s pricing. But ONLY do so where it’s strategically sound. Business volatility still has many organizations hesitating to commit to long terms, which seems sound if you agree with the philosophy I share with my kids: “when in doubt… don’t do something you can’t reverse.”

Quote of the week and my new mantra: A recession is a terrible thing to waste!

Lease versus Buy
Leasing is favored over owning. I understood Wachovia to say that their space is 50% owned, 50% leased, with a heavy preference for leasing going forward. AT&T is 70% owned and 30% leased, but only because of their network-related assets. They own their central offices and data centers and try to lease as much as possible elsewhere. E&Y is 90% leased, with the outstanding 10% being a single asset that they’ll gladly sell to a qualified buyer!

Square Feet per Person
SF per person is shrinking. A few years ago, the norm was 250-300 SF per person. Two years ago it was 225 SF. Today, many companies want to get down to 150 SF per person. In support of these assertions, E&Y offered that they were at 270 SF per person in the 90’s. Today they’re at 160. Their target is 120 SF per person.

How do they achieve these reductions in SF per person? In short, through innovation and technology. Innovation here means thinking more. Find the best way to use what you have and execute… even if cultures have to change. Technology means that because worker becoming unchained from the desk, companies need only provide employees with what they need to match their work style. No more, no less.

• At E&Y, they “hotel.”
• At Wachovia, they seek to take advantage of unused space that may exist at a branch (2nd floor, for example)… or they’ll build extra office SF into a branch for some “corporate” functionality.
• At AT&T, the entire organization is now adopting BellSouth’s approach to build-outs, in which they put a few offices in the core of the building and then surround the core with large quantities of cubes. It’s worth noting here that AT&T also reinvests some of the monies they spend into nicer common areas and nicer cube systems.
• They book conference rooms electronically and track usage to determine how much space is really neede. E&Y has been able to reduce from all 8-person to mostly 6-person conference rooms as a result.

• Blackberry and connected architectures are the key technologies enabling reduced footprints. Work is no longer a place, it’s what one does. Wherever possible, employees are given laptops by default so that they can work from anywhere at any time. At Wachovia (and others), an authorized employee can walk into ANY company location and plug into the network and be up and running (voice, data, printers, etc.) transparently.

Sustainability (aka Green Initiatives)
Sustainability was likened to ADA compliance, which evolved from trendy in the 80’s to a requirement for consideration today. Today, LEED or Energy Star ratings are a positive differentiator for a property. The expectation is that over time (the next 10 years?), such ratings will be another thing one must have to compete.

AT&T’s annual power bill is $1.3B for a little less than 300 million square feet worldwide. They’re interesting in anything that will reduce their power bill so long as it has a 2 year payback period. At Wachovia, all new buildings must have a SEER rating of at least 13.

This is now a two way road. Landlords have always checked tenants’ financials. Tenants must now get the financials on the landlord as well, to be sure they’re solvent. Tenants must also insure that the subordination, non-disturbance, and tenant fund guarantee clauses are solid.

Lease Rates
The consensus of all parties (myself included) is that we’ve not yet hit the bottom on rent rates. We’re close, but not there yet. My personal commentary on this point is that it’s never advisable to try and time the market perfectly. Once you know you’re near the bottom, do what you need to do and rejoice in knowing that you got a great deal. You can only know that the bottom has been hit when things begin to go up... it'll be too late then. Once owners become confident that the bottom is past, the great deals will go away.

Friday, May 8, 2009

Available Data Center Space in Atlanta

Data Center space is in high demand in metro Atlanta. It's expensive to build and hard to find in this information age, so space typically gets snapped up pretty quickly. Because I spend so much time working with technology companies, I'm asked about once a week if I know of any such space that's available. The answer is "yes."

Below are lists of what I've seen on the market recently. These are not lists of every space that has raised floor available... that information would require that every listing broker understand technology and the significance of what they represent! Unfortunately, they don't, leaving me to find such space on a hunt-and-peck basis. But this is a good representation of what's available now.

