Practice English Speaking&Listening with: How to Negotiate a Commercial Office Lease

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Do you remember being 16, maybe 17 years old, you're living with your mommy and your daddy

and every time you wanted to do something, your mom and dad would say, "We pay the rent

here.

You do what we tell you to do."

Well, when you turn 18 and get your own apartment complex, you live in your own place, privacy,

all this stuff, it feels good, doesn't it?

The same goes with you as an entrepreneur when you finally go and sign your own lease

and you feel free because this is your business, this is your place of operation, you get to

do what you want to do with your business.

Now, prior to doing that, my goal today with this video is to make sure you are as equipped

and educated about signing a lease, because I think after watching this there's not really

a book you can read bout leases and all that, because it would never sell that many copies.

But in this video, my goal is for you to know exactly A-Z what you need to know as a tenant

with the brokers motivation, the landlord's motivation, everyone's motivation so when

you go into it, you're educated, you don't get ripped off, you get the best deal, and

get the best possible thing for yourself.

So today's video is directed to three different types of people.

One, you don't yet know if you're going to have an office.

You're an entrepreneur, you just want to get educated about office leases.

Great.

Two, you're about to sign your first office lease and you don't know what you're doing.

Or three, you already have your own office lease, but you want to know if you did it

right or wrong so the next time you don't make the same mistake.

So, I want you to know that everything I talk about in this video is from many mistakes

I've made, and many leases I've signed.

I've signed millions and millions and millions of dollars of leases over my career and I

started off small and built it to what it is today.

So let's get right into it.

A few things you've got to keep in mind as you're about to sign an office lease.

First things first, let's solve for X.

One, how much space do you need?

Realistically, how much space do you need and when you think about how much space do

you need, not how much space do you need today, because if you're going to sign a 36-month

lease, it's almost asking yourself how much space do you need 12-18 months from now.

Because you need a little bit of room for you to outgrow your office, but you don't

want it to be way too big.

You don't want it to be way too small.

You need to plan for 12-18 months.

Number two, location.

Where do you want it to be?

Does it have to be near a freeway?

Does it matter if it's near a freeway?

Do you want it to be in a place where all the traffic comes?

Do you want it to be in a shopping center where it's right by the mall?

Do you want it to be in a mall?

Where do you want it to be?

Where's it suitable for you as a location.

Three, affordability.

What can you afford?

What is the number that you can afford right now and the way to calculate this is how much

money do you have set aside.

So, if your expenses are going to be $4,000 a month, and you take your personal expenses,

whatever it's going to be, do you have that saved up for six to 12 months?

Because they're going to ask you for first month, last month.

Sometimes they ask you for first, second and last month.

It depends on if you have experience, how you negotiate.

Now keep this part in mind.

Anything when it comes down to commercial real estate, it's all negotiable, all of it.

There's so many creative ways to do it.

No two deals in commercial real estate are ever the same.

Number four, term.

Twelve months, 24 months, 36 months, what is your term?

Five is traffic.

Do you need parking?

So meaning is there going to be a lot of employees that are going to be parking their car?

Do you want it to be the type of parking where it's $1.20 per hour that people come in and

the gate goes up?

Do you need security?

What is it that you're looking for with parking?

Foot traffic meaning is it a place that a lot of customers are going to come in and

if it is, then you need a nice office space.

If it's not, who cares if they're not going to see it because it's a call center, there's

not really going to be any customers that are going to come and buy from you.

So you need to know that part because it's a big difference on price point that you get

to save.

Then last but not least, legal.

You always want to, whatever you do, whatever deal you get, even if your commercial real

estate agent, your broker says, "I'm going to have my legal look at it," I always recommend

you spend $200 - $400 to another attorney that's not emotionally attached to him [broker]

because to them, their attorney's going to look at the deal that benefits you, but still

at the same time it's the deal that's happening here with the broker.

Get a non-interested attorney to look at the entire deal before you do anything.

So a couple of basic things about office space.

You have basically three different types of office space you're going to get if you're

running a commercial office space.

Type A, type B, type C. You keep hearing about this.

People ask, what is type A, type B, type C?

Type A is newest building.

