Working with a Broker, It doesn't have to feel like the Spanish Inquisition

If you’re reading this I am going to assume that you will, at some point, be dealing with a commercial real estate broker.  If not, you must be overpaid and really bored at work!   From most clients prospective, there are typically two major things they want from a broker.  First, have them accomplish that for which you contracted them.  Second, how do I put this delicately, to avoiding being bent over the preverbal barrel by them or because of them.   Typically, all the other concerns are a subset of these two major issues.  What most folks find surprising is that brokers have the same concerns about their clients.

As you can imagine this high level of concern from both sides over barrels and body positions can create problems with the relationship and diminishes the ability of both parties to successfully do the job the broker was contracted to do.  So as a client of a broker how do you get the best effort from a broker and the lowest chance of inspecting a barrel up close and personally? 

DON’T BE A POLYGAMIST

I know it seems like it would be better, more options, more effort being directed toward you, just downright decadent, but the dream is not the reality.  Choose one broker (or brokerage team) and work with them.  While on the listing side this almost always how it is done, on the buyer / tenant rep side polygamy pervasively persists.  Due to this fact, I’m addressing primarily the buyer/tenant side with my comments. 

Brokers perform their work on spec, we don’t get paid until a deal closes.  We have a limited amount of time in the day to work, we want to exceed our client’s expectations and shockingly we want to make money.  If we know that a client is talking to multiple brokers we will not put much effort into the search.  Typically we will throw every multiple listing that could possibly work at the client and not spending time to really search for hidden gems.  This increases the client’s time requirements to sort through bad properties and minimizes the chances that they will find a great property that is off market.  If we are the only agent working for a client, we have a reasonable expectation that we will get paid at the end of the day.   To that end we will work hard to find you properties.  What will a good agent do to find you a property you ask?  Typically this may include:

• Search the various multiple listing services often to see what new properties are available.
• Talk to brokers in the market regarding your requirements to find potential properties that are not on the market yet.
• Spend time searching for the not so obvious fits and the hidden gems.
• Send mailers to property owners to see if we can shake out a potential property that isn’t on the market. 

Bottom line is if you work with one broker; they will work to find you a property and spend the time making sure it is the best fit for your needs and will negotiate better terms for their clients.  If I am working with a client who is working with multiple brokers, I want the deal to close because if it doesn’t, I have no idea if the next deal will be recommended by another broker.  To that end, I will work to get the property I have in front of you done, regardless of how it fits or how the terms look in relation to the market. 

COMMUNICATION, IS NOT A ONE WAY CONVERSATION

Quiz Time, Imagine you are sitting in a meeting with your listing agent, who is letting you know why the property hasn’t sold in the last 6 months.  They inform you that property is priced to high and the price should be dropped by 10% if you want to increase the chance of finding a buyer.  Why do you think they are giving you this advice?

A.      They personally want to see you make as little money on the sale of the property as possible because they hate you?

B.      They are lazy bastards, barely more evolved than a used car salesman, who want to give the property away at a steal so they can get paid?

C.      I don’t care why they are saying this I need to get a certain amount of money from the sale and the supply and demand market driven values are trumped by my personal needs and feelings. 

D.      I’m not sure why let’s ask them and discuss the issue?

The correct answer should be D.  Unless you are really bad at choosing who you hire or are more narcissistic than a young Hollywood starlet.   The market moves and changes, a good broker will have discussions with you regarding how the changes are affecting your listing and develop strategies that will help you, the client, create a successful transaction on a property.  This is your property and you need to be involved.  A good, self interested client will talk with their broker and see what they are doing; what is working and what isn’t; what is happening on the property; and be open to discussions to change direction.  Some brokers work hard and push property listings; others just sit on them and wait for the right client or broker to come knocking.  How do you make sure your broker is the hard charging type with your property. 

1.       Make sure your broker has a marketing plan for your property.  Discuss, analysis and fine tune the plan before the listing starts.  Putting up a sign and listing the properties is not a plan.  Keep in mind though that the effort that can be put into a 1,000 SF warehouse and 100,000 SF warehouse will be different, a $500 payday doesn’t justify hundreds of hours of work, so be realistic with your expectations.

2.       Have a realistic expectation of the market.  In 2011 it is still a Buyer’s & Tenant’s market.  Properties are taking a long time to transact, there are exceptions, (few and far between) but this is the reality today.

3.       Expect and ask for listing activity report regularly from your broker.  Typically somewhere between once a week and once a month is a good time frame.  This should have all inquires, tours, follow-ups and the status of potential deals.   A little expectation and known reporting times helps them perform to a higher level, trust me.

4.       If the results from these reports are not what you want, talk with your broker and discuss what can be done to get things moving.  Markets change and marketing plans need to flexible to change with them. 

5.       When an offer does come, discuss it with your broker and express your hot button items.  Yes the broker wants to close the deal, but they know where the market is and what terms, conditions, pricing, etc. are typical for your market.  Use their experience to help you craft the best deal possible.  The 2011 market is still a buyer / tenant market.  Don’t lose a good prospect, a replacement maybe hard to find. 

6.       If you feel that your broker isn’t doing what they should, ask hard questions and understand what they are doing.  Set expectations and if they are not met.  Get a new agent after the listing agreement expires. 

