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Commercial Lease Transactions

The next article features a transcript with Clay Clark (US Small Business Administration Entrepreneur of the Year) and Braxton Fears (Venture Capitalist & Co-Founder of Fears and Clark Realty Group) talking about the 4 humans involved in commercial real estate transactions on Thrive15.com, one of the most entertaining business schools in Florida!

Clay Clark:      Braxton, as a general rule, what is the personality type of the owners? Are they guys who are like, "Hey, let's get together, and I want to meet every tenant", or are they more of like, "Hey, I'm going to hands-off here"?

Braxton Fears:          Yeah, they're more of, "Hey, I'm in the Bahamas and I don't have my cell phone, and I won't take a call from you," which you can understand; that's why they invested in real estate and they've hired a property manager, but most owners are that same person. They're typically a older person that's gained some wealth, and they don't want to deal with day-to-day stuff. There are exceptions to that rule, but the manager, the property manager is going to be the person you're going to be dealing with.

Clay Clark:      The kind of person, I would say, anecdotally, the kind of person that wants to buy a property is somebody who's, particularly like you said, built a business, they've built some wealth, they're now wanting to exchange ... They're trying to get their money to make money for them.

Braxton Fears:          Yeah.

Clay Clark:      Not their time.

Braxton Fears:          That's right.

Clay Clark:      They're just wanting to be off the map.

Braxton Fears:          Yes.

Clay Clark:      Don't get upset if they won't return your call; I know I've been upset before. Just understand that's what you're dealing with. You do want to do your due diligence to make sure they're a good fit for you.

Braxton Fears:          Yeah.

Clay Clark:      As we move on to our next human we deal with, is this is the person called "The Investor", and the investor, it's an interesting concept, here. This is the person who's looking to get their money working for them, and make money using their existing money and credit. It's also somebody, in the world of transactional commercial real estate, who is usually big hat, no cattle.

                        Usually, when I run into people who are like, "I'm an investor in this particular property," and you're like, "Are you the owner?"

                        "Well, I'm an investor"

                        To me, it puts up all sorts of red flags when you have somebody who's not clearly the owner, and they're not clearly the property manager, and they're in the process of trying to acquire a property, and there's this nebulous relationship here. In my mind, all I care about is the owner and the manager.

Braxton Fears:          Yeah, and there are investors that actually do invest in properties that you're probably not ever going to meet that person because they're not actually, they're not bragging on themselves. The investor that says, "Hey, come lease this space from me, I'm an investor," "Are you the owner?" "No, I'm an investor", that person you want to probably stay away from. Most likely, they're talking a big game and they don't really have anything to back it up, but an investor is most likely someone you're not dealing with; they're just part of an ownership group, and they've hired a management company.

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Clay Clark:      I just want to throw that out. I want to make sure you're hearing this, because I've been to coffees, I've been to breakfast networks, I've been to chamber events where you have a guy who says, "I'm an investor in this property here, and I would like for your to ... Be interested if you want to invest with me, or if you want to lease with me, or if you want to ..." It just throws up all kinds of red flags to me.

Braxton Fears:          Yeah.

Clay Clark:      An investor, as a general rule, is not out there soliciting tenants.

Braxton Fears:          That's correct.

Clay Clark:      I just want to make sure, I want to hit on that briefly, because there's all sorts of scandals and frauds and things that are kind of ... Again, if you're leasing space, you really care about the actual property manager and the owner.

Braxton Fears:          Mm-hmm (affirmative).

Clay Clark:      Moving on to the fourth person, this is somebody who really does matter, and I think we give brokers a bad name, unfairly. I know I used to say, "I don't want a broker because I don't want to be broker." I thought that was awesome, but, really, what a broker is if you get the right one, you have two kinds of brokers: You have one over here that represents the buyer, in this case the tenant; and another broker who represents the seller. You have one that represents the tenant, one who represents the seller.

Braxton Fears:          Yeah, or the landlord.

Clay Clark:      The landlord, okay.

Braxton Fears:          You think of a broker like a stockbroker, who's going to take a little bit of your money whenever you buy a stock, and that does happen on the landlord's side, brokers make their money from landlords; but if you're a tenant, you're never going to have to pay a broker. You're going to want to be aware that they ... Brokers typically make about 6% of the full lease, and if there's 2 brokers, one on the landlord's side and one on the tenant's side, which is ideal for you, as a tenant, to have your own broker, they're going to make 3% of whatever you sign up for.

                        If you sign up for a 3-year lease that's altogether worth $100,000, they're going to make $3000, the other person is going to make $3000, and the landlord is going to pay that fee to them for bringing you to the building, but that person is a good representation for you, because they want to, hopefully, and you need to be discerning of this: Are they trying to build a long-term relationship with me, or are they just trying to make a quick buck? If you can trust that broker, and you know that, yeah, they've got a way of making money, I'm not necessarily paying them, but they're going to make money, and if they do the right thing, they're going to have a long-term relationship with him, they can be very valuable to you, and helping you find stuff, helping you find stuff within a lease to negotiate that lease to make sure that you don't get screwed on the other end.

Clay Clark:      Just making sure that I'm distilling what you're saying properly, and I get it, basically, the broker, for 6% total that's available ...

Braxton Fears:          Yeah.

Clay Clark:      If my lease was approximately $3000 a month, roughly, over the next 3 years, if I had a 3-year lease at $3000 a month, roughly, I would pay $100,000 of total payments over the next 3 years.

Braxton Fears:          Yeah.

Clay Clark:      The guy who represents the tenant gets 3%.

Braxton Fears:          Yeah.

Clay Clark:      The guy that represents the landlord gets 3%.

Braxton Fears:          Yep.

Clay Clark:      For a total this lane, this broker makes of $6000 for connecting both the ...

Braxton Fears:          Yeah.

Clay Clark:      Over here, both the tenant and the landlord.

Braxton Fears:          The landlord broker is the guy that has the "Available" sign in front of all of the buildings around town; that, where you are, there's all those "Available" signs in front of the strip centers and the office buildings. That's the landlord brokerage. You call them up, they're going to want to get you to get into their building, but if you call somebody up that you know well that does this, then you're going to want to use them to find multiple buildings, and you might visit multiple buildings with all different brokers, and once you get a deal that you like, that broker's going to deal with the landlord broker.

                        That broker that's working for you is helping you out ... Hopefully, they should be ... Getting the best deal for you.

                       

 

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