It was built in 2009, in the most traffic place community is type A.

Type B may be it's a little older but it's in a decent community.

So it was built in 1981, but it's in a decent community.

It could be type B. Still presentable, still clients can come in, customers can come in,,

but it's not the sexiest.

Then there's type C. Type C is oldest, worst location, not a desirable place is type C.

By the way, I've had a type C, type B and a type A office.

I know all of them.

And I know exactly what the benefits, pros, cons, pricing wise that it is to go in each

one of these things.

So you need to know about them.

Now, let's talk about rent.

A lot of times you'll hear this language about single net, double net, triple net, full-service

gross.

Pat, what does it really mean when the commercial real estate agent starts talking about this?

I'm kind of confused.

So a couple of things to keep in mind.

You rarely will see single net being done.

This is when the landlord pays the entire rent.

This is when the landlord pays the entire rent, entire expenses.

So, for instance, if you have taxes, insurance and maintenance, they're covering all that.

You're not paying any of that.

It's all on them.

They're saying, "We're willing to take single net."

You're not going to find that a lot.

Maybe in another country you live in, you're not going to find that a lot in America.

Double net is where you're only paying taxes and insurance.

Triple net is you're paying taxes, insurance, and maintenance.

Then obviously full service gross, you're paying one check, it covers everything, full-service

gross.

It kind of works out that way as well.

I've done all of them myself.

Typically commercial's going to be double or triple net.

That is very common to be hearing that.

So now, credit wise, my first office lease I signed, I'll never forget this.

I was in an office that I was renting from other people, and this place was horrible

for me because I couldn't grow.

I had no control.

It was driving me insane.

And I had no authority to say anything about the office that I had.

So I want to do this, no, it's not your office.

I want to do that, no.

Kind of like the whole thing of living with mommy and daddy, which they have all the right

to do that.

So one day I made a decision.

I'm saving money.

I saved my money.

One night I'm talking to one of my agents, a guy named Oscar.

If he sees this he'll remember this.

I said, "Oscar, I want you to put me in front of somebody."

He said, "I don't think this is for me.

I'm having a hard time with sales and this, this that."

He wanted to go become an agent for sports athletes, which he eventually did.

He became an agent for famous soccer players.

He said, "I'm just not good in sales.

And I don't know if I can."

I said, "Introduce me to one person before you say this isn't for you."

So that night we get in his Volkswagen.

We go to Granada Hills.

I go to this Type C office building and we go into this place and the guy we meet is

a guy named Shane.

And I walked in and the entire place is dark.

This is '07, '08, the mortgage crisis is already taking place.

This guy was killing it.

He no longer is.

And I go to his office.

We end up doing all his investments, savings, insurance, all this other stuff.

And at the same time, I say, "What's going on with this office?"

He said, "Man, I can't do anything with this office."

I said, "What's your plans with this office?"

He said, "I'm trying to lease this out to somebody."

I knew my credit was bad credit.

So I knew a building's not going to give me a direct lease.

So I had bad credit, I need a sublease.

We started talking, he and I. I remember vividly what price point I got, what I paid for it.

How it worked out.

So I got the lease away from him.

I paid for the rent.

I paid for the electric.

I paid everything.

He ended up getting good deal because I didn't know what I was doing at that time with leases.

But I ended up getting a good deal because I didn't have a whole five-year lease that

I signed.

I got a shorter sign and it worked out for me because I didn't have good credit.

So it allowed me a way to build credit with a building and start moving myself up in the

business and all this other stuff.

So that worked out for me.

I stayed there, grew incredibly well until eventually we got evicted out of that office

because we grew extremely too fast and then I had to go get my next office space.

Let me get into the next point I want to make to you here.

So motivation, motivation, this is very important for you to know.

What is your motivation?

What is the broker's motivation?

What is the building owner's motivation?

Extremely important you understand this part and what relationship you play.

I coach entrepreneurs all the time about this here.

Okay, so hear me out.

First of all, what is your motivation?

Your motivation is to get exactly the amount of space you're looking for, with exactly

the floor plan, you know, the way you want it to be done, which means TI - you'll hear

this terminology.

TI, that means tenant improvement.

