Hans Hansson | August 24, 2010
Just when you think you have heard it all from our great city of San Francisco leaders - comes a new proposed fine - this time on vacant storefronts. Kathleen Dooley is a member of the Small Business Commission, working with neighborhood business owners and residents dealing with the 36 vacancies that exist in the North Beach area of San Francisco. Working with David Chiu, their district supervisor and current President of the Board of Supervisors, these leaders of our community believe that landlords are leaving their spaces vacant because they want to enjoy the write offs they get from taking vacant space at a loss, rather than lease the space to a retailer.
Dooley is quoted in a recent San Francisco Examiner article, Fed up Merchants Pitch Empty Storefronts Fine, "We realize so many spaces are vacant, which causes owners to ask for way higher rents than the norm and that doesn't help anyone," she said "it seems its time to take up tax credits for filled stores." Other local business people and Supervisor Chiu have another idea, they want to create legislation that would fine landlords with vacant storefronts, as an incentive to bring businesses into their vacant shops. Are these people quickly lacking in any knowledge of economics? Large vacancies mean that landlords will ask for higher rents?? So their solution is to punish the landlords by taxing them for their vacancies.
Still others want to direct what goes into these vacant shops. For instance, some would like to cut back on restaurant growth and seek grocery and hardware stores to open in these vacant spaces. YOU HAVE 36 VACANCIES!!
Is there anyone in City Hall that knows anything about business?
First, the reason North Beach has 36 empty stores is because these very people helped pass an 11-store rule, that essentially eliminates all retailers from entering North Beach except independent retailers. The 11-store rule says that if a vendor has 11 stores or more anywhere in the world they have to go through a special review process. This process can take up to a year simply to find out if the vendor will be allowed into a particular store. Most recently PETCO was rejected in their attempts to take over a vacant blockbuster because the neighborhood felt that it would have a negative impact on two small independent pet shops a mile away from this location. Next, there is virtually no bank today that will lend to a start up independent retailer. On average a small store of 1,500 square feet takes between $250,000 and $500,000 at a minimum to build out a store and merchandise it. Who today has that kind of money to open a small retail store?
The neighborhood wants a hardware store or a grocery store. They have wanted that for years — if it made economic sense don't you think that a retailer with vision would have wanted to open this type of store already?
Our leaders think that landlords want to remain vacant so that they can enjoy a tax incentive? Landlords own real estate to collect rent. To maximize a building value any lender looks at net income to determine the value of the building, not vacancy. These landlords I assure you are struggling to keep their buildings. Most have rent controlled residential above their vacant stores — so most do not enjoy positive cash flow. Yet, the city counts on having these buildings hit their highest property values, so that the city can enjoy the highest property tax benefit. Without property taxes you have no money for city services, don't our city leaders understand that? Obviously not.
If San Francisco truly wants to fill these vacant storefronts throughout the city, they first need to remove restrictions on chains from going into neighborhoods. It's a great idea to have local neighborhood shops, however, without chains you do not generate the necessary foot traffic to survive. These smaller businesses feel that they will go out of business with these big shops and rents will skyrocket. The reality is that they will be out of business anyway soon if this economy keeps going south — they need chains to get traffic flow going. If rents go up, it's because sales are up. If rents go down, it's because there is no business.
Next, San Francisco should expedite the building permit process and zoning issues should be resolved quickly. To wait for zoning hearings or meetings with the community to decide what store should go into their neighborhood or not, has created nothing but a bureaucracy that kills anyone from attempting to open a store in this city.
An example, I represented a building owner in the Sunset that had a vacant store for over a year. We had couple (a police officer and his wife) that wanted to open a taqueria. This was to be their first restaurant. This would require a change of use since that last tenant was a video store. They hired an architect at a cost of $6000 to find out that it would take 6-9 months to go through the review process just to find out if the city would allow such a use in 1,200 square feet. Of course the tenant disappeared and the landlord remains vacant. Now the city wants to tax this landlord like it's his fault.
If the city really wants to be proactive they should also consider a low interest loan program to assist small businesses in opening up businesses. This could be paid back by city sales tax revenue from these newly opened stores.