While there are some bad brokers that have the ethics of a con man, the majority are good people, and a few are exceptional people.  The ones that are exceptional will work to make sure your needs as a client are meet to the best of their ability and will not push a deal forward unless it is in your best interest, even if it means losing or postponing a payday.  Work with a good broker as a partner and you will get their best efforts and advice.  Then both sides can avoid the proverbial barrel.

Best wishes,

Chris

ENTERPRIZE ZONES, KLINGONS AND VALCANS NEED NOT APPLY

Damn it Jim I’m a Real Estate Agent, not a star ship captain! Enterprise zones have nothing to do with tightly fitting yellow or red shirts and seductive green women.  Disappointing I know.  I personally feel crestfallen.  What these Enterprise zones do provide is a little ray of sunshine, and a substantial amount of money in your pocket, to support businesses in a state that is hell bent of making sure that all the those evil, greedy, capitalistic, polluting, wealth building (on the backs of the proletariat) companies leave this glorious workers paradise called the state of California.  On a side note, I’ve heard that new regulations at the state level will only allow people to inhale at work, exhaling produces the deadly greenhouse gas carbon dioxide!  Again I digress, so what are Enterprise zones.

Enterprise zones (“EZ”) are state sanctioned geographic locations that provide economic incentives for companies to locate and grow within a “disadvantaged” area.  Basically, it’s an incentive to get companies to move into and expand in certain areas.  The companies bring revitalization and create jobs, and in return the state will give you tax breaks.  The EZs are planned out and administered by the city they occupy.  There are standard benefits they offer as well as additional city specific.

So what are the standard benefits you ask… you didn’t ask?; I’m sure you were about to so let me pontificate.

• $37,440 Hiring credit per “Qualified” Employee over 5 years:   If you hire a new employee and they meet ONE of the 14 Criteria (click here for a list of the criteria).  You can claim a $7,488 per year per qualified employee in tax credits for 5 years.  State taxes only, the federal government does not feel that employing people is worth a tax credit.

• 100% Sales Tax Credit for purchasing “Qualified” (there’s that word again) machinery, parts, & depreciable equipment.  This can be office equipment, computers, servers, etc., or manufacturing equipment.  There is a lot of nuance to this section, It is worth a call to a tax firm like, The CPA office of Shady, Shady & Questionable, LLP to see what you can get away with.

• 100% of Net Operating Losses for a business in the EZ can be carried forward for up to 15 years:  So if you are losing money hand over fist in this current economic recession, fell good that after you have sold the business at fire sale pricing, the new owner can take the tax loss in the future.  Hey, maybe there is a whole business opportunity of selling these business losses to the bourgeois capitalists out there.

• Upfront expensing of certain depreciable property.  As a business owner you can expense the whole value of some assets in the year purchased.  No waiting for 5 or 7 years to depreciate assets.  Again talk to your accountant about what qualifies, if they don’t know, what the heck are you paying them for?

• No state taxes on interest income for loans made on to business in the EZ.  While banks almost never pass the saving on to the business with lower loan rates.  Loans from family, friends, and private money become more attractive to the lender.  Yes, it is another advantage to present to your relatives to fleece them out of more of their money.

Some cities also try to sweeten the pot to get you to come to their city and become a stalwart upstanding source of revenue.

For example The Los Angeles EZ offers the following benefits in a magnanimous gesture of good will, and hoping you don’t notice the higher tax basis for business.

• Reduced electric rates for 5 Years:  Yes the city can raise the rates willy nilly and then offer them to you at a discount.  But business that do locate to the L.A. EZ get the following discounts
  • Year 1: 35%
  • Year 2: 25%
  • Year 3: 20%
  • Year 4: 15%
  • Year 5: 10%

• Reduced parking requirements on any commercial projects.  Given that many properties are older and have substandard parking compared to the current code this is a really great benefit.  This can be especially relevant to restaurants, mfg, Office R&D, and retail spaces.   We see this most pronounced in retail, where the city in its infinite wisdom created parking requirements that older properties can’t meet.   So you get a great retail space where most tenants can’t get city approval to use.  Brilliant I know.

• Site plan review fee waiver for “SOME” commercial construction projects.  Well, with construction booming in Los Angeles… Okay, sorry had to stop laughing.  This will reduce the cost construction projects by a few thousand.  Hey a dollar saved is a dollar earned.

The bottom line is if you are moving it is worth checking to see if you are moving to an EZ.  The benefits when added up are substantial and it can help keep more of your hard earned money in your pocket and out of the hands of the People’s Republic of California.  I think most business owners fell that is a good thing.  If you don’t feel that way, you don’t need to apply for the benefits and can pay the state all that you want.

In either a magnanimous gesture to you all, or a self serving shameless plug, I have put together links and documents on my website for everything you want to know on Enterprise Zones.  I encourage you to take a look at the information and feel free to contact me with any questions.    CLICK HERE TO GO TO THE ENTERPRISE ZONE INFORMATION ON MY WEBSITE.

Best Wishes,

Chris

Chris@chrisla.com

Chris Barbieri is a commercial real estate broker specializing in the office, industrial and retail markets in Southern California.