Commercial Real Estate | Landlord Versus Tenant
May 2024 | Austin, TX
Miss the East Austin Bi-Weekly Coffee - Landlord VS Tenant
We recorded it for you. Watch the full video HERE
What we covered
LEASING THROUGH EYES OF A LANDLORD AND A TENANT
Value of experienced Commercial broker
Know the players in the market
First Right of refusal to buy
Market Dynamics
Market rents
Vacancy
NNN
Subleasing
Liability
Introduction and Purpose of the Discussion
Understanding Leasing and Subleasing Basics
Landlord's Perspective on Leasing
Tenant Representation and Negotiation Tactics
Types of Leases and Market Trends
First Right of Refusal and Lease Extensions
Financials and Approval Process
Lowballing Landlords: A Risky Strategy
The Importance of Occupancy
Retail Rental Rates in Austin
Tenant and Landlord Responsibilities
HVAC Systems and Tenant Responsibilities
Vacancy Rates and Market Conditions
Understanding Market Dynamics
Spec Suites and Redevelopment
Gross Up Leases Explained
Navigating Rental Rates
Insurance and Triple Nets
Communication and Relationships
Understanding Tenant and Landlord Perspectives
- Landlords prioritize tenants who can reliably "stay and pay." Understanding tenant financials is akin to a bank assessing a mortgage application, crucial for minimizing risk.
- For tenants, comprehending the lease terms, especially around financial commitments and operational flexibility, is fundamental
Strategic Lease Terms
- Debating lease terms, such as the duration and financial obligations like Triple Net (NNN) leases, can significantly impact the profitability and management ease for landlords.
The Importance of Subleasing Flexibility
- The rise in subleasing post-pandemic necessitates landlords to understand and negotiate terms that protect their interests while offering necessary flexibility to tenants.
Navigating Financial Negotiations
- Discussions around tenant improvements (TIs) and rent abatements are critical. Landlords must balance generosity with fiscal responsibility to avoid significant financial losses.
Right of First Refusal (ROFR)
- Including ROFR in leases can be a strategic tool for tenants but requires landlords to understand the implications on property liquidity and valuation.6. **Impact of Market Trends on Lease Structures**
- Market trends significantly influence lease negotiations. Landlords must stay informed about the current market conditions to optimize their lease terms and structures.
Legal and Operational Landlord Considerations
- Understanding and preparing for legal responsibilities, including those related to building maintenance and tenant modifications, is crucial for landlordsTenant Retention Strategies**
- Building strong relationships with tenants, understanding their business needs, and occasionally negotiating terms like expense caps can lead to long-term tenancy and reduced vacancy rates.
Adapting to Tenant Needs and Market Conditions
Being adaptable to changing tenant needs and market conditions can help landlords maintain occupancy and profitability. This includes understanding when to offer concessions and how to adjust lease terms in response to market dynamics.
Leveraging Broker Expertise
- Engaging knowledgeable brokers can aid landlords in navigating complex negotiations and ensuring leases are structured favorably.
We can not OVERSTATE this. If you don’t call us just make sure you call an experienced, well connected, with local expertise, broker to assist -Leasing Commercial Space
The panel underscored the importance of strategic flexibility, deep market knowledge, and strong tenant and landlord relationships in the realm of commercial real estate leasing and subleasing. For landlords in Austin and beyond, staying informed and adaptable is key to navigating the complexities of today's real estate market.
This discussion provides a roadmap for commercial property owners, particularly those struggling with leasing, to refine their strategies and approach to secure and maintain profitable and stable tenancy agreements.
Full Panel Transcript
Okay. So the reason why we are doing this today is very simple. So Lee Snedeker called me and he is leasing a space that a large brokerage in Austin owns, and he found a subtenant that a large brokerage in Austin represents. So he was going to sublease, and he was upset by all the language, and the cost, and all of these things.
So after an hour and a half of explaining to him all of these intricacies, he understood. He's like, oh, okay, I get it now. As much as I love all of you, if each of you call me and ask for an hour and a half of my time, I would not get anything done. But you might have the same questions, especially here in Austin.
And I'd say, you know, nationwide subleasing is probably more popular, more common than it was pre pandemic. I don't know if that's accurate. So today we're going to talk about leasing and subleasing. I don't know what level everybody's coming at. So we're going to start with basics. And then we can talk more intricate items of leasing and we will take questions as well.
The number one thing is I am a landlord. I'm an owner. The way that I review leasing is this simple. I'm like the bank and my tenant is my mortgagee. So that's how I review everything. If any of you have a mortgage with a bank, that document is very, very thick. They may or may not hold you to everything, but they can.
That's what a landlord really does, in my mind. My number one goal as a landlord is to get tenants that stay and pay. So a tenant may love a space, but if I don't have financials to prove that they can make that payment for five years, it is very risky for me. And that's really how landlords interact in this economy, um, this market.
And it can vary. I mean, clearly, if you have 50 percent vacancy, maybe you just take any warm body that will pay you rent for a while. But leased space, commercial leased space is very expensive. Office retail, there's a bunch of money in build out and all of those items. Another thing, a lot of people here are commercial brokers.
Whenever your landlord, whenever your landlord strokes a 120, 000 commission and that tenant walks in two years, That's bad. They don't get to recoup any of that, or the TI, or anything. So landlords are often seen as brutal. There's a reason why. Bad things happen to them, and they eat the cost. That's the number one thing, I think, from a landlord's point of view.
Jim does a lot of tenant rep. He does everything else, sales and landlord rep as well. But we, this is the fun thing. We will sit in a team meeting and I will bring up something in a lease and he will fight me on it. He'll go, well, you need to do this for that. And I'm like, but I don't, I don't agree. So we will battle it out for 30 minutes and it is enormous fun.
Looks like we're arguing, but we're not.
And I'm the referee.
She's the referee. But you're not. So, in that, Jim and I walk away so much smarter, yes, and tactical in how we handle leases. Because he gets the landlord view, and then whenever he submits an LOI, he might put something in there. Knowing a landlord like me is going to love it.
Commercial is not emotional? Sure. It is. If I like you, you got a better chance of coming in my building. If I don't like you, you won't go. Period. I'll block you. So I'm gonna let Jim. Oh, I did forget to introduce myself. I'm Deli Becker with Beckwright Commercial, owner, founder. I mostly work on my own assets.
Jim, introduce yourself.
I'm Jim Rourke, uh, with Beck-Reit Commercial Real Estate. I primarily work as a tenant rep broker around town, um, with office, industrial, retail, and land as well. And so I'm usually approaching the transaction from the tenant side of the transaction and trying to reduce their risk and get them the best deal possible.
And so there's sometimes, you know, where I have to play devil's advocate, where I'll get something from a landlord that might not make sense to me or my client. And I'll have to kind of pursue that a little bit further, so that way we can get to a point where we have a meeting of the mind. So that way we don't get down the road and get into a situation that doesn't work for everybody.
And I am Michelle Anderson, also with Beck-Reit Commercial, and I focus more on land, where I'm representing a lot of developers that are coming in to purchase the land to build and develop. So we've got to get a good price, you know, on the land in order for them to make their numbers work in order to have leases, you know, tenants, those kinds of things, and the numbers have to pencil in order for them to develop.
So I will start with, um, something that not everybody knows. A lot of people in the more sophisticated markets do know gross lease, triple net lease, modified lease. And that really is the expenses that the landlord has, how they are passed through to the tenant. Would you say the majority of leases in Austin are triple net?