I realize San Francisco is a progressive city and believes more in social rights than individual rights, but as a city we need to rethink our policies quickly — or blight throughout our neighborhoods will become more of the norm than the exception. If a business wants to go into a vacant store — let them. If the neighborhood does not want them there, they don't have to patronize that store and it will go out of business, but let that storeowner have the right to open a store and let the landlord have a right to collect his rent. Get government and these restrictive Merchants Associations that are controlled by these naysayers out of the decision making process and storefronts will start filling up again.
Dooley is quoted in a recent San Francisco Examiner article, Fed up Merchants Pitch Empty Storefronts Fine, "We realize so many spaces are vacant, which causes owners to ask for way higher rents than the norm and that doesn't help anyone," she said "it seems its time to take up tax credits for filled stores." Other local business people and Supervisor Chiu have another idea, they want to create legislation that would fine landlords with vacant storefronts, as an incentive to bring businesses into their vacant shops. Are these people quickly lacking in any knowledge of economics? Large vacancies mean that landlords will ask for higher rents?? So their solution is to punish the landlords by taxing them for their vacancies.
Still others want to direct what goes into these vacant shops. For instance, some would like to cut back on restaurant growth and seek grocery and hardware stores to open in these vacant spaces. YOU HAVE 36 VACANCIES!!
Is there anyone in City Hall that knows anything about business?
First, the reason North Beach has 36 empty stores is because these very people helped pass an 11-store rule, that essentially eliminates all retailers from entering North Beach except independent retailers. The 11-store rule says that if a vendor has 11 stores or more anywhere in the world they have to go through a special review process. This process can take up to a year simply to find out if the vendor will be allowed into a particular store. Most recently PETCO was rejected in their attempts to take over a vacant blockbuster because the neighborhood felt that it would have a negative impact on two small independent pet shops a mile away from this location. Next, there is virtually no bank today that will lend to a start up independent retailer. On average a small store of 1,500 square feet takes between $250,000 and $500,000 at a minimum to build out a store and merchandise it. Who today has that kind of money to open a small retail store?
The neighborhood wants a hardware store or a grocery store. They have wanted that for years — if it made economic sense don't you think that a retailer with vision would have wanted to open this type of store already?
Our leaders think that landlords want to remain vacant so that they can enjoy a tax incentive? Landlords own real estate to collect rent. To maximize a building value any lender looks at net income to determine the value of the building, not vacancy. These landlords I assure you are struggling to keep their buildings. Most have rent controlled residential above their vacant stores — so most do not enjoy positive cash flow. Yet, the city counts on having these buildings hit their highest property values, so that the city can enjoy the highest property tax benefit. Without property taxes you have no money for city services, don't our city leaders understand that? Obviously not.
If San Francisco truly wants to fill these vacant storefronts throughout the city, they first need to remove restrictions on chains from going into neighborhoods. It's a great idea to have local neighborhood shops, however, without chains you do not generate the necessary foot traffic to survive. These smaller businesses feel that they will go out of business with these big shops and rents will skyrocket. The reality is that they will be out of business anyway soon if this economy keeps going south — they need chains to get traffic flow going. If rents go up, it's because sales are up. If rents go down, it's because there is no business.
Next, San Francisco should expedite the building permit process and zoning issues should be resolved quickly. To wait for zoning hearings or meetings with the community to decide what store should go into their neighborhood or not, has created nothing but a bureaucracy that kills anyone from attempting to open a store in this city.
An example, I represented a building owner in the Sunset that had a vacant store for over a year. We had couple (a police officer and his wife) that wanted to open a taqueria. This was to be their first restaurant. This would require a change of use since that last tenant was a video store. They hired an architect at a cost of $6000 to find out that it would take 6-9 months to go through the review process just to find out if the city would allow such a use in 1,200 square feet. Of course the tenant disappeared and the landlord remains vacant. Now the city wants to tax this landlord like it's his fault.
If the city really wants to be proactive they should also consider a low interest loan program to assist small businesses in opening up businesses. This could be paid back by city sales tax revenue from these newly opened stores.
I realize San Francisco is a progressive city and believes more in social rights than individual rights, but as a city we need to rethink our policies quickly — or blight throughout our neighborhoods will become more of the norm than the exception. If a business wants to go into a vacant store — let them. If the neighborhood does not want them there, they don't have to patronize that store and it will go out of business, but let that storeowner have the right to open a store and let the landlord have a right to collect his rent. Get government and these restrictive Merchants Associations that are controlled by these naysayers out of the decision making process and storefronts will start filling up again.