True Data Center Spaces
- 14,600 SF of data center along US41 in Marietta, a little outside of I-285. The facility has fiber feeds and dual power. It's for lease only.
- 12,000 SF of data center space along I-285 near GA400. All systems are in place, along with dual providers of critical services. For lease only.
- 7,500 SF of raised floor in an 11,000 SF space in Alpharetta. It includes battery backup and control room A/C (CRAC) units. This space is for lease only.
- 5,500 SF of data center space along I-285 near GA400. All systems are in place, along with dual providers of critical services. For lease only.
- 5,900 SF of carrier-grade data center space in downtown Atlanta. For lease only.
- 4,800 SF of data center in a 20,000 SF building that is FOR SALE in the Johns Creek Area. Dual telecom carriers, dual substations, generator, and UPS are all in place, and the data center space can be easily expanded. The sales price is below the cost to build such a facility!
- 4,500 SF of data center space in a 30,000 SF suite (divisible) in the Tech Park area of Norcross. Generator, UPS, and Lieberts are in place. For lease only.
- 1,700 SF of raised floor in a 2,400 SF space along I-75 inside I-285 near Northside Drive. Power, FM200, and CRAC are in place. For lease only.

Spaces that contain a proportionally small raised floor component
- 9,000 SF of raised floor in a 100KSF building in Lawrenceville (10 miles up I-285, 3 miles east on GA 316). This building has 30KSF of office, fiber optics and dual power feeds, recently under went a $3 million renovation, and has enough land to expand. It's available for sale or for lease.
- 1,000 SF of data center space in a 13,300 SF suite in the Tech Park area of Norcross. Raised floor, fire supression, and racking are in place. For lease only.
- 1,000 SF of data center space in a 15,500 SF suite in Alpharetta/Cumming. The data center build is said to be worth $1M. The building is for sale, or you can lease the space.

A close sister to data center space is contact center space, which was referred to as a call center before web support added online communications. Contact centers have the same need for high-availability power and communications as data centers and are therefore classified as mission-critical. If you're unsure of why they're so sensitive, think of what it would look like if a 200-person call center were to lose phone and internet service... would you want to pay that many people to play solitaire?!?

Here are a few contact center spaces I'm aware of:
- A 35,000 SF facility in Kennesaw with a raised floor data center, generator, and FM200 system in place. For sale or for lease.
- A 16,000 SF building along I-75 near the 120 loop with CRAC and generation systems in place. For lease only.
- A 25,000 SF space near Gwinnett Place mall. This one's interesting because the owners run a high-availability business out of the rest of the building and will provide access to the their raised floor, generation, UPS, FM200, CRAC, and other sytems. For lease only.
- A 18,000 to 34,000 SF space off Delk Road in Marietta. There are 100 cubes available, there's a data center in place with CRAC units, and the controls and pad for a generator are in place. For lease only.

If you'd like to know more about any of these spaces feel free to reach out! I have more information on all of them.

One general disclaimer: All square footages are approximate.

Sunday, March 1, 2009

Renegotiate your Lease NOW!

Commercial tenants take note: a perfect storm is brewing, and it's working in your favor. Act on it and you have an excellent chance of reducing your operating expenses right away. Ignore it and you'll never know what may have been.

The "storm" is the combination of rising vacancy rates, notes coming due, and ongoing fear over the economy's direction. The storm's impact is that landlords are open to trade-offs they might not have considered a year ago. Present them with a sound business proposition, present it in a manner that says you're serious, and build the case that this proposition is the better of two alternatives, and there's a strong likelihood that you'll get what you want.

There are a couple of key considerations related to timing and execution...

Timing... in regards to your lease.
The best time to begin renegotiating a lease is 12 to 18 months prior to its expiration. Don't panic if you have less time, but be advised that you're losing leverage by the week. Landlords know that it takes months to complete a corporate relocation, and they'll respond best when you have options. On the othe hand, what if you have two years to go? It's still not too early to reap savings now if certain factors align.

Execution... you'll need help.
You can renegotiate even if you have no intentions of moving... You just don't want your landlord to know that you have no intentions of moving. One of the best ways to demonstrate a willingness to move is to engage a professional tenant representative. The tenant rep most likely won't cost you anything (because landlords rep's typically share their fees with the tenant rep), and he/she will indicate to the landlord that you're serious. Furthermore, depending upon the landlord's response, there may be a significant amount of work required to identify options to convince the landlord that their tenant is in jeapordy. Alone, this work can involve days of work. With a professional representative, you'll simply need to keep up with the rep's progress.