Majority. Probably 95 to 99 percent of retail leases are triple net. Um, probably a good 85 percent of office leases are also triple net. But you do still find a few gross leases and modified gross leases in office space still. And occasionally you'll find that unicorn in retail. A modified gross or a gross gross?
Whoa, that is a unicorn. In your opinion, as a tenant rep side, why do you think that in the sophisticated markets, we go with triple net? I think it's easiest for landlords for triple net because the tenants are paying all the expenses under those scenarios. And it makes it really easy when those landlords investors go to sell those properties to pass those along to the tenants and not have those built into the net operating income.
I would add on to that. The number one reason here in Austin, Texas is property taxes. Property taxes can spike overnight. In residential, if it's homesteaded, you've got a 10 percent cap. Maybe that has changed, um, annually. We have no cap in commercial. So a 1 million building on Travis County Appraisal District's role can go to 2 million the next year.
So that means the property tax doubles. If you have a gross lease as the landlord, I've got to eat that extra cost. I cannot pass it through. So I would say in the more sophisticated markets. We landlords get to triple nuts as fast as possible. It is more complicated for accounting and bookkeeping, but it is worth reducing the risk.
And ultimately as a benefit to the tenants as well, because they're just paying the pass through expenses. Otherwise landlords have to guess what those expenses are going to be. And they usually don't cast too low, so they add a cushion there. So I'm a landlord, and I'm just gonna say I'm passing everything through.
Is that okay with you, Tenant Rep? No. So, there are certain things that I expect landlords to be responsible for, which is basically the structural shell of the building. I expect them to be responsible for the roof, the exterior walls, the foundation, things like that. And so sometimes I do have issues with landlords when they try to get tenants to be responsible for things that I feel like should be a landlord responsibility, most particularly like roofs and roof repairs.
I also see, and I do, I really don't mind depending on the percentage, a cap on expenses. Do you put caps on expenses? I love caps on expenses. From a tenant rep point of view, but they're difficult to get with lots of landlords because landlords can't, they don't have that crystal ball to be able to see into the future and they don't want to leave themselves shorthanded either.
They still want those triple nuts to pass on through, so if you put those caps there, then that's restricted to landlords for sure. It does restrict, but you could restrict the controllable expenses. Yeah, well, typically I only see landlords willing to restrict controllable expenses, so they won't, but they won't put caps on taxes or insurance.
It's usually just cam. I agree. And I would say if you're in a competitive market and you're really trying to get the tenant space and they've got other people looking, sending in a letter of intent, asking for a cap on all expenses is immediate. No. And you're probably going to upset the landlord. That's just a tip.
Yeah, they'll, they'll strike it out.
I was on Twitter or as we now call it X, depending on how long you've been on it. And I put out that as a landlord, I often, but I'll put a caveat. A lot of my buildings are. freestanding single tenant. So it's not 20 tenants in a strip center or a four story office building with 20 tenants, but one tenant.
And a lot of times in a letter of intent, the tenant rep broker will ask for first right of refusal. If I sell the building, I personally do not fight it, but I have found that some landlords really don't. They do not like it. They get very, very upset. Do you always put it in your LOI? I think if it's that type of scenario where you have a stand alone building, I would want that in there and I would fight for it.
But it depends on the exact location. I would Push it as far as I could push it with the landlord, especially if they will offer me some type of fixed pricing. Um, if they leave it at market, then, you know, that's of limited value to my client typically. But if we can agree on a fixed rate in the, in the future, in the short term, that could be a value to my client.
Wait, are we doing an extension or write a refusal? Hold on. If I sell it?
Yes.
But oh my gosh, well, I would never do that.
This is our fighting. I would never do that. Now I will put it in, but they have to beat the offer I got. So if I have a 2 million building on East 6th Street and somebody at a big shop here in Austin comes along and offers me 4 million. Well, then I might want to sell. If I have a lease, then I go to my tenant and I say, you've got to beat this 4 million or other terms in their offer.
So it wouldn't be at a fixed price. Yeah. It sounds like in that scenario, you're at an open market rate and. It would probably be of limited value to my client in that scenario. Is it really? It has limited value? Because it seems If you're projecting a price and the price is going up that high and you're getting into the scenario Interest So why put it in?
Why put it in the LOI? It just depends on the property. If my client is putting in a ton of money into the space I was going to say Go ahead. then that would make a significant difference. And it depends on the market. Maybe putting it in, the market may go the other way. And so there's an opportunity there that maybe if the landlord decides to sell just because they wanted to get out from underneath it.
Then the tenant might have the option to purchase agreed. I mean, that is yes. Now the landlord has to be willing to take it. So if I have a 2 million property and somebody offers me 500, 000, it doesn't mean the tenant can buy it. Right. Yeah. Just if the market goes, I mean, I've always added it at their request in the LOI.
I don't fight it, but I do put a very short timeline on it. So if I get an offer and I send it to the tenant, they have 10 days to respond and beat it. So if I got a 10 31 buyer, it doesn't mess that up. So I've got to be quick. Uh, one that I saw on Twitter, which wow, I I'm going to use as soon as I can.
And it is heavy handed was, um, yes, I'll agree to the first right of refusal, but all CapEx passed through. And my friend on Twitter said, if they want to act like they're the owner, they get to act like the owner from day one. Mm hmm. I'm gonna use that as soon as I can. So, okay. Do you have a problem with first writer refusal?
You, I've put it in before for clients Yeah. That I've worked with because they, initially we were looking for buy a building to buy, could not find one. So that's our goal was to try to have that negotiation with the landlord to potentially buy it. And I do think that is also a strategy. There's a lot of tenants that they do wanna buy the building.
Mm-Hmm. . They would buy it, not lease it. Mm-Hmm. . But if they are leasing it. then they're that much closer to the landlord. I mean, that is absolutely true because I think a lot of landlords will at least call their tenant, whether or not it's in the lease and say, I've got this offer. I think that's good. I have a question from the off when you said you had the ability to be the offer.
But do you put in there as as soon as they want to go public or list the list the property that they need to let the tenant bill so then so then the tenant can have the opportunity to make the first offer because that puts him in a stronger position. Or is it once you receive the offer, then they get the first word refusal.
How do you Between the two of that. So the trigger is an offer comes in that the landlord is willing to accept. Okay. Ideally, if I'm a landlord and I put my property on the market, the tenant has, you know, some tentacles out there and they hear first, yeah, they would hear, would you ever put it in a tenant's agreement that, hey, as soon as you are going to list it, or it's gonna go to public market, I have to get notified within X amount of days.
Because at that point in time, you build in before an offer ever comes in and puts you in a stronger position to negotiate. I've seen both. I know. I think it's brilliant, and I don't know how many landlords it would fly with because of this. Landlords might have 30 properties. It is difficult to keep up with all those little bitty clauses, and you as a landlord don't want to miss that.
So I would probably mark it out and say no, but I, you'll be the first to know. Yeah, I want my tenant to buy it because they're already there. And, and I personally believe owner occupant can pay more money for a building than an investor. So why wouldn't I go directly to my tenant? Now, I have also found, and this is more on the leasing side, the tenants think that they've got, um, that they can strong arm me.
They think they've got a solid position against me. They're wrong. They're wrong. So they're like, Oh yes, well, I will offer you. You want two million. I'll give you one million. No That's not how this goes. And again commercial isn't emotional, but it absolutely is Yeah, you don't have that right of first refusal You'll never hear if it sells until you sign that estoppel certificate because that landlord's not gonna call you play nice play nice Anybody else
Absolutely. What would your terms be?
