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How to Make
Lemonade
From Lemons
By Steve Bergsman
With The Real Estate Market Turning Up a Lot of
Lemons, It’s Time to Lemon-Aid Your Clients
What’s that old cliché? “When life gives you lemons, make lemonade?” Well, for the past five years, it wasn’t life but the economy
that has given the commercial real estate market nothing but
lemons.
And how do you get rid of all those lemons, i.e., vacant buildings? The simple answer is, you guessed it, lemon-aid.
Sounds easy, but it’s not. When you have vast square footage
of empty space in a poor economy, it takes a lot of work and refocusing of your skill sets to get deals done. It takes commitment,
marketing skills, flexibility, and straight-talk with clients. On top of
that, it sometimes takes a bit of luck.
According to Greg Gunn, SIOR, senior vice president with
Coldwell Banker Commercial NRT in Salt Lake City, UT, if you are
representing a landlord, the three things to do in a market awash with
lemons are:
• Advise your client to lead in bad times, not follow the market
down. This one is the hardest to accomplish. If concessions are
coming, get to your existing tenants early and make deals,
because if you wait, the competition will get to lower rent lev-
els, first, by enticing your tenants away.
• Remind your clients that markets are cyclical. A bad market
is going to come around eventually and you can’t take the
loss of income or rejections associated with it personally
otherwise it will overwhelm you psychologically.
• Warn the client that concessions will have to be made. The
broker needs to get comps, have a heart-to-heart with the cli
ent, and make sure the client gets a reality check in regard to
the market.
The last suggestion is very difficult for landlords to get a han-
dle on, Gunn cautions. “If you say to the landlord you have two
choices: stay as is, or offer a rent reduction in exchange for a new
five-year lease, the landlord will often say something to the effect of,
'What? Are you crazy? I don’t make money at lower rent..' But, six
months or a year later, the landlord’s building is 50 percent vacant
and he says, ‘OK, I’ll drop rent and offer concessions.’
By then, the income is lost and the mortgage
is troubled. You have to
lead the market down.”
If there was a fourth
recommendation, it
would be to make sure the
landlords understand the com-
petitive position of their build-
ings vis-à-vis the other structures
in the market. This is important
because more often than not the land-
