Rules of Real Estate

Sounds simple, eh? Well, it's probably the second most violated rule in all of real estate development. I'd like to call it a "Rookie Mistake" but the truth is that even the most seasoned professional forgets or just doesn't do it, every once in a while.

Remember: A lot of your potential success
will boil down to your ability to negotiate

A word of caution here; good negotiating skills are a learned and practiced discipline and the truth is, there are very few "naturals" out there (Although I've met a few grandmothers that could kick Donald Trump's butt with their eyes closed). Fortunately, there are tons of books, tapes and seminars on the subject, feel free to check our library for suggestions on some of our favorites.

Responsible real estate development, like operating an independent business, is not for the meek. Somewhere along the line you're going to have to learn how to negotiate, because you're not going to get what you need or deserve otherwise. So now would be the best time to start.

Of course, when negotiating, try to approach it sensibly. The end result will always come down to who, how, what & when you ask for something; but many landowners are more than willing to give concessions to their Tenants (and try not to leave this to anyone else but you...it's that important).

Many times Landlords are willing to do some, or even all, of the work on behalf of a Tenant to get the space ready for their use (This is known as the " Landlord's Work" and is usually part of every Landlord's operating budget). It's a very common practice, especially in retail spaces and office buildings. Financially, at least on paper, they budget to do the work for you and then do their best to either avoid the topic all-together or push back when you bring it up.

Sometimes, instead of them actually doing the work for you, they might give you a Tenant Improvement Allowance (also referred to as a "TI"). A TI is where, in exchange for you - the Tenant - performing the necessary tasks to bring the space into usable condition, the Landlord actually writes you a check, or gives you a few months free rent after you open, for doing the work.

The advantage here; is that you control the time-frame and quality of the materials and workmanship. They do it for most of the major players in development (when they think of asking), why not for you? Cowboy up and ASK!

One of the biggest sacrificial lambs in all of real estate, is the Security Deposit.

Many owners will ask (or even demand) that you place a few months rent in an escrow account so that in the event that things don’t work out well between you two and you wind up leaving in the middle of the night, that the owner can at least clean up the place and ready it for another tenant.

On the surface, it seems fair enough. We’ve heard a ton of horror stories from owners that have wound up on the short end of the stick just because of a bad tenant. Owners do need to reasonably protect themselves.

But why should you pay for someone else’s indiscretions? You have to ask! Hell, demand if you have to…but tying up your capital while starting a new business is never in your best interests.

If you have no choice and have to leave a security deposit, ask for it to be reduced or returned over a period of time. Why should you tie up money after you’ve proven yourself a good tenant? Propose to have one month’s rent returned, for every six months that you avoid a default (Like a non-payment of rent). That way you’re not tying up your capital for a protracted period of time and the owner is reasonably assured that you are going to be a responsible tenant.

Once again, you will never know until you ask.

One word of caution: Try and avoid going back to the owner with every off the wall request. There is a fine line between being a savvy business-person and being a pain in the owner’s keister! Bear in mind that this is going to be a "marriage" of sorts (for the term of the lease, of course) and you want to do your best in avoiding an adversarial relationship.

When doing your initial due diligence...

Try to speak to the other tenants in the area. Most of the time these folks will be more than willing to share their experiences with you. After all, they may have been there a while, maybe a long time, and can have a wealth of information, not only about the shopping center and its owner, but also about the typical customers, the neighborhood, other merchants, the towns building department, etc.

Just pick a time when it’s convenient for the other person to speak to you. Leave a business card or a contact number, if necessary. Believe it or not, even a competitor will sometimes share their experiences with you (but just read and understand Rule #4 - Trust, but Verify).

Reach out to every one you can and ask relevant questions (i.e., don't ask a grandmother with a shopping cart about the traffic flow or pending building moratoriums, but speak to her about where else she shops, how safe she feels being in the area, etc).

And in your travels, don't forget to stop by and speak to the local Police Department. If any one knows the area, it's going to be these folks. They’re also professionals and will be one of the few groups that will have nothing to gain by "adjusting" the truth.

They can tell you first hand about the incidences of crimes of opportunity or serious armed robberies, traffic problems and other facts about the area that could affect your business.

Although information, in itself, is not knowledge… knowledge is power and it all begins with asking.



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