I think it depends. I mean, really, and we are, we are actually walking through this on a building in San Antonio. So we, we own it free and clear, so we can sell our finance. And it is, um, operated, the tenant is a CBD store. And they want to buy it. Which is fantastic for me. I'm, I'm fine with that. So how we're gonna do the seller finance, it's up to them.
Do they want a little payment? For 40 years, let's roll. Well, but you know, because they cannot get traditional. Correct. Of that industry. Correct. So I, I do not, if I bank would do it at 8%, I'm probably going to do it at 10%. I'm in this back of the napkin, right? And I'm going to put clauses in there that prepayment penalties.
So if they can go get a loan from a bank at 4 percent and they want to take me out, fine, but you're going to pay this. That prepayment penalty will drop down every year. So the longer they're with me, I want to recoup what I have penciled out to get out of it. So as an owner, I, I'm very flexible in how I do it with this tenant.
Then shockingly I have figured out that I can, it is owned by one LLC, that LLC is gonna sell to Mr. CBD store and it is gonna go into a 10 31 exchange that LLC. And then myself and my husband are gonna personally loan him the money for the building. So I can still, 10 31 my proceeds and I'm probably gonna structure my sell, lease back with a higher sell price and maybe come down on my interest rate.
So I can get more in that 1031, more gain tax free.
Yes. And I will say, here's a huge thing. This is an amazing thing about playing nice with your landlord. This tenant has been amazing. He is so easy going. Um, he called on Saturday and he's like, Ms. Becker, I, I, the HVAC is down and he's responsible for it. He's like, we've already had somebody come out, but I want to alert you.
And I said, you know what? I'm going to send out my guy because I want my tenants to stay and pay. My responsibility as a landlord is to make sure that they can stay in business. If they've got 20 people coming in per hour and there's no air conditioning in a building in San Antonio. On Memorial Day weekend, their cells are going to go down.
So if I can get my HVAC guy there and get it done faster, they're back in business faster. That's not every landlord that that is me though. I like to jump in and keep them operating because we get along so well. Whenever he asked about buying the building, I'm like, yes. And also he's not, this is significant.
Actually. He's not bringing a team of attorneys from New York City. It's gonna be me and him that pencil it out. And that works well for me. If he's like, well, let me bring in Jackson Walker and do to do. I'd be like, yeah, you're not worth my time. Now I'll just keep the building. Cause I planned on owning it forever.
Mm hmm. No, your landlord. This is a big one that I was going to say, and I tried to explain it to friends, clients, anybody that asks, if you look at what your leasing broker makes. And say, well, gosh, you're going to do this 10 year lease and I'm the landlord. I'm going to pay you 120, 000 commission for what you see as six months of work, but it's 20 years of knowing the market, knowing the players, knowing how to deal with the landlords, right?
Because one landlord doesn't act like me. They act differently. You've got to know all this in tenant leasing in Austin. I'd say any market because knowing how that landlord is going to react to your letters of intent and all of that dictates how you write that letter of intent. You might have a template, but you should adjust it accordingly to the market, to the landlord, to all the factors.
You do have to go back and educate your tenant, your client, why you're doing this, but that's the value we bring. I mean, enormous value also off market. We know what all the landlords own and a lot of stuff never goes to market on purpose. So you've got to have a direct line to that landlord or their broker and say, I see that this is going dark, whatever it is, can we get a shot at it?
So it is decades of experience that gets you that 120, 000 commission in 2024. It's not the work in 2024. That's just your little cherry on top. Do I have any questions? Well, I was, I was going to piggyback on that, on landlords in smaller markets. Yes, please. Also, getting to know your landlords in the smaller markets versus the larger markets, because your smaller markets aren't as sophisticated, and they're gonna, they're very simple, and they're easy to work with.
They're, they can tend, because they're looking for the warm bodies. They want to fill the leases, so they're a little bit more flexible on all the terms. Yes. And you can take advantage. But, but also know, know who you're playing with. So if my LOI is going into HPI managing a large building in downtown Austin, my LOI might be five pages long because I'm going to detail out everything.
But if it's a small retail space in Georgetown, they're getting a little more since Biscuit, but Taylor, Texas, I would dial it back to maybe one page. Right? Know your audience, play to that audience, instead of expecting them to play to you. Because commercial is not emotional, but it is.
Who else has a question? I guess going back to, um, what Jim was saying about responsibilities, tenant responsibilities, landlord responsibilities, and then having the, I know we were talking about putting caps on, uh, exclusions in market, but what about, um, I know landlords That's a huge one with almost every single LOI and lease, they're like, we don't own this space.
Why would we pay for a 24, 000 HVAC system? So, and I try to put caps on that, um, whether it's just service or replacement and everything. So how do you guys approach that? So, what I like to do in that regard is I, when I'm submitting an LOI, I like to include a provision, um, regarding the HVAC system in that LOI that asks the landlord to define what the HVAC system is.
So, how many units do you have? How many tons is it? How old it's it right and so they usually don't know any of the stuff off the top of their head So they're gonna have to go send somebody to go figure it out And so I usually include language in there that says if the unit is over a certain age That the landlord's gonna provide a guarantee or a warranty of some kind If it's under you know, seven years old, then maybe my client takes the risk on that and we roll the dice there but I have an inspection done as well, but, but so what they end up doing is the landlord goes out and they do their inspection.
They come back and they say, this unit's 18 years old and it's, you know, at the end of its lifespan, I say, great, we don't want a hot potato, you know, so why don't you warranty this HVAC system for the remainder of its life? As long as it's up and running well. And then replace it when it dies versus replacing it now.
And so a lot of times I'll get landlords that will be agreeable to do that and be responsible for the HVAC. But then once they replace that HVAC system with a new unit, it generally falls on the responsibility of the tenants at that point. But that, you know, gives an opportunity for landlords to not have to replace an HVAC system that is working.
That's an older system up front. They just provide that warranty and then we move on down the road. And sometimes that can be a hindrance to getting a deal done because people don't want to pay 24, 000 for that new HVAC system. You know, they're, they're not buying the space necessarily. They're leasing it.
Is there like a central clearinghouse? So like, if I'm representing a buyer, there's a mortgage pre approval, so there's a certain, it's very clear what they can afford. Is there that same kind of approval process or a central clearinghouse of like, this is how much my tenant can afford, this is the price point.
I understand it kind of varies by landlord, but in directing a tenant to, hey, this is how much money you need to have in the bank, Or have access to to get approval for XYZ. Is there any kind of like per square foot formula that exists out there either for you particularly or the landlords in general?
Is there like a central like your pre approved kind of entity that does that on a tenant basis? Or is it landlord by landlord basis? Oh, I can't wait to talk about this. This is my favorite thing. Okay, so all landlords are different. Some of them don't even bother looking at financials. Some of them will run a credit report.
They're like, okay, this is good. A lot of them, and I'm not sure this is 100 percent fair, but beware, they'll rely on their tenant, their landlord rep broker. They think the broker's done the due diligence that no, no, no, it is. It is the owner's job. So I, if I'm going to do anything longer than a year, 12 months, I'm going to review financials.