Timing... in regards to your savings.
Your new rent doesn't have to wait until your current lease expires to kick in. With the proper win-win scenario, landlords will be open to making new rates effective immediately.

The key to it all is strategy and execution. Contact a reputable commercial real estate agent to discuss the specifics of your situation and see if you have a shot at a successful renegotiation.

Sunday, February 15, 2009

Why put a Data Center in Metro Atlanta?

I was excited in early 2008 when I learned that the Gwinnett County Chamber of Commerce would be launching a Technology Council. I do a good bit of my business in Gwinnett, and I saw a chance to be an impact player on a team that would become known and respected. I was right! We recently wrapped up the final version of a great tool... the North Metro Atlanta Mission Critical Facility White Paper. Keep reading and you'll find out how you can take a look at it!

When the Mission Critical Facility task force first met, we determined that North Atlanta has a great story to tell for locating Mission Critical Facilities. The challenge was that this knowledge resided in the team's heads and that no one had ever documented it to share with those who might consider Atlanta. We thus produced a document succinctly covering the subject from beginning to end. The paper answers questions such as:

  • What is a Mission Critical Facility and what businesses tend to have them?

  • What are a few Mission Critical facilities in Atlanta and why did they come to this city?

  • What factors matter with a mission critical facility and how can they be assessed?

If you look on the final page, you'll even see that Technology Real Estate Advisors is acknowledged as a contributor! I'm proud to have played a part in its production, and I do hope it gives insight into a few of the things one much know about to be a Technology Real Estate Advisor.

To see the document in its entirety, click here and click through to the paper.

Thursday, February 5, 2009

Cold Calling Doesn't Have To Be Scary

I abhor being sold to. What's more, I don't like it when people cold call me. Surprised? "But John, you're a professional salesperson. How can you say that and still make cold calls?" you may ask.

The fact is that I didn't give complete statements above. "I don't like it when people cold call me," is true... when it's about something that's totally irrelevant to me. "I abhor being sold to," is also true... when someone is attempting to convince me I need their product without knowing the first thing about my goals and wants. To be honest, I don't mind a cold call when someone has a legitimate reason to think that their offering may be of value to me. Similarly, I don't mind being sold to if the seller understands my needs and then has to push to help me understand why their solution meets them. The differentiator in both cases is that they're thinking about my needs, not theirs.

With this philosphy in mind, here's an effective and guilt-free 4-step process to approach cold calling:
  1. Determine who your target clients are.
  2. Determine what these clients will need that makes them a fit for you.
  3. Have something that may meet the needs of these specific individuals.
  4. Call to offer that something.

This approach can be implemented to "offer" just about any product or service. In my commercial real estate practice, I implement this approach by looking at both the supply and demand side of the equation:
  • As a tenant representative, I need to find tenants who want to move. The key to finding these tenants is to recognize that what they want is a great space at a fair price. Two of the many ways I can have a great space to offer are to (1) find another agent's attractive listing and promote it or (2) list a few spaces myself and promote them. Once I have such a space, I call tenants currently using similar space and offer something relevant... information about a space that would likely be a good fit for them. If they're who I'm looking for, they'll want to hear about it. If not, we're done. If they ask for info and we determine that my space isn't a fit, I find out what they're looking for and I offer to help them find it. I'll leave it to you to adapt this approach to your target clientele. Figure out what they need and then offer it.
  • Interestingly enough, I find some of my listings through a similar process. If I find a space that might be a fit for someone and it's not currently listed or its listing is out of date, I call the owner to ask if it's available. If it is, I learn more about it so I can present it to my tenant or buyer client. If the property is a fit for my client, I proceed as a tenant/buyer rep. If my client elects not to pursue the space, I'll circle back with the owner and offer to help them to find a tenant or buyer. This method is effective because it offers owners a better shot at whoat they most want, which is tenants and/or buyers. The fact that I'm actively reaching out to these parties every day is makes me more appealing than a listing-only agent who might simply place a sign in front of a building and promote the property on a few web sites. It's a "win" for both sides.
Since you're most likely not in real estate sales, the trick is adapting this approach to fit your product or service. Here are some examples:
  • If you provide computer services, figure out who is likely to be in a situation where they would realize the need for your services. If you can save them money, call those who most care about saving money. If you can protect their data, call those whose heads would roll if data were lost.
  • If you are in construction, figure out who can predict the need for your services, stay close to them, and call the companies that they tell you to call. I call that following your "upstream" neighbors. When I sold technology installations, for example, I recognized that companies who were relocating would need their equipment to be reinstalled somewhere. So I became friends with a commercial real estate agent, with a few general contractors, with some move consultants, and some architects and engineers.
I'll close with the best word picture I've ever heard on this point. When you go to a restaurant and your meal includes french fries, you don't get offended when your waitperson offers you ketchup... you think they're polite to have considered what's on your plate and anticipated a possible need. It's the same with cold calls... if you can adapt your calls to be relevant offers, you'll find them to be much less intimidating to you and much less bothersome to the recipients.