You want them to set up the office in the way that you want it to be set up, without

extending the lease too far.

Okay.

So you want it to be three years, with TI, with office set up the way it is, with the

lowest amount of expenses you're paying, and that's your motivation as a person that's

getting an office space.

Now let me tell you the broker.

Brokers go with you, some of the brokers are going to watch this.

We had, who were these brokers that showed up the other day?

Real nice guys, four brokers came, they're Valuetainment followers.

They were in our building and showed up from out of nowhere.

Four classy guys.

And I'm talking brokers can be watching this right now and I highly recommend you guys

share this with other commercial real estate agents.

Brokers commission works this way.

The longer the lease, the bigger the space, the higher dollar per square feet, the bigger

their payday.

Let me simplify the math for you.

Let's just say the space you get is $3,000 a month.

And you sign a 36-month lease.

$3000 x 36 is $108,000.

The commission typically is 6%.

Six percent on the $108,000 is $6,480.

Let me tell you how this $6,480 gets split and who pays for it.

Half of it goes to your real estate agent, that you don't pay for.

The building owner pays for it.

The other half goes to the broker that represents the building owner.

So when your broker gets half of this [$6,480], and the building owner's broker gets the other

half.

So $3,200 goes to your broker, $3,200 gets to the building owner's broker.

You don't pay for it.

They [building owner] pay for it.

Now, if you're on the complete opposite side, and you're subleasing your space to somebody

else, you are paying this $6,480 to the two because now you're becoming the lease owner,

not them.

Keep that part in mind.

Now, let's talk about the broker relationship.

I've had many different brokers in my career and they're pretty interesting.

One personality I had, let's call this guy Hal Cook.

I would call this guy probably the sleaziest commercial real estate agent I've ever dealt

with in my life.

And so let me tell you what happened with this guy.

He came in and I told at the time when we signed this lease, I told him, I signed this

lease that was a six-year lease, I told him I only need it for three years because I'm

moving to Dallas, Texas.

He knew it.

So he came and he pushed and said, why don't you take this part for three years, and take

the other part for six years but what we're going to do is we're going to put a cancellation

on the 36-month so we can make this work and cancel it and then you can go to Texas, because

that's what's going to happen.

No problem.

So it came to we signed everything.

The contract ended up being a million and a half or two million dollars so do the math

here on six percent.

Okay?

He made I think $84,000 or some number like that that was paid out.

He made a lot of money.

The guy that was working the lease at that time with him later on came back and said,

everybody hates working with this guy.

That guy even left him because of the way he handled the whole thing.

Now watch what happened.

Experience with this broker.

He did it with his own commercial real estate company.

So he called himself John Doe's, Hal Cook's realty.

Let's just say hypothetically that's the name of the company.

Okay?

So he called this company that name.

He was the only employee.

When it came down to the three years that I had to leave to Texas, he wouldn't answer

my phones, he wouldn't call me, and he told me he had a heart attack.

So then I went to the landlord and I said, wait a minute, this guy told me he had a heart

attack and another guy named Tony told me, what are you talking about?

He never had a heart attack.

He was just showing a property this week.

So then he says, I can't help you because my wife told me not to help you.

This guy disappears.

Obviously, a crook.

And the whole story why I'm telling you this in business is you're going to face guys like

this.

And I call them the way it is.

I'll never forget.

I call them the way it is with how this guy handled the entire deal.

This is the point I'm making to you.

My suggestion, don't get a broker that is not tied to a bigger company.

I would much rather hire somebody that's tied to CB Richard Ellis that's a very big company

and know that if my real estate agent ends up quitting the industry, I can always go

to CB Richard Ellis and say, "I need your help for your attorneys to look at this and

help bail me out of this."

Because this guy was a nobody, and a one-man shop, I got stuck with this lease.

So I ended up paying it, the whole million and a half, you know, two million dollar lease,

whatever it was.

We're good to go because we're going to hold our commitment.

But that's the broker side.

Now let me give you another guy.

Another guy name I had, a guy named Jared.

Absolute stud.

He made one mistake.

He took one lease of mine that he said he knows the Glendale market very well.

He didn't.

