When Donald Trump wrote “The Art of the Deal,” he became an industry authority for claiming to know how to make deals.
Has anything changed since Trump wrote his 1988 bestseller? Yes, much has changed in the world of commercial real estate deal making, although the fundamentals have not.
Making commercial real estate transaction work (“the deal”) requires what I call “shaping” the transaction, whether an acquisition, divestiture or a new lease. The biggest difference between securing signatures (making the deal) and creating long-term performance for a client (shaping the deal) is economic compromise and parity.
Negotiating Breakfast with My Daughter
Almost every day, we are all negotiating something. I recall doing so with my then nine-year-old daughter. We negotiated breakfast. She wanted chocolate donuts – not one, but two! Once we formulated the premise for the sign-off, i.e., what each side wanted, we then had the core of the deal.
My position was clear. “You cannot have donuts