Thursday, January 29, 2009

Surprising Real Estate Trends: 2008 and 2009

I've accumulated a few real estate facts about 2008 and a couple of projections about what may lie ahead. I was surprised by several of these points... let's see how many are news to you!

Leasing hasn't slowed down.
A chart of leasing historical leasing volume in 3 major east coast cities - Atlanta, DC, and New York, shows that leasing volumes have remained strong for several years now... irrespective of all of the other changes we're seeing. This counter-intuitive trend surprises most people.
The message: leases continue to expire, companies continue to relocate, and new leases are being signed. The downside is that deliveries and early lease exits are pushing the available space up, causing an increase in vacancy rates.

Companies are "Trading Up"
Absorption in Class C office space was negative last year, while Class A and Class B space saw positive absorption (meaning there was LESS space vacant at the end of the year than at the beginning of the year). In other words, volume is shifting from the less-nice to the nice and very-nice spaces. Presumably, prices are shifting downward, landlords are becoming more flexible, and tenants are trading up to get that space they've always dreamed of. The message: if you're a tenant with some lease flexibility, now is a GREAT time to look at space.

It takes a REALLY long time to find a tenant.
If you own a building and part of it goes vacant, how long do you think it will take to fill the space? In 4Q06, the average time a space was on the market before being leased was around 315 days. It's risen every quarter after 2006, with 4Q08 being 420 days (that's 1 year and 4 months in human years!). The message: landlords need to fight to keep their tenants and temper their expectations when vacancies occur.

It's taking MUCH longer to sell a property.
From 2005-2007, properties tended to be for sales for 260 days before going under contract. In 1Q08, the number of days began a steady quarterly climb, ending 4Q08 at 344 days. THAT is quite a rise. There are exceptions to these averages, such as the building I listed in March of 2008 and put under contract 6 weeks later, but those aren't to be counted upon. The message: owners must begin their sales process early and not count on quick flips.

Atlanta's net absorption losses for 2008 weren't terrible.
The metro ended 2008 with 200,000 more SF of vacant space than it began the year with (excluding new buildings completed). However, New York ended the year with 3.1 Million more vacant square feet. Los Angeles? Try 6.0M more vacant square feet. And these numbers don't include deliveries of new buildings! The message: there are still companies in those office buildings you see everywhere!

Vacancy Rates rose, but only slightly.
Atlanta's overall vacancy rate wrapped up only 1% higher than at the beginning of 2008. Again, that's not good, but it beats the heck out of Phoenix's 5% increase. The message: same as for the prior point.

Atlanta remains a great deal.
Rental rates began sliding in 4Q08, but Atlanta has always been a great deal compared with other major metro's. Aggregate average rental rates in Atlanta are now at around $20.38, ranking us as the 2nd most affordable of the USA's 20 largest markets. The most affordable was Detroit, at $19.60. The most expensive? New York City at $58.79 per SF per year (ouch).

Atlanta's employment projections stink the least.
How's that for a message - we stink the least. Of the top 10 markets I saw reported, two project gains - Houston and Dallas. These two cities project gains due to their roles in the energy sector. The other 8 were projected to lose jobs, with Atlanta losing a net of 21,000. The projected biggest loser? New York at 257,000 projected job losses.

How long will it last?
According to the chief economist at Texas A&M's Real Estate Center, in the USA's last four recessions, job losses continued an average of 17 months after the employment peak. If those trends hold, employment will pick up by May 2009. I know this is a big "if," but it's something to watch for.

I hope you find these statistics as interesting as I did. As always, I'm happy to help with further insights or to assist with your specific situation or question upon request.