Hans Hansson | August 16, 2010
If you are a salesperson today, it is not easy. No matter what you are selling-your clients have little cash, less sales, and want the absolute lowest price-all of which affect your personal bottom-line. Maybe I am getting old, but I just don't see the hunger in salespeople today. It seems that the majority of the salespeople I run into seem to think this is business as usual. It is far from it.
I see salespeople taking more time off, instead of working longer hours-with the excuse that there is no business out there, so you might as well take time off. I see salespeople approach their business the same way as in a hot market hoping for the phone to ring for new business. I also see salespeople coming in later and leaving earlier. All of which is a license for an eventual "nail in their coffin".
When times were tough I was trained to work longer, make more sales calls, think of new ways to develop new business, and stay positive about your market. Instead of seeing the glass half empty-successful salespeople see the glass half full. Distractions in any way that kept you away from focusing on your business had to be eliminated.
In addition you had to cut your own costs of doing business while thinking of ways to enhance your business to try to expand it. This may mean attending more networking events, spend more time contacting your old clients more often, and increasing the amount of cold calls you make each day.
It used the norm for an average salesperson to be required to make at least 100 calls a day. Those 100 calls would lead to two suspects and one deal on average. Old traditional commercial real estate firms would have their agents walk the streets and collect at least 25 business cards a day before they were allowed back in the office. Today, I ask even the most successful past brokers how many cold calls they make in a day and you get answers more like zero to ten.
With less business-double the effort should be made, not half. These are serious times that require a renewed & focused commitment to succeed. Don't tell yourself you will start changing after you take your vacation-start today.
I see salespeople taking more time off, instead of working longer hours-with the excuse that there is no business out there, so you might as well take time off. I see salespeople approach their business the same way as in a hot market hoping for the phone to ring for new business. I also see salespeople coming in later and leaving earlier. All of which is a license for an eventual "nail in their coffin".
When times were tough I was trained to work longer, make more sales calls, think of new ways to develop new business, and stay positive about your market. Instead of seeing the glass half empty-successful salespeople see the glass half full. Distractions in any way that kept you away from focusing on your business had to be eliminated.
In addition you had to cut your own costs of doing business while thinking of ways to enhance your business to try to expand it. This may mean attending more networking events, spend more time contacting your old clients more often, and increasing the amount of cold calls you make each day.
It used the norm for an average salesperson to be required to make at least 100 calls a day. Those 100 calls would lead to two suspects and one deal on average. Old traditional commercial real estate firms would have their agents walk the streets and collect at least 25 business cards a day before they were allowed back in the office. Today, I ask even the most successful past brokers how many cold calls they make in a day and you get answers more like zero to ten.
With less business-double the effort should be made, not half. These are serious times that require a renewed & focused commitment to succeed. Don't tell yourself you will start changing after you take your vacation-start today.
Hans Hansson | July 14, 2010
No matter what business you are in, have you ever considered what other business opportunities you can create for yourself by asking more questions of your clients? If you have the ear of your client-you have a major edge in developing more business. With your client's attention, you can develop more business from referrals that could lead to more dollars in your pocket.
As salespeople, we are always focused on our services and products. We forget that we can also earn income through referrals-or use them to develop important relationships that could lead to direct new business for you.
Take myself as a commercial real estate broker; I service the San Francisco Bay Area. What if in the course of my connection with my client I also ask the following question: "Do you have business in other markets that I can help you with?" Could this lead to more business for you by developing this referral?
You ask your client "Do you need an architect? Do you need a moving company? Do you need an attorney?" All of the additional services that are required in a move or in a property sale have an additional vendor that is involved. By asking more questions you can develop more referral business.
If you decide to concentrate on asking more questions to develop more referral business, the next issue you will have to think about is whether you should ask for a referral fee-or pass on these leads for free-in exchange for developing more relationships with these other vendors so they will remember you when they find out that someone may need your service.
Also keep in mind that if you refer someone, to refer someone you know delivers the kind of service your client would expect from you. Referring a bad vendor can do far more harm to you than any referral fee you can make.
As salespeople, we are always focused on our services and products. We forget that we can also earn income through referrals-or use them to develop important relationships that could lead to direct new business for you.