I'm a bank. I want three years of income tax returns on the business. I want three years of personal income tax returns. And I want P and L for the year that it's not run. So 2024 now, or 23, if they haven't filed yet balance sheet, I want to see what you got and personal financial statement, which they make themselves.
That's the first thing I'm going to look at. If it looks like you lied, you're out. I don't need you to overvalue your business. That's very cute. That's a red flag. That's a red flag. The next is, I mean, their, their income over three years, is it, you know, has it been steady? Great. I mean that immediately right there, steady income.
They've been in business 10 years. Fantastic. Also, I'm asking them to personally guarantee. So they're agreeing to that what they can afford. Gosh, I would say in office, an easy thing is, are they leasing an office somewhere else? What are they paying? Which is very much kind of what they do in residential mortgage.
You know, if you're paying this much in rent and you've been doing that for five years. You can probably handle this mortgage. So there's that. There's another factor that I love. And I learned it from Beth Azor. And it's called Healthy Rent Ratio. Healthy Rent Ratio is based on gross sales. It's really good for retail.
So, uh, Healthy Rent Ratio in, um, Restaurant Bar in Austin, Texas is 10%. So if they're grossing 2 million in sales, So It's a gross sales number, then they can afford 200, 000 in rent, give or take, right? They might have a different program, they don't want to pay that, they may feel like they can make more, but that is significant.
That's really kind of how I've started judging everything, and this is the fun one, and bless their hearts if they're watching, but they know because it's happened to them. So I'll say how I figure out what you're going to pay whenever you extend, because I've got your financials. So whenever you say, Oh, I've enjoyed my 10 year lease.
I'd like to extend 10 years and I want to pay this. I can run your financials. I know what you can afford, and this is market and you're going to pay it. And then whenever you say, I can't afford that. You're You're lying to me. And this is why I want a renewal at a fixed rate. I always put renewals in.
Okay. Do you? Yes. And what do you ask for? Um, minimum five years, like two, five year options, typically depending, depending if, if we're already in a 10 year, then I'll ask for a 10 year renewal, but at least two options. But yes, I will typically do market rate with a caveat. depending on where the market's at.
So, yeah, it can't go through the roof. Like, yeah, it's, I put in market rate, but yet that's still kind of negotiable. How do you put that in wording? Market rate, but negotiable? Because who gets to decide? Well, and that's, it will come down to, yes, we still get to renew, but it, depending on no more than five per, I think I, one time I put no more than 5 percent of what the current, what we're currently paying.
Yes, as far as you can see, you can increase it up to X percent as long as yes, like our last year, we're paying X no more than 5 percent over that. I think it's a fantastic, if you're on the tenant rep side, put it in. If you're on the landlord side, we will always mark that out. Absolutely not. In 10 years, the market will have changed and I'm going to take advantage.
And it could go worse. And then it's a bonus. It's a disadvantage to the tenant if the market is dropping because now we're at a higher rate and will the landlord even do a low rate? So do you build it in then in order to appease the landlord? Do you build it in, hey, we're going to go up to 5 percent over and if the market goes down, we're going to go down only to 5 percent because that's I try to.
That's a tough one. Most landlords will mark that out. Yeah, we want to dictate. Yeah, I'm saying like key fees or buyout fees with certificates of occupancy for bars and restaurants Yes
Yeah, it's been a hot minute since I've worked with bar and restaurant so that's yeah I mean if you've got something of value I'd expect key money Yeah, you should offer it. Are you going to wait for the landlord to ask because you didn't offer it in our last LOI. And if the tenant wants to vacate and then they get paid as opposed to a sublease.
So if I have a tenant who wants to take over an existing business and the license, the ABC license, they pay the key fee to get a transfer. And so there's not an overlap in the TABC licensure. It usually generally depends on the condition of the space as well and getting furniture, pictures, equipment, things like that, that come with that key money.
And that's more tenant to tenant. The landlord's not in that. Wouldn't you approve that as a landlord? I would approve the sub lease if they're sub leasing. Yeah. Yes. Yeah. But it's not a guaranteed sub lease if there's a key fee. Could just be a whole new. It could just be a new purchase. Okay. And in that case, the landlord's typically reviewing financials of the buyer.
Of the buyer, of the, yeah, absolutely. Absolutely. So that is the, the, the catalyst of all of this, again, was Lee calling me because he wanted to sub lease and he was startled by the amount of money it was going to cost. And I explained to him, okay, well, landlord's got to review your lease. And then the sublease now, you're accepting, it's going to come in and they're going to pay the rent, but what if they stop paying and lead?
Do you realize you're the landlord in that situation? And he's like, no, I said, so have you reviewed this tenants financials? He's like, I have not. I said, well, you are really taking on, you're going to pay for this person to sublease from you. If they stop paying, okay. If they tear up the building, any of that happens, you're on the hook.
You are now a landlord and you need to review your lease document and the sublease document, each of them about 50 pages each, a hundred. He's like, Oh my gosh, I think I need to get an attorney. I said, you're starting to see where these fees add up. This is very expensive. This isn't just, you know, sub one in and this is all great.
Especially for a landlord. This is a very big deal, and I don't know that everybody understands it. I even know landlords that don't. That building, I am liable for. Everything that happens in it, I am liable for. If you bring your Pomeranian to the office, and it bites a child, Okay? They're going to sue the tenant first.
But let's assume tenant doesn't have that much money, has a house, can't take a house. Guess what is not protected? My building is not protected. They will sue the tenant because they have to and then they're going to sue the landlord We are in extreme liability situation. So we might come off as ogres, but it's really us protecting us.
And the benefit all boats rise with the tide. I'm protecting my tenants. I'm keeping them out of trouble. They might not realize it's a bad idea to do this. It's a bad idea to do that till I shut them down, which by the way, I forgot to get something yesterday. Cause they don't, they don't think through what could go wrong.
And I have to think about what could go wrong because that assets not protected. And the number one thing my husband taught me, so all of our buildings are owned in different LLCs. Those are owned by LLCs and they're all owned by trust. It's as protected legally as you can imagine until someone dies, they're all pierced.
There's nothing that is protected other than my home. If someone dies. People die. People die. Somebody slips on a banana peel, breaks their neck, they're 80 years old. Dude, right? Who are they coming for? The landlord. And everything they own. And they can pierce all those protections. So, landlords are strict and stringent for a reason.
If they're not, yay for the tenant, take advantage, do a lot of deals without landlord. On another note, and this is another reason why it's so important to have a, um, a broker representing the tenant that is experienced and understands all this, where some people don't want to get a broker involved because they think they can handle it when it's actually not a good idea.
Which is where our value comes in. I think a lot of the times when I'm trying to structure deals. It's just presenting a Structure of a deal that I can present to a landlord and sell them on an idea Or a concept like here's the plan on what we're going to do for the space Here's how we're going to finish it out.
Here's what they're going to do Here's how we're going to pay for it And it's kind of painting them a really clear picture about the ways it could be And uh seeing if they're responsive for that If they have the same type of vision. So, and if you do that, I see a lot of success without that there's sometimes I get, you know, offers that are made and they're so lacking in information that we just completely ignore.
We're just like, we're tossing this one. They don't have enough, enough, they haven't done their due diligence yet to make a reasonable offer. So having a strong LOI really helps get a deal done. And they're not working with an experienced broker. And they're not working with an experienced broker. I've dealt with that.
When you get these LOIs that. Don't contain all the information that they need to to get the deal done. It usually doesn't move forward. Mm-Hmm. . And we'll get to next average rental rates and vacancy. This is huge. We're gonna have Jim speak to it, but this is incredibly significant in Austin, Texas. If not across the United States.