So you need to know whoever your broker becomes, what city they're experience is.

Listen.

Brokers are salespeople.

They'll tell you they know everything about every market.

They do not.

Everybody has a specialty.

So ask them what is your specialty?

What market, what city, what zip code.

Let them tell you.

If they tell you everywhere, don't believe it.

It's a lie.

Ask them, give me specific zip codes that you work very well.

So find commercial real estate agents that are dominate in the specific zip code that

you are trying to get an office space or lease your office space to somebody else.

So I like Jared.

He was a hustler.

He worked hard.

He answered.

He was all good.

He just took one bad lease.

I gave him a lot of leases.

I think he's done four, five, six, seven, eight, ten leases with us.

Good guy.

Now, let me give you another relationship about brokers you've got to know about.

Just so you know, the building owner's broker and your broker.

I know this is going to sound strange and the commercial real estate agents are going

to think that I'm crazy when I'm saying this, they're on the same damn team.

They're on the same team.

Do you know why?

What do you think they both want to happen?

To close the deal.

And how big of a lease do you think both of them want to happen?

As big of a lease as possible, square footage wise, as high of a number as possible, as

long of a term as possible makes both of them more commission.

So the only people that are on the same team are the building owner's broker and your broker.

I know this is very weird, but that's exactly how it is.

Even if that broker tells you that's not right, that's exactly how it is.

Okay?

So the way they talk to each other, they go like this.

They go and say, hey, what do you think this is a bad.

. . all this stuff that they use in negotiation language.

You know him where's he at?

Does he like this space?

Obviously he likes this space, so what are we going to do?

They go talk, they strike up a deal, then you sign the lease.

Let me tell you what I got them to do.

And then they come and talk to you.

Okay?

Just know these two brokers are on the same team.

You've got to understand that part.

Nothing wrong with that, but don't be naive and thinking your own broker is fully on your

side.

They want a longer lease to make more money on it.

So now let's go into the building owner.

The building owner's trying to keep this property because they're building equity.

Every year somebody else is paying the rent for them to the building they own.

They're building more equity, long term, they're building a bigger portfolio.

The more income comes in, the more properties they can leverage, the more assets they can

leverage.

They're simply running the capitalistic system.

They're doing their part.

They have no involvement except for leasing, making sure 100% of the office space is being

rented out.

So an office space that's above 90% they don't need you that bad.

An office space that's less than 70%, they need you tremendously.

So it's always good to ask what percentage of this office is occupied already?

They'll say, we're around 70%.

It's on your side.

Oh, we're at 92%, it's on their side.

So if you really want to be in that building, you're going to pay premium.

Know that position.

Occupancy.

What is the occupancy rate in the office right now, in this building right now?

They'll tell you.

So I've worked directly with building owners.

I've worked with bigger building owners where I only dealt with the broker.

But regardless, you kind of want to know what's going on.

Now another thing when you're dealing with building owners you're leasing out of, sometimes

if the company you're working with that owns and manages the building is public, they're

cutthroat.

They are cutthroat.

Douglas Emmett, cutthroat.

There is no wiggle room.

You don't matter as customer service as much because to them it's shareholders.

Cutthroat.

So especially when they need to do a lease, right before the quarter, they're not letting

you go because it goes on the loss statement, and they don't want to show that as hey, we

had to let this lease go.

There is no listen, I'm going through challenging times with my family, I want you to work with

me.

Zero.

If they're public.

If they're private, they'll typically understand you a little bit more, so in this scenario,

I'd prefer going into building spaces that is privately held, not publicly held.

And you'll understand that as you research this a little bit more and you go from experience

you'll get a better idea what I mean by this part here.

So I covered this, I covered that.

I covered the broker side, relationship side.

Okay, let me tell you what recently happened with an office space I'm dealing with, on

how creative these things can be.

So, we currently have outgrown this office space.

It's pretty obvious, everyone's climbing on top of each other, we can't fit in this place

anymore.

And when we got this lease, 15 months ago, 14 months ago, is that about the timeline?

Fourteen months ago, when we moved here from Dallas, we needed an office space.

CB Richard Ellis came and helped us out.

They did a great job.

Classy people on what they did.