Take myself as a commercial real estate broker; I service the San Francisco Bay Area. What if in the course of my connection with my client I also ask the following question: "Do you have business in other markets that I can help you with?" Could this lead to more business for you by developing this referral?
You ask your client "Do you need an architect? Do you need a moving company? Do you need an attorney?" All of the additional services that are required in a move or in a property sale have an additional vendor that is involved. By asking more questions you can develop more referral business.
If you decide to concentrate on asking more questions to develop more referral business, the next issue you will have to think about is whether you should ask for a referral fee-or pass on these leads for free-in exchange for developing more relationships with these other vendors so they will remember you when they find out that someone may need your service.
Also keep in mind that if you refer someone, to refer someone you know delivers the kind of service your client would expect from you. Referring a bad vendor can do far more harm to you than any referral fee you can make.
Starboard TCN Worldwide Commercial Real Estate | July 7, 2010
Well-located with ample parking. Alamo Business Center is easily accessible from each direction of Danville Boulevard.
Across from Starbucks, Extreme Pizza and Alamo Hardware, this quiet office building is minutes from the 680 Freeway.
Lease by September 1st, and the ownership will provide
new carpeting!
Trish Gonsalves
DRE# 01830752
415-765-6890
trish@starboardnet.com
Across from Starbucks, Extreme Pizza and Alamo Hardware, this quiet office building is minutes from the 680 Freeway.
Lease by September 1st, and the ownership will provide
new carpeting!
Trish Gonsalves
DRE# 01830752
415-765-6890
trish@starboardnet.com
Hans Hansson | June 29, 2010
A year after the Obama Administration announced that it would be working on freeing up credit options to create more available business credit, as part of his stimulus and jobs program, nothing has happened. Banks continue to cut lines of credit and continue to have no available funds for anything-from acquisitions to tenant improvements. Without an improvement in credit options the commercial real estate sector will not recover and could crash just like the residential sector.
A perfect storm has developed that could create a long-term crisis in commercial real estate. During the expansion of property acquisitions pre 2008, a number of loans were done at 70 percent loan to value at the highest price levels that market cycle had achieved. Now as property prices have seen price adjustments of 30% or more, lenders are not willing to offer new loans or refinance opportunities at less than 60% loan to value. This means that a property owner, with a loan due, is looking at having to commit additional equity-which most owners do not have now.
But problems for a building owner do not end with refinancing or looking for financing to acquire real estate. It also involves being able to complete tenant improvements and make future deals. Banks are simply not willing-or not able to make these necessary loans.
So what is going on? The Obama Administration has been talking about freeing up credit, but quite the opposite has been happening. Regulators are forcing banks to increase their cash reserves. With banks struggling to increase deposits, they have little available cash to loan out. But there is a bigger strategy going on; the government is lending money at near zero rates to banks, which in turn are buying government debt at 3.5 percent. This has allowed banks to return to profitability at an added cost to the taxpayers. Once the banks have improved their cash reserves-the plan is then to begin the process of foreclosing on commercial properties and to introduce these properties back in the market, on a much more coordinated basis-in hopes that this will allow property values to hold more steady in order to reduce the amount of anticipated loss.
This strategy is flawed from the beginning-it is essentially making banks become real estate companies. The more prudent plan is to have government guarantee a higher percentage of debt to loan ratios, similar to an SBA type program. This will allow existing owners to keep their properties, support higher property values, and create confidence with investors overall in the commercial market sector.
Next the government should offer low interest loans for tenant improvements. This will allow building owners to compete for new tenants, while also creating more construction jobs, along with starting growth in so many other sectors: architects, brokerage, legal, moving companies, furniture vendors, phone and data companies and everyone else that is tied to a commercial sale or lease.
The government needs to get on the side of private business, not create government controls that is working against it.
A perfect storm has developed that could create a long-term crisis in commercial real estate. During the expansion of property acquisitions pre 2008, a number of loans were done at 70 percent loan to value at the highest price levels that market cycle had achieved. Now as property prices have seen price adjustments of 30% or more, lenders are not willing to offer new loans or refinance opportunities at less than 60% loan to value. This means that a property owner, with a loan due, is looking at having to commit additional equity-which most owners do not have now.
