When dealing in commercial real estate, there are many types of clients that you have the potential of dealing with, each with their own set of special requirements and motivations.
To connect with them, you must understand how to deal with them. Regardless of your specialty, it’s always in your best interest to know the players, how they make decisions and what motivates them.
Federal, state and local government entities
They want high-quality, cost-effective real estate, and will manage upfront and ongoing costs. They can leverage strong government credit and require lease termination rights, high accountability and a stringent approval process.
They can also require land for less than popular public uses, such as landfills and city storage. These projects require additional analyses and consideration of surrounding property.
A financial institution that funded a real estate endeavor and had to repossess the property when the borrower defaulted on the loan
Banks don’t want to own property as part of their asset pool. They typically hold as a property as security, and have a strong desire to liquidate in the event they have to repossess the property.
Property owners who also use the property for business purposes
They want the ability to control facility costs for their businesses and employ advantageous tax strategies. For example, they can find value in depreciation write-off and control of the property’s tenancy.
This is long-term, business-focused real estate. Property attributes must match business needs: think clear heights and bays for industrial use, conference rooms and parking for office buildings, floor space and ingress/egress for retail.
High net-worth individuals; passive investors who hold real estate for portfolio diversification and wealth distribution. Deals with long-standing owners are often spurred by a crisis such as death, divorce or debt.
They want low-risk, predictable investment, along with passive income, low maintenance needs and the ability to force appreciation. They also prefer a location they're familiar with.
PRO TIP: Private investors are the dominant owners within a market, representing great potential. Average conversions tend to be lower, but because of the large number of private investors, deal volume can be high. Convincing private investors they need brokerage services may be difficult, so proving value requires skillful relationship building.
Active investors who exist to buy, operate and sell real estate. Full-time owners and developers, institutional JV partners who have a greater degree of sophistication and are highly aware of market forces and investment risks.
They want the ability to make building improvements, increasing its value so they can raise rent and reduce operating expenses. Their buying behaviors are strongly motivated by debt cycles, and therefore improvements to increase NOI occur on planned schedules to drive appreciation in preparation for exit or recapitalization at the end of cycle.
PRO TIP: Take a strategic, defined approach. Doing business with professional investors is still very quid pro quo. Qualifications help but are secondary to past successes you’ve had with bringing them value. Don’t be surprised by the fact that you may be lumped in with other service providers, either.
Active investors who buy, operate and sell real estate. Differ from professional investors in the way they fund real estate and in their strategies. For REITs, regulations have to be strictly followed: own real estate, long-term holdings, 75% of income through real estate, 75% assets must be real estate, income must be passive and passed on to shareholders via dividends.
Look for stable, predictable yields, as they buy and sell on behalf of shareholders. They tend to borrow only 50% and deal only in Class A buildings. They buy with exits in mind and will not go off script for personal insights.
PRO TIP: There’s very little room for differentiation with institutional investors. They reward top teams from all brokerages and balance their usage of each. To become a team used in the circulation of deals requires a proven track record and is often the result of bringing them acquisition deals. Acquisitions will often be rewarded with dispositions work.
Companies that own and significantly alter property in order to increase its value
Some want to develop land to the point that it’s ready to start construction, others will carry out all construction and proceed to lease and manage a property. Because developers take on the most risk, feasibility, underwriting and debt are incredibly important.
They want land that is zoned and entitled in a way that allows them to carry out their desired plan. They also require a robust due diligence process to identify potential risks as early as possible. This includes environmental issues, building codes and deed restrictions.
Because of the long amount of time a real estate development project takes to yield a return, market conditions have be favorable as well. Debt cycles and lending are essential when considering when to develop property.
Their interest in the properties is short-lived. The key is to develop a property approved by a previously secured long-term tenant, such as Walgreens, and then quickly sell to an investor, thereby making a quick turnaround on the debt.
They aim for a quick turnaround and conversion of debt to equity.
Companies or individuals that own and operate buildings that are leased to tenants
They want to minimize vacancy and operating expenses while maximizing operating income. Landlords must establish a vision for filling vacancies, position the property for prospective tenants and execute a marketing plan.
They also want to ensure a complementary tenant mix of stable companies. To do this they need to understand their prospective tenants' businesses and their ability to pay rent as the market changes or the property is improved. They also want to establish use guidelines to ensure the property is used as permitted/intended, and that they retain legal rights to enforce such use.
Anyone who occupies space within a commercial, retail or industrial property
Requirements will vary widely based the type of tenant. Consider location, access and visibility, foot and auto traffic, zoning and land use restrictions, nearby transportation and proximity to competitive and complementary organizations.
Motivations will also vary, but the primary driver (aside from cost) is the ability to scale. Whether contracting, expanding or looking for new space, tenants should consider where they are now and where they plan to be throughout the course of their desired lease term.