Retail is the, you know, shiny bobble vacancy is low vacancy in Austin, Texas is 2%. So if you have a tenant that wants retail space, you are fighting tooth and nail to get it. The landlord sits and looks at all of the other wives. Right. So put your best foot forward, send it with financials, send it with a vision.
Don't ask for a 5% cap on that option 'cause I'm already gonna be annoyed 'cause the one that doesn't ask for it. Again, I'm not emotional. Oh, I like this one. . That is significant. You can fight for your tenant and that's phenomenal. But if you are in a fight against a bunch of other tenants. and they want the space, you gotta play against that.
Protect them the best that you can. Put in all the goodies so that the landlord chooses you. That's what you're doing. You definitely need to recognize the market, um, and understand where you're at in the business cycle with retail being at 2 percent vacancy, you know, beggars can't really be choosers a lot of times we're having to put people into brand new construction and the stuff that is available on the market, they usually requires a lot of construction just to bring it up to code.
Oh, construction. All right. Should we talk vacancy rates or construction? Okay. Oh, well let's go vacancy rates. So vacancy rates in Austin, Texas. I said that retails at 2 percent give or take. Would you agree? Yeah, um Restaurant is at zero. Yeah
What about industrial and office I do not know sitting around six and a half seven percent vacancy citywide and so It's still doing well. There's new construction. It's coming on for industrial. That's causing vacancy to go up a little bit Oh But we also have a ton of warehouse industrial users moving here that are taking a lot of this stuff up.
So, um, industrial space is still doing really strong with retail. Um, office on the other hand, when we include sublease space, we're looking at 22 percent vacancy rates in our current Austin market. So there's a lot more room to negotiate with office space in this market than there is with retail or industrial space.
So just knowing that when you come to the negotiation can go a long way. Yes. Oh, my. Are you seeing the same thing? Same vacancy rates? Oh, yeah. I was gonna say a little higher in office, but Where do you think it is in an office? I was gonna say closer to 30%. A lot of the space that's on the market is big block space.
And so, even though we have so much vacancy in the office market right now, when I get small little 1, 500 square foot, 2, 000 square foot office users, we don't have a lot of options like that in the market. And so it's, it's a unusual animal just because we have such big blocks. The Pearson that comes here is going to be taking big buildings, full floors, things like that to make a dent.
Yes. And so I will say on that again is nuance. You've got to know the market. You have to know what's really going on, macro and micro. Cause if you come rolling in and go, Oh, well, office is low. I'm just going to lowball all these landlords so I can get office space. You might be wrong because anything under 10, 000 square feet is leasing up pretty quickly.
So whenever a landlord gets this, you know, super low ball due to do all of these things, we throw it out the window just because you read it in the USA news that are, you know, occupancy in Austin, Texas is 80%. Nobody's going back to the office, all of that. Well, that doesn't necessarily equate to 3000 square feet in Georgetown.
In fact, it doesn't at all. So know your market, know your landlord, know what's going on, where we are at in the cycle. That's a huge one. Does that drive landlords to make like 2, 000 square foot spec suites? Yes. Yeah. I think that when we have large blocks of vacancy in a building, you will start to see smaller spec suites that get built out from those spaces.
Um, but that takes time too. And there's a lot of landlords that are probably sitting on the fence thinking about that right now is whether or not they should spike out some of their larger spaces. So maybe it's just a floor to start out with. But I think it's, it'd be wise for most landlords to do that.
Yeah. And I would say that also to some of these larger spaces, the discussion of, um, the redevelopment, they're talking about trying to turn those into residential because of the vacancy. Thank you. The reuse. We're speaking specifically about office. Specifically office, uh, and your big office buildings that are, you know, 10 floors vacant.
And so, but the cost of that is extremely high. Utilities are individualized. Exactly. And you gotta move the utilities around. You have to redo the structure, you gotta do a bunch of stuff. Fire code, everything. It is cheaper to tear the building down and start over with multifamily. It's why it's really not going to happen at any large scale.
I think that KOSAR put out it's 5 percent of the office market in the United States. Can or has been converted to residential when you're spending out like if you did have a large building, you're spending it out since you can't have someone individually paid utilities instead of big buildings, you then do when they're writing the tenant.
Are you basing it on the square footage? The square footage you're doing percentage of what the cost of utilities is, you wouldn't a typical office leasing scenario in residential, you know, ideally, you'd have everything sub meter, but if you don't can't have sub meter, and now you're spending out individually to do it.
For residential or for little offices? For offices. Yeah. You would just, it's a proportionate share of utilities. Spice work. Mm hmm. Mm hmm. You can do common load factors. Then there's gross up lease. Do you see gross up lease very often? Um, yes. I, I can. I mean, it's, I typically only see that in office leasing.
I know. What? Okay, explain to me the gross up lease. It grosses up as if it's 100 percent occupied. Or 95 percent just depending on the language. So, and that's, that's really language driven. If there's a 10, 000 square foot office building, 50 percent of it is occupied, the other is vacant. How does gross up lease, gross up lease work?
On the tenant side, I only want my tenant to pay for their pro rata share. And so I want the landlord to pay for that vacancy. I don't want the landlord to pretend like that space is occupied. You know, and then pass those costs along to my tenant because it's not, but in a gross up lease, they get to, yes.
So gross up lease, you got to really crack a gross lease, lease up provision. Yeah,
I edited in a wrap. I would. I was. Yes. Yes. Especially with office as vacant as it is, whether it'll stay that way. I don't, I don't know. I don't have a crystal ball construction. I will say from a landlord's point of view, doing spec suites is brilliant. And I have done it. I started doing it in 2020 during COVID because it made the most sense.
I did 6 and 12 month gross leases and I was 100 percent occupied, still am. Very easy. Not a lot of landlords can maneuver or want to deal with that short of leases. The other problem is, let's say I've got a thousand square foot space and I go build spec office. And I spent 100, 000. Okay. And tenant comes in and goes, Oh my gosh, this is beautiful.
And I'd like 500, 000 to do what I want. So you spent all that money that then gets ripped out for the next tenant. And it's hard to judge where to go with that. Honestly, in a perfect world, you can say I've built one spec suite. If you like this, I'll build it over here. But construction timelines aren't that fast.
And that might take three months minimum. Materials and labor is cheaper to build it all at one time versus in phases. You're going to pay more on your materials. Yes. So there's all those caveats. Like it seems like a brilliant idea and it might be. But landlords are pretty hesitant to do it because you feel like you're putting capital into something that's just going to get ripped out.
There's been lots of times where I've spec'd out spaces on the landlord side where, you know, we've come in, we've painted the walls white, we've put in some brand new fluid carpet, and then the tenant comes in and says, well, I need my company colors on the walls and we need tile floor here. So you end up just ripping all of that stuff out.
It turns out to be a big waste of money. It's more often than not. Yeah, but it's also marketing cost. You got them here because this looks like that. Yes, they went there before that. That is true. And there's sometimes you can, you can create a small like model home spec type space that can't sell other spaces that haven't been finished out.
Yes. And I do think that, and I actually, there's a, there's a podcast I did. Um, Speed to occupancy. So a lot of the larger office buildings have like the spec suite and then they've got a set of six different furniture styles that you can pick and swatches that you can pick and this tile this so that they can sign a lease with the tenant and deliver that space in eight weeks.