But problems for a building owner do not end with refinancing or looking for financing to acquire real estate. It also involves being able to complete tenant improvements and make future deals. Banks are simply not willing-or not able to make these necessary loans.
So what is going on? The Obama Administration has been talking about freeing up credit, but quite the opposite has been happening. Regulators are forcing banks to increase their cash reserves. With banks struggling to increase deposits, they have little available cash to loan out. But there is a bigger strategy going on; the government is lending money at near zero rates to banks, which in turn are buying government debt at 3.5 percent. This has allowed banks to return to profitability at an added cost to the taxpayers. Once the banks have improved their cash reserves-the plan is then to begin the process of foreclosing on commercial properties and to introduce these properties back in the market, on a much more coordinated basis-in hopes that this will allow property values to hold more steady in order to reduce the amount of anticipated loss.
This strategy is flawed from the beginning-it is essentially making banks become real estate companies. The more prudent plan is to have government guarantee a higher percentage of debt to loan ratios, similar to an SBA type program. This will allow existing owners to keep their properties, support higher property values, and create confidence with investors overall in the commercial market sector.
Next the government should offer low interest loans for tenant improvements. This will allow building owners to compete for new tenants, while also creating more construction jobs, along with starting growth in so many other sectors: architects, brokerage, legal, moving companies, furniture vendors, phone and data companies and everyone else that is tied to a commercial sale or lease.
The government needs to get on the side of private business, not create government controls that is working against it.
Hans Hansson | June 17, 2010
In the current environment, where all aspects of your life from your job to your way of life feel threatened by all of the uncertainty that is out there, the cycle needs to be broken.
Ten years ago my wife attended a Tony Robbins motivational event. Yesterday, in one of my moments worrying about my own uncertainty she reminded me about the one thing she still remembered from attending that event. "When you are ready to walk into a room, grab the door knob and squeeze it tight, open the door and walk in saying to yourself "yes, yes, yes." Sounds corny maybe, but it works. That one positive word can change your mental state so quickly that all of your uncertainty just seems to fade away.
Decisions and directions we choose to take are all based upon "pain and reward". If we are suffering, we either accept more pain and defeat, or we fight it. As salespeople, we have now endured a slow marketplace for over 18 months. Even the best of salespeople, who have survived this long, are tired and would like to see that new rainbow in their world to say good times are really back-not good times are coming.
A lot of salespeople have lost confidence in themselves, instead of reinventing themselves into a new type of "hunter" for business. They have forgotten to go into a room or a situation and say yes. Great salespeople do not know the words "no" or "maybe" they always believe they will get a "yes."
Finally a great salesperson has to remember to keep it light. Laugh a little-laugh a lot. People feel better around people that laugh. Lighten up and you will start getting more "yes's" than "no's."
Ten years ago my wife attended a Tony Robbins motivational event. Yesterday, in one of my moments worrying about my own uncertainty she reminded me about the one thing she still remembered from attending that event. "When you are ready to walk into a room, grab the door knob and squeeze it tight, open the door and walk in saying to yourself "yes, yes, yes." Sounds corny maybe, but it works. That one positive word can change your mental state so quickly that all of your uncertainty just seems to fade away.
Decisions and directions we choose to take are all based upon "pain and reward". If we are suffering, we either accept more pain and defeat, or we fight it. As salespeople, we have now endured a slow marketplace for over 18 months. Even the best of salespeople, who have survived this long, are tired and would like to see that new rainbow in their world to say good times are really back-not good times are coming.
A lot of salespeople have lost confidence in themselves, instead of reinventing themselves into a new type of "hunter" for business. They have forgotten to go into a room or a situation and say yes. Great salespeople do not know the words "no" or "maybe" they always believe they will get a "yes."
Finally a great salesperson has to remember to keep it light. Laugh a little-laugh a lot. People feel better around people that laugh. Lighten up and you will start getting more "yes's" than "no's."
Hans Hansson | June 9, 2010
The San Francisco Chronicle's story that city workers make 20 percent more in wages than the private sector really brought home what is truly wrong within our local government, as well as, our state and federal government. As a society, we have moved away from job creation in the private sector in favor of job creation in the public sector and have paid our public sector handsomely as well.