We like them, at least the people that were working with us, we liked them.

And it all worked out very well.

Beautiful building.

I think this place is 98%, it's one of the most desirable buildings in Dallas.

Morgan Stanley's in here.

It's all the hedge fund managers, the money managers and type A. It's right off the freeway,

great location, Galleria.

It's exactly where you want your office space to be.

But we've outgrown it.

And if I wanted to take an office space within here, it has to be completely on the opposite

side.

It's pretty technical.

So we found out, we went and looked at a couple of buildings to buy, and some of the buildings

we wanted to buy right now it's kind of over market price because Texas real estate is

doing well, so everything is a little bit higher.

And no one's really selling anything right now because everybody's keeping it because

all these companies are moving in.

So you're paying 30% more than you would typically pay to buy a building.

So we said, no, we're not going to buy a building right now.

We were almost close, we almost made an offer to this one building, 40,000 square foot building

but we said no, we'll pass on this.

So all of a sudden, we found out about this other office space.

It's a massive office space.

It's pretty much an entire floor, somewhere around 20,000 square feet.

And we go in and their motivation and our motivation is a different motivation.

They're motivation is they moved to Arizona.

They don't need as much space here anymore.

And they just need a smaller office space.

We need a bigger office space.

So we went in and we struck up a deal.

The entire place is beautiful place, incredibly taken care of.

Training facility, offices, kitchen, it's just a ridiculous place, how it's set up.

You'll see it here when we do it.

So the way what happened is there was a commercial real estate agent representing me, a broker

representing me that I hadn't yet signed a commitment with them.

I met with them.

He didn't know a lot about commercial real estate.

Sweetheart, great man, Christian guy.

But he didn't know a lot about commercial real estate.

I was asking him questions.

I said, "How long have you been doing this for?"

So he came from a different real estate side and he's trying to do commercial real estate.

And he sent me an email saying, "I don't think you need us" so this time we didn't use a

broker.

So the whole money's being made by the building owner's broker.

Long story short, long story short, the tenant currently that wants to lease me the space,

his broker that he and I spoke, I just didn't like this guy, the way that he approached

us.

I said, look, I can't deal with you.

And I said, we're not doing the deal.

I have no interest in doing the deal.

he started giving me the whole thing.

Everybody wants this office space.

It's the best thing in town and all this other things.

I said, "You're overpriced!"

You have no idea what you're talking about.

I said, "Educate your client!

Educate your client!

You are doing a disservice for not educating your client.

Tell them what's going on in the marketplace.

What is the sublease rate right now in the marketplace?

What are you doing right now with this office space?

Tell them!"

No, you don't know, we're going to get this thing leased in the next couple of weeks.

It's a beautiful building.

I said, "Really?

Then why is it you've had it on the market for six months and this person's losing forty-some

thousand dollars a month and you have it in the marketplace, whatever the number is, you

have it in the marketplace."

No, we're going to keep it.

I said, "great."

I set him aside.

So one day I'm going home, I said, you know what?

I'm going to go meet with the CEO directly.

That's what I'm going to do today.

So I talked to Tom.

I said, guys, I'm going to go meet with the CEO.

And I said, let me just call him first before I go visit him.

I texted him and said, "hey," I found out his number.

I said, "do you mind if you and I talk?

I called his home office, 800 number.

I finally got to the CEO.

And I said, I want to speak with the CEO.

Very nice guy.

And I said, "Hey, this is Patrick, Patrick Bet-David.

I want to rent out your space.

Do you mind if you and I deal together?

I don't want to speak to your commercial real estate agent.

Although you signed a contract, which means you have to pay him the commission.

But I think you and I need to deal direct, because I don't have a real estate agent representing

me right now.

Are you okay with that?"

Yes.

I went through the whole scenario.

Everything I did the math for him.

This is what I need, this is what I'm willing to pay, if you don't do this, I already have

another place I can go to that I can build it out exactly how I want.

I went through every single thing with me.

This is my situation.

This is where I'm at.

This is what I'm offering you.

I want you to spend the entire weekend thinking about it, but here's one caveat.

He said, "What's that?"

I don't want you to call your commercial real estate agent.