And I think it is working really, really well. I think landlords have very large buildings that makes perfect sense for and if I were a landlord rep and I was out trying to get more landlord rep assignments, I would be out beating the bush on that one and telling him, look, you sitting around waiting for your 10 year tenant to come along like it's pre 2020.
Those days are gone, and every day that you're vacant, you're losing money. I also, as a landlord, tell everybody, I want my buildings occupied, because if there's humans there, all of my systems operate better. And, if something goes wrong in that building, there's eyes on it. So if I have a, let's say I own this, uh, building that this restaurant is in, and it starts to leak over there, if this space is vacant, that might leak for weeks or months.
And I don't know, is the landlord. But if this tenant, East Austin Hotel, where this is actually second bar, calls me and says, Talie, we've got a leak. Well, I got my guys over here to repair it. Much faster. It's just better for the building. So I don't know that all landlords think that way. I think there is a huge significant difference between buildings owned by, you know, personal landlords.
It's personally owned as part of their family assets. or family owned versus owned by a very, very large conglomerate. Would that be called a REIT? A bunch of investors because they might have asset managers that really sit in the office and crunch numbers. I personally believe that commercial real estate is about the building and the construction and the materials and all of that.
The numbers will follow if you take care of those things. But as a tenant rep, just know that there is an opportunity, because they, uh, they don't go out and look at that building. Hardly ever, if ever, they rely on their landlord rep to do it. I mean, how sophisticated is their landlord rep? I know this because I, I run into tenant reps and I, I do buy commercial real estate.
So the seller's broker, We'll say it's got this, this, and this, and they don't understand that everything they're saying is wrong. They're not in construction. That I understand. Personal caveat is don't say it if you don't know it's true. Just leave it. Don't, don't tell me you just put a great new roof on it.
I actually know that's a terrible roof and I'm going to have to replace it. So I'm not paying for that. However, there are plenty of buyers that don't know it's a bad roof. So I'm Not everybody's going to cater to me. What are rental rates? What are rental rates? Retail Austin city limits, not Leander Buda Kyle.
I think most retail rates are probably falling into about the 25 to 40 a square foot plus triple net range in the Austin area right now. Um, that's 25 to 40. Well, on average, there's certainly areas like the domain or Belterra that can exceed those areas. Um, but that's what I'm seeing on average. Um, South Congress is what?
Yeah, depends on which part. I mean, um, I think they eat moving out because they can't afford. They eat to lease. Uh, and I don't know. I can't remember if I even know who it is, but there has been a lease down there for 200 a square foot. So 200 a square foot.
Big corporation is going at 225 a square foot. Yeah. Yeah. We all know what type of use that was. I believe the one that I'm thinking of is retail. Retail. Retail. Retail. Retail. I don't think that office space is anywhere near 2 25 anywhere in Texas.
I'm sorry. Being 25 40. Except for retail. All in retail. That's just retail. That's not office. She's coming in and then you don't wanna touch on the outer. Right now, Manor, the brand new development that's being built with the HEB. 40 a square foot base rent in Maynard. Yes, 40. That's their list price. 40 to 42.
No, they might. Yeah, they might. But it's healthy rent ratio. Those businesses try to say it's healthy rent ratio. And they're targeting your, you know, bigger businesses. Retail box. Well, they've got Home Depot, they've got HEB, but then also, you know, all the companies that follow HEB. All those people are definitely signing leases.
You're a liquor store. What is it in liquors? And usually, you know, there's usually a Starbucks, but Maine already has a Starbucks, but yeah, there's a Chili's that's possibly going in out there and they're doing site, you know, pad sites. So real rates continue to creep up, you know, a large part is construction.
So, you know, with the way construction is going and inflation, I expect that to just continue to be the trend. Yeah, and I know in Pflugerville right now, a new retail strip that's right there on Wells Branch, they're asking 30 to 35 base rent. Pflugerville. Retail. Wait, retail. That makes sense there, for retail.
And another significant factor is this, you can look at that base rent, but really what matters is, I call it all in. So it's your triple nut plus your base. Because you might have an exceptional landlord like myself that keeps my triple nets half of what others are. So my rental rate can be higher and I can explain it to you.
So that is a significant one. I think most all tenant reps in an LOI will ask for, you know, your triple net estimate. Pay attention to it. You can offer, you know, your, your market rent and say, you know, well, it's 42 or let's say you say you come in, you're the tenant rep. I'm asking 45 a square foot and I got 10 square foot triple nets, which normally they're about 20, 25.
And you're like, I would like to pay 30 a square foot base rent and I'm like, and I'm all in at 40. Have you lost your mind? And that's what's happening. Well, actually out in Maynard, they're predicting 8 for triple nets. Oh, maybe the first year after that, it's going to triple once it's all built out. And that's it.
If you don't have an experienced broker representing the right tenant, they think they're getting a great deal at 8 and then they're going to get hit in the next year of triple that. So now they're, they're pulling out in is. Three times as much. So I would hope as a tenant, this is why if you are a tenant, you use an experienced broker because they can pencil out those triple nuts and say they're wrong here, here, and here.
Number one, property taxes. That's the big one. Also insurance is doubling. Insurance is doubling, period. It does not matter that central Texas hasn't had a natural disaster. The way insurance works is they spread it out across everybody. So if something happens in Florida, it affects us. And we are having more chaotic environmental events, weather events, more chaotic weather events.
Insurance is going up and it might just continue. So it's doubling, but they're always about two years behind insurance rates. Don't catch up for about two years. So what happened two years ago, we are now starting to pay for another thing. I was just at NAR when I was in DC theft is another big issue. Oh, theft and vandalism is increasing insurance rates.
Insurance rates and it ensure and it increases common area maintenance cams and your triple nets. So your landlord will go take care of it. He gets passed through to the tenants. That's not necessarily a bad thing. A landlord that takes care of the building is a good thing. Yes. Period. But it's knowing those triple nets.
If you're representing the tenant that they know what they're getting into. I always said, I have not represented tenants in years. Can't protect you from everything. The best I can do is tell you what's coming at you. That is what I can do, period. As a landlord rep, knowing the, talking about like the theft insurance, I mean, it's ultimately their job to get insurance, but how would you, how do you as a landlord rep also prepare your landlord to say, hey, these are what we're seeing across these two years behind?
As far as the conversation, here's what you're going to come start seeing in insurance so that when you do start doing, I say the triple S, different things like that, granted it's built into the tenant, but what do you do to prepare the landlord on their side? I would like to think that a landlord rep has a great communication with the landlord and maybe just lets them know, sends them articles, say this has happened on three of our properties.
It's more of a FYI. If a landlord rep wants to do an excellent job, the landlord rep is usually the one that estimates the triple nets, estimate them correctly. It's kind of up to you. That's a game. So landlord reps will generally underestimate on purpose. Yeah. You'll do a reconciliation every year. And if you can follow the trends, Over year over year on how, you know, prices have increased, you should be able to kind of predict somewhat of a percentage of increase.
Who? The landlord. Well, the landlord can. Doesn't mean they're going to let the world know. A good broker should be asking those questions. Hold on. A good landlord broker or good tenant? Or tenant rep broker. Oh, yeah. The tenant rep broker shouldn't ask the questions. They should go figure it out. Landlord doesn't have to tell you anything.
They're gonna, here's my, here's my history.