San Francisco is faced with a 400 million dollar shortfall this year. Mayor Newsom was proud to announce that he was successful in negotiating a new agreement with the city unions to reduce that deficit by 50 million next year. Unlike Los Angeles, which is faced with a 500 million dollar deficit and is talking about stopping payment of their bills, San Francisco seems to ignore their reality and talk about new tax increases-from parking increases to new business taxes.
The SEIU Union recently announced that they were successful in securing a 9.5 percent increase in wages over two years with California Pacific Medical Center. Their press releases indicated that they were proud that they could negotiate such a contract that would allow CPMC to remain competitive in the work place. Are we absolutely crazy around here?
We are in a financial meltdown that requires major surgery. Yet, the public in San Francisco seems to have their head in the sand. We cannot afford to tax businesses anymore. Our business community is on the brink of collapse there is no way that you can go to their "well" and seek more funds.
The problem today is that only 1/3 of San Francisco citizens are actually paying the majority of the tax through property taxes. We need to change that. San Francisco should implement a "renter's tax" in addition to property taxes. If every San Franciscan paid their share of the city's budget, I assure you that change would occur quickly. Today, no one wants to cut city benefits, as long as, they are not paying for it. If all San Franciscans paid their share, our city government would look a lot different than it does today and would work within its true financial environment.
San Francisco is faced with a 400 million dollar shortfall this year. Mayor Newsom was proud to announce that he was successful in negotiating a new agreement with the city unions to reduce that deficit by 50 million next year. Unlike Los Angeles, which is faced with a 500 million dollar deficit and is talking about stopping payment of their bills, San Francisco seems to ignore their reality and talk about new tax increases-from parking increases to new business taxes.
The SEIU Union recently announced that they were successful in securing a 9.5 percent increase in wages over two years with California Pacific Medical Center. Their press releases indicated that they were proud that they could negotiate such a contract that would allow CPMC to remain competitive in the work place. Are we absolutely crazy around here?
We are in a financial meltdown that requires major surgery. Yet, the public in San Francisco seems to have their head in the sand. We cannot afford to tax businesses anymore. Our business community is on the brink of collapse there is no way that you can go to their "well" and seek more funds.
The problem today is that only 1/3 of San Francisco citizens are actually paying the majority of the tax through property taxes. We need to change that. San Francisco should implement a "renter's tax" in addition to property taxes. If every San Franciscan paid their share of the city's budget, I assure you that change would occur quickly. Today, no one wants to cut city benefits, as long as, they are not paying for it. If all San Franciscans paid their share, our city government would look a lot different than it does today and would work within its true financial environment.
Hans Hansson | May 26, 2010
The good news is the startups are back and looking for space; the bad news - for landlords and real estate brokers - is that they are all looking for deals that are one year or less. Over the last three boom and bust cycles I have seen, the first true sign of a recovery came when startup businesses started showing up looking for office space. Typically, we are seeing two types of startups; the first are traditional businesses where people were either laid off or people that have been experiencing income cuts from their existing employers and are now willing to take the risk of starting their own firms to improve their incomes. The second is "new concept" startups that have a new product or idea, but are uncertain how successful their product will be. In today's world, both startups have the same issues - limited startup capital and uncertainty of their success.
These latest startups are looking for office space with as limited exposure as they can secure. However, they tend to be very picky with their wants and needs. Sensing the soft office market, most startups believe that they have a lot of bargaining power, not only in securing an aggressive lease rate, but also in expecting landlords to do improvements for short-term deals.
Landlords on the other hand have difficultly making year or less deals. On their side, just paying for an attorney to prepare a lease could be months of rent from these small tenants. Add in tenant improvements, plus brokerage fees, against a weak tenant to begin with - landlords are reluctant to deal with startups unless they can pay a larger security deposit or show evidence of a secured personal guarantee.
So, how can startups and landlords make a deal? For startups, they need to consider lowering their expectations in terms of rate & improvements and come prepared with their financials & business plans, so that landlords with their offer can assess their risks upfront. Making offers and then offering to provide financials after the landlord responds to their offer, simply does not work. Next, startups should consider extending their lease terms to two to three years particularly if they are looking for even minimum improvements. Today even paint and carpet could cost a landlord $5 to $8 per square foot. Even at two years, landlords will find it difficult to make sense of spending that much money.