He said, "What do you want me to do?"

I said, I want you to call other commercial real estate agents in the marketplace and

I want you to act as if you're me, trying to lease your space.

Give them all the details that you know about your office space.

And you ask that commercial real estate agent that's not emotionally involved or money-wise

involved, ask them.

Is it a fair deal that this guy is giving me?

I said, act like that.

He said, "That's a great idea."

I said, then call me Monday and you tell me if you're really giving me a good offer.

It took the weekend.

I got a text on Monday.

We get on the phone.

I said, "What happened?"

He said, "You were right."

I said, "Cool.

Do you want to meet up?"

Yes.

We sat down.

I met with him.

It's a very big company.

Me, him, his CFO, all these guys, we're sitting there.

It's just me by myself, no real estate agent, they're all there together.

And we negotiated something.

I said, "This is what I'm looking for."

Now, here's how I want to negotiate."

He said, "What's that?"

I said, you need office space, right?

He said, yes.

I said why don't you take my existing, let me take yours, and I need this to be done

to this office space and I need this, this, that.

And we'll make it work, but you come and take our office.

Look how creative that was.

I have to leave here, but I still have a year and a half on this.

He took over my office space, I got to exactly what I wanted, right, and what we needed.

And he got exactly what he needed, because he doesn't need 20,000 square feet.

He only needs a smaller office space for himself.

That arrangement was made.

Why am I telling you this story?

The reason why I'm telling you this story is because sometimes you got to know who the

broker is and how brokers deal.

You've got to know that part.

Number two, sometimes it helps to deal with the CEO directly.

Now some people may say, "You can't do that" and all this other stuff.

You cannot do it, but CEOs talk to CEOs all the time.

I would rather sit with a CEO and say, hey, you know math, yes, I know math as well.

Let's go through it.

If we don't have a deal, I don't want these middle men to go back and worth.

Can you and I do the deal together?

Great.

So we did that part and it worked out for everybody.

And then last but not least, the reason I'm telling you this story is to know that never

let a deal just say, "Oh, it's not going to work out."

Get as creative as possible, offer as many different solutions as possible, and see where

it leads to.

That's the beautiful thing about commercial real estate.

No two leases ever will be identical with everything.

There's always something that's different about a lease versus another lease.

So having said that, I've got a few questions about people telling me about signing an office

lease and how do you do it, how do you not do it, what mistakes.

I have a lot more stories.

But I'm not going to cover it here with you.

I wanted to give you as much as you needed in this condensed time.

Paul, what's our time right now?

Where are we at?

Twenty three minutes?

I wanted to make sure you knew enough so when you went out there, you're educated, somebody

can't bully you and take more money from you, and you can get exactly what you're looking

for if you go out there and solve for x.

And with that being said, I got my pillow here.

Last time we did a pillow out of the Cosmopolitan hotel - what hotel were we at?

Caesars Palace.

Today we got the legit pillow from our friend, Jennifer Mac.

I haven't mentioned your name for a while.

Hey, the channel's at I think right now 258,000 subs, the channel's at 258,000 subs right

now.

Our goal is to get to a million by the end of the year.

I love the contest that's announced.

Already you guys have posted your video for the quarter million contest where 10 of you

guys from all over the world will come and spend a day with me for me to go through your

business plan.

If you haven't yet participated in that, what do they type in?

Can we put an image of it here?

What is it called?

I am an entrepreneur contest?

If you type in "I am an entrepreneur contest" you'll see a bunch of the videos.

And one of you, if you win the prize, I come to you and I study your entire business and

give you direction on what to do.

And I coach you once a quarter.

You don't pay anything for it.

I'm simply coming to you to help you grow your business.

But I'm going to choose only one person.

So if you haven't subscribed yet, be sure to subscribe.

Click the button here to subscribe.

And click on notification.

You'll see that little alert button, click on that to be part of the notification quad.

You'll be part of the first group of people that get these videos that go out to you.

Man, I can't wait to hear all these different office lease stories that you may have down

here, and any questions, thoughts you may have, comment on the bottom as well.

Take care everybody, bye bye.

The Description of How to Negotiate a Commercial Office Lease