You're not gonna get a landlord to be like, Oh, you're right. Let me redo these for you. That's back on the relationships too. If you build good relationships with landlords, they'll be more willing to work with you. That's true. There is some truth to that. Yes, if you called me out on it, I would be truthful.
But to the rest of the world, no. When it comes to Austin with insurance, Isaiah, like, so being a tenant rep and knowing, hey, here's what's going to happen with insurance going up, are there any cities where Austin follows the trend? So like, we're a year or two behind, so like, when we see an increase in like, LA, does, is there a city that Austin, Out there that is almost like a model comes in after so they talk about music hits new york before it hits texas Is there something that way as far as insurance or like trends that you start to see early on?
In like commercial real estate as far as even insurance that might start somewhere else and come to us next like For residential, we're seeing what's happening in California is now happening in Austin. Do you, is there any correlation? I'd say insurance is nationwide. Yeah, I don't, it's not specific cities necessarily.
I mean, yeah, I'm sure your insurance rates might be higher within a city, but I, their rates are nationwide because most of your insurance companies are, they reinsure and so they deal with those types of Right. And I just wasn't saying it like they, if you typically see those happen sooner in California and then it goes down and then we see like three, four or five months later, it just happens.
I'm not sure that correlation exists. Also, I don't think most investors care about insurance rates since it is a pass through to the tenants. You know, it's more of an annoyance to the tenants when their monthly rent goes up. And it just makes it that much more difficult for them to be able to pay rent.
Well, but if they're sitting vacant, they're paying that insurance. There are plenty of landlords like me that are very, very proactive in watching what's going on in the market and what's going to happen. And I am adjusting. So I know that if my triple nets are going up, then my base rent can't go up what it normally would.
Right. And I personally, somebody asked me actually on Twitter, do you zig when others zag, not because I want to zig when others zag, but I want to be ahead of the curve. So if I figured out insurance is going up and property taxes are going up and I lower my base rent and I stay occupied where the other landlords lose theirs.
It's what I did during COVID. I redid everything within eight weeks. There's still landlords having to unwind things from COVID. So I zigged when they zagged, but I, it, not by nature, like, Oh, they're going that way. I'll go this way. I want to be ahead of it. Um, leases or just new ones coming in. New ones coming in.
I mean, as a, as a personal landlord, wherever I say personal, one owner versus Blackstone. I could decide to relieve my tenant of some rent. I could. What I did during COVID, I had two tenants, well let me say, all the tenants came and said, we want free rent. Their neighbor's getting free rent. It's on the ta ta ta.
And my number one question was, great, send me your financials. Crickets like you want, you want money out of my pocket, but you don't want to show me how you're doing. Cause a lot of businesses did better period. So I had about three that sent me their financials and we gave them not rent relief, but I did allow them to pay 60 days late.
They, you know, we gave them more time, but then they caught up and they went on two of them. I can't remember if they sent me their financials. It was very, they're like, we need rent relief and we need to lower our rent. And I said, you need to get gone. So I actually had them buy themselves out of their leases.
I'd rather be vacant and finding a new tenant at lower than stringing along a tenant that's struggling. When you start to have tenants struggling, it could go from bad to worse. And I don't really want to be in that boat with them. Then you get attorneys involved and then it becomes more expensive sometimes.
Yes, it can get very expensive. So that's, it's mostly new. The, the, the significant one is I signed a bar lease in East Austin and our triple nets are 11 a square foot and other, you know, competition spaces, 20 a square foot. So we got higher base rent. Because there were people that called me like, well, your base rents higher than everybody else's.
I'm like, my triple nuts are half. Look at the gross all in. Look at the all in. And I like, Oh, this isn't my first rodeo.
So going back to like the insurance, um, do you have the tenants put you as a landlord, as an insured on their policy? Yes. Additionally insured. Period. Additionally insured is significant. Do not forget what I just said. Additionally insured means anything that happens to that policy, the landlord gets alerted.
Most tenants will, and it's not that they're trying to do it. Their, their agent, their commercial insurance agent will put a certificate holder. That doesn't mean anything. It means they sent me a copy, but if they stopped paying that policy, I have no idea. Additionally insured. And I think it's an all standard Texas realtor forms.
Additionally insured. I don't know. Yeah, I know. It's a good one to look at. And then also since COVID, um, have you added in more clauses into leases for natural disasters or anything like that? No, no, uh, if I remember correctly, force majeure did not apply to COVID. And, and I knew that pretty early on. I had a friend, uh, through CRU, Commercial Real Estate Women, that works for a huge insurance company in New York City.
And she told us on a call probably eight days in force measure won't go anywhere because it would bankrupt the insurance companies and take down the country. So as other, everybody's running around like, Oh, force majeure. I knew it wouldn't ever pencil out. So we just let that go. I have seen LA wise come in that if they are especially retail and especially like fitness, I had a LA wise come in where I was the landlord.
And they asked you if they were shut down this much time that they would be relieved of rent. I'll play with that. I'm not saying I'm gonna agree to it, but I understand the concept. It depends. I think it's significant to put in there because could another black, what is it? Black swan event? I haven't seen other impacts other than that.
I saw one little one where it's in. It was, uh, Even like the ice storms, they were responsible for the sidewalks outside. Like if the ice storms came in and ruined all the sidewalks. Oh, liability? Yeah. Mm. I'm like, okay, sure. That's huge. That's a really good one. Why not put it in? Did the landlord put it in or the tenant?
That was like in a, I think it was a landlord's like attorneys. We had that in there. I'll tell you why. Liability. Oh yeah. If they don't ice it and somebody falls, it falls on them. Absolutely. That wasn't to be nice or anything other than push. Again, somebody dies, everything's out the window. But that is a really, that's a great one, especially like me.
If I'm, if I own a little standalone, I would have thought to put it in because I would hope that my tenants would do it, but it is this very smart thing to put in so that they do. Um, one thing I think is pretty standard in the Texas Realtors form, but I get a little detailed on HVAC maintenance because the tenant is usually not for a big office building, a single story, freestanding retail building, 3000 square feet.
Tenants usually responsible for HVAC. When I get an LOI from tenant rep that says, uh, we would like you to warranty five years, I'm pretty much okay with that because what I'm doing is I'm warranting what the previous tenant did to that system or age. But after a certain amount of time, if it fails and it's not age, it's because the current tenant didn't take care of it.
Tenants forget. So in Texas, you should have your HVAC system looked at and serviced once a year, changing the filters twice a year. Minimum. Usually those HVAC warranties come with caveats that you have to have it serviced so many times per year or else the warranties. You have to have record of it, too.
Yeah. And tenants should want to do it. I do know that they get busy and this is where I'm the stay and pay landlord. I will send everybody. I, I send, I deploy out my HVAC guide to go do all of the tenants. I push it through on their triple nets. And here's the reason why I do this day in and day out. I can get it done faster than they can.
It's done better. Maybe probably more price conscious just because I'm doing it a large swath. I know it gets done. It's a benefit to them. So I've said this lots of times. Um, my tenants think I'm pretty tough on them until they move out and they miss me. I get called by tenants all the time when they're gone to help them with stuff because they realize I did it right always.
And sometimes right is better than, you know, shooting from the hip or just neglecting. Sometimes landlords will neglect tenants. I say I had a tenant situation. They'd been in their space for three years already. HVAC went out because of the relationship that the tenant had with the landlord. They split the costs on the HVAC and and yes, there was still two years left and they allowed them to pay it over 12 months because that tenant had been paying on time, had worked with the landlord through COVID, built a great relationship.