So how can a startup tie themselves down to longer leases with an uncertain future? First, most new firms will survive at least six months. If they fail on the seventh month and the landlord has significant guarantees or deposits, the tenant will risk the remaining portion of the lease. However, if they had a year or two remaining - given the increased interest in startups - they can protect their shortfall if they fail or better need to expand by trying to sublease their space with a term more attractive to tenants that are in the market place. This will allow startups the ability to protect themselves both on the downside or upside of their business needs to move prior to their lease expiring, plus it gives landlords more flexibility to provide tenant improvements (however minimal) to insure that startups start their businesses in spaces that are most efficient to help their success.
These latest startups are looking for office space with as limited exposure as they can secure. However, they tend to be very picky with their wants and needs. Sensing the soft office market, most startups believe that they have a lot of bargaining power, not only in securing an aggressive lease rate, but also in expecting landlords to do improvements for short-term deals.
Landlords on the other hand have difficultly making year or less deals. On their side, just paying for an attorney to prepare a lease could be months of rent from these small tenants. Add in tenant improvements, plus brokerage fees, against a weak tenant to begin with - landlords are reluctant to deal with startups unless they can pay a larger security deposit or show evidence of a secured personal guarantee.
So, how can startups and landlords make a deal? For startups, they need to consider lowering their expectations in terms of rate & improvements and come prepared with their financials & business plans, so that landlords with their offer can assess their risks upfront. Making offers and then offering to provide financials after the landlord responds to their offer, simply does not work. Next, startups should consider extending their lease terms to two to three years particularly if they are looking for even minimum improvements. Today even paint and carpet could cost a landlord $5 to $8 per square foot. Even at two years, landlords will find it difficult to make sense of spending that much money.
So how can a startup tie themselves down to longer leases with an uncertain future? First, most new firms will survive at least six months. If they fail on the seventh month and the landlord has significant guarantees or deposits, the tenant will risk the remaining portion of the lease. However, if they had a year or two remaining - given the increased interest in startups - they can protect their shortfall if they fail or better need to expand by trying to sublease their space with a term more attractive to tenants that are in the market place. This will allow startups the ability to protect themselves both on the downside or upside of their business needs to move prior to their lease expiring, plus it gives landlords more flexibility to provide tenant improvements (however minimal) to insure that startups start their businesses in spaces that are most efficient to help their success.
Starboard TCN Worldwide Commercial Real Estate | May 19, 2010
Hall of Famer Ernie Banks was once asked after he got inducted into Baseball's Hall of Fame what type of player he would have been in today's era of baseball. His response was, "I would not be in the Hall of Fame." He went on to say that today's baseball offers to many distractions for the players. It starts first with the big salaries. Ernie stated that in his era of baseball they were only thinking about playing baseball and doing the things necessary to win a game not worry about the impact on individual stats that could impact a salary negotiation. Players today rarely do the little things that could win more ballgames, such as bunt or sacrifice to move the runner along. Also, today's baseball player has to deal with the media, advertising commitments - being more in the public spotlight. Ernie ended by saying all we wanted to do was "just play two" two ballgames in one day it was about concentrating on the game.
Recently I attended a sales seminar that touched upon the same thing - distractions that salespeople are faced with each and every day. Emails and the Internet come to mind. Most of us, if we break down our day, spend an amazing amount of our day just keeping busy, instead of focusing our sole attention on the sale.
This seminar's tag line was "Just take the Stairs," it started off by showing us day to day pictures of people taking the easy way instead of the stairs. The New York Subway picture was particularly telling when you see two escalators full of people going up and down and no one using the stairs. Today we have created a convenient lifestyle for ourselves that looks to the short cuts instead of focusing on learning, developing, and implementing a successful business plan or sales strategy.
At the beginning of this seminar it was indicated that the event was intended to be as much of a networking session as a sales seminar. They gave us an assignment - to meet as many people as we could that day and gather business cards - a prize would be awarded to the participant who collected the most. There were at least 800 people there. At the first break, most everyone in the room gathered with their own salespeople. They did not network except one older salesperson from Keller Williams. This lady worked the room. She asked for your card but more importantly she asked for business.
I found it fascinating to watch her, not only because she was the only one doing it, but also because she was focused on doing it - you could see the commitment. I went to her at the end of the day and told her that she was something special; she proceeded to ask me if I knew anyone that needed a house in Patterson. I told her that I did not know where Patterson was and asked was it near Sacramento. Her response was "I can help you and your clients with a house in Sacramento too." Ernie Banks would have been proud of her.
Recently I attended a sales seminar that touched upon the same thing - distractions that salespeople are faced with each and every day. Emails and the Internet come to mind. Most of us, if we break down our day, spend an amazing amount of our day just keeping busy, instead of focusing our sole attention on the sale.
This seminar's tag line was "Just take the Stairs," it started off by showing us day to day pictures of people taking the easy way instead of the stairs. The New York Subway picture was particularly telling when you see two escalators full of people going up and down and no one using the stairs. Today we have created a convenient lifestyle for ourselves that looks to the short cuts instead of focusing on learning, developing, and implementing a successful business plan or sales strategy.
At the beginning of this seminar it was indicated that the event was intended to be as much of a networking session as a sales seminar. They gave us an assignment - to meet as many people as we could that day and gather business cards - a prize would be awarded to the participant who collected the most. There were at least 800 people there. At the first break, most everyone in the room gathered with their own salespeople. They did not network except one older salesperson from Keller Williams. This lady worked the room. She asked for your card but more importantly she asked for business.
I found it fascinating to watch her, not only because she was the only one doing it, but also because she was focused on doing it - you could see the commitment. I went to her at the end of the day and told her that she was something special; she proceeded to ask me if I knew anyone that needed a house in Patterson. I told her that I did not know where Patterson was and asked was it near Sacramento. Her response was "I can help you and your clients with a house in Sacramento too." Ernie Banks would have been proud of her.
Hans Hansson | May 6, 2010
With strong office leasing activity ending the first quarter of this year, we are now seeing some life with the retail-leasing sector as well. For over 18 months now, retailers have been struggling to stay alive with a number of both larger retailers and smaller independent firms closing stores, or demanding large rental concessions to continue business.
For the first time in a long time, our agents are getting local retailer calls interested in opening new stores. When people want to open bridal stores that is a very good sign - indeed. When you experience this long of a downturn, many people that have been out of work for a long time will consider opening their own retail business. During the 1991 great recession - it was the retail startup that began the recovery in the Bay Area retail sector. The same thing occurred in the doom and bust dot.com market of 2001. However, we are not only seeing startups, we are also seeing experienced local retailers seeking to expand. Many feel that a recovery is underway and many look at the empty institutional retail spaces as a chance to lock up better locations - which were not available to them when the economy was strong.
The institutional tenants - with the exception of the discounters - are still on the sidelines, but the strong regional retailer has the opportunity to grab a larger market share and they are starting to call their brokers again to expand.
Unfortunately for San Francisco, the retail rebound may have to wait. The 11-store rule, whereby retailers that have more than 11 stores must go through additional public review, has stymied interest in the city. Many neighborhoods are seeing multiple stores vacant and unlike the East Bay - where this recovery is happening - San Francisco retail spaces continue to have little interest. City Hall needs to wake up if it wants to join the party of this recovery when it comes to its retail storefronts.
For the first time in a long time, our agents are getting local retailer calls interested in opening new stores. When people want to open bridal stores that is a very good sign - indeed. When you experience this long of a downturn, many people that have been out of work for a long time will consider opening their own retail business. During the 1991 great recession - it was the retail startup that began the recovery in the Bay Area retail sector. The same thing occurred in the doom and bust dot.com market of 2001. However, we are not only seeing startups, we are also seeing experienced local retailers seeking to expand. Many feel that a recovery is underway and many look at the empty institutional retail spaces as a chance to lock up better locations - which were not available to them when the economy was strong.
The institutional tenants - with the exception of the discounters - are still on the sidelines, but the strong regional retailer has the opportunity to grab a larger market share and they are starting to call their brokers again to expand.
Unfortunately for San Francisco, the retail rebound may have to wait. The 11-store rule, whereby retailers that have more than 11 stores must go through additional public review, has stymied interest in the city. Many neighborhoods are seeing multiple stores vacant and unlike the East Bay - where this recovery is happening - San Francisco retail spaces continue to have little interest. City Hall needs to wake up if it wants to join the party of this recovery when it comes to its retail storefronts.