And so the landlord was willing to work with them. Yeah, that would be huge. You know, you have a five year lease and the HVAC goes out in the year four. I have to purchase a new HVAC for one more year. And now we're getting ready to renegotiate the lease because it's due the end of this year. I think those negotiations, and I know the retail market is tough, but I do believe that negotiation is going to go well.
I'm predicting because of the relationship we have. I think they're going to be reasonable
going back when you were like zigzagging and your face was, uh, Or your base was higher, but your triple net were low. A lot of times when you see spaces, uh, advertised, it'll say base rent plus triple net, but the amount is not there. So when you were doing that, if people were to see the base price, yours was much higher.
I'm the landlord that puts it all out there. You've got the survey, you've got environmental reports. I mean, I put it all out there. Honestly, I get a lot of calls and emails. I'd rather you read yourself out. If it's not going to work, don't call me. That is my process. Everybody's different, and Jim's is 100 percent the opposite.
He can explain his process. Well, I just take every call. He likes all the calls. He likes his phone ringing. Yes. I like my phone ringing. I don't like to be boring, so. This is significant. The other thing, not only does experienced brokers know the players in the market as landlords, they also know the flavor of the other brokers they're trying to work with.
Okay. He loves the calls, but he gets a lot of calls. And let's say at the end of the day, he's got five calls to return. He has time for two. Who's he going to call back? The people he knows, the people he's done business with the people he's made money with. It's a problem for people trying to break into the industry.
I know, but if you do your due diligence and you figure out he likes phone calls, they're trying to get ahold of me because I've got, you know, CS one bar on six street on East Caesar. If you know this about me, you would know to email me, email me. I don't take calls. I take a call. It's usually an attorney or my client, and that's about all the time I've got, but I can email and I can email you everything you asked for everything.
Also, this is me on my little high horse. You're a tenant rep broker and you're interested in my space and it's highly competitive. Father going to my website and looking at all the information I already gave you. If you ask me questions that's on my website, I will never respond. I'm one of those on Twitter that everybody complains about.
They don't return calls. Probably shouldn't ask me what the triple net estimate was. Cause it's on my website. And LoopNet. And CoStar. And heck, MLS. You didn't bother reading. That's not my problem. And I probably don't want to work with you cause you're lazy. Sometimes, sometimes I just like to confirm that the triple nut is actually true.
But couldn't you put, I see on your website it's this, is that correct? I could, I could, but I also might just ping you an email that says, hey, can you confirm your triple nuts? But, yeah, okay, but here's the problem, here's the problem. What if I have 50 listings? Now I gotta go look it up.
So, but, I, that's one of the pieces of information I need before I can generally move my stuff forward to the next step. So all in approach, we're looking at base plus triple net. And so it could be that I just need that piece of triple net information before I send you that offer. Which is a good thing to put in that communication.
I've got an LOI I'm sending. That'll move me along. That'll move me along. I'm like, oh, that's it. And piggybacking on what Liz was saying with communication, like I'm someone that can generally be reached just about any time through text message, especially if it's a quick question. Um, and the way we've got everything set up to where when people ask for property information, we can text them like a webpage that has all the information really fast.
And so, if you're somebody that I already know that's reaching out late at night just trying to get some basic information that I can shoot you real fast, I'll do that all the time. But if it's somebody that I've never met before and you're going to make me sit on the phone and chit chat with you, well, I'll talk to you tomorrow when I'm back in the office.
So. And text messaging. I hate text messaging. Text messaging. It's very funny because I, and I thought of it as he was talking. Not only do you need to know the flavor of the landlords in the market, how they like to interact, but how their landlord rep likes to interact because they're the go between, right?
And a lot of times we teach the clients I work with. They do it my way because that's how I do it. So they understand like, okay. And they, they, my clients know to email me, you email me. And here's what I'm going to tell you why. If you need me, you call and text and I know it's an emergency and you will get me immediately.
So do not cry wolf. Don't be starting to text me about this and that. Another thing, and we'll see, this might actually make it on YouTube. This is important for women and this is, this is in my opinion, part of women growing in presence in commercial real estate. I have a rule. I don't text any men other than my husband after 7 p.
m. So I do not want to have a texting relationship with my client. That might be a man What if he's married and he gets my text at 11 30 p. m? Not gonna like it and I'll tell you why I know this one time one of my clients texted me at 11 p. m And my husband looked over and said what is so and so doing texting you didn't matter that it was business His first question was why is a man texting you at 11 o'clock at night?
It's inappropriate. So that's my rule I don't break it. I highly recommend Embracing it You don't have the problem. I mean, well, once you're dealing with a woman, but I can email you at 2 a. m. No one's offended. I know. Usually the type of questions that I get through text message are quick questions. Like if you want me to really go into depth, then that's going to probably be better in an email format or on the phone the next day.
And I do like a text that says, check your email. But if your question is like, Hey, can you give me information on the listing? It's just Okay, there you go. Enjoy. Here's everything you need to know. I like that. Okay. Because time kills deals. And sometimes that is true. Some person is just looking for that right space and you know, your timeliness can help push that deal along.
That is true, and again, that is all, that is the nuance that you cannot learn in any school. You can take CCIM, they'll never be able to teach you that. It's kind of. Getting out and doing it boots on the ground, learning wherever you get knocked down and you get back up and go, I won't do that again. How do I learn from this?
That is a lot, a lot of what commercial real estate is. Leasing, Sales, subleasing, all of it. I have enjoyed having you here. Thank you for letting us talk to you and talk at you for over an hour. And I'll be here much longer if you want to hang out, but I hope that we gave you some insight and some things that might help you as you progress on in whatever your endeavors are as a commercial broker, as an owner, business owner, leasing space.
All of it, it, most everybody here is going to impact you day in and day out.
Listen to the Texas Triangle Podcast with Guest - Texas Demographer Dr. Lloyd Potter
The Texas Triangle Podcast had the honor of gaining insight from esteemed Dr. Lloyd Potter, Texas State Demographer for their DEBUT episode. Join host DeLea Becker, Michelle Levy, and Diane Buhl monthly as they bring you Guest / Experts and incredible information to assist you in your #CommercialRealEstate endeavors. Whether it is Investing & Selling property or growing your business in Texas - they bring you knowledge, data and insight they study for themselves and share freely with you.
With a rapidly growing population, Texas is an attractive location for commercial real estate owners, investors, and business owners. The state's population growth has led to increased demand for office, retail, and industrial properties, as well as a growing need for residential and multifamily properties.
Commercial real estate owners can benefit from the state's pro-business climate, low tax rates, and affordable cost of living. Investors have a wide range of opportunities in Texas, with many thriving cities and growing industries. Business owners can take advantage of the state's robust economy, diverse workforce, and access to major transportation hubs.
Overall, Texas is a great place for those interested in commercial real estate, with plenty of opportunities for growth and success.
Dr. Lloyd Potter was appointed State Demographer on June 4, 2010. Dr. Potter holds a Ph.D. in Demography and Sociology from The University of Texas at Austin, a Master of Public Health Degree from Emory University, a Master of Science in Education from the University of Houston at Clear Lake, and a Bachelor of Science from Texas A&M University. He is a professor in the Department of Demography at The University of Texas at San Antonio where he also serves as the director of the Institute for
Demographic and Socioeconomic Research (IDSER). He has extensive experience working as an applied demographer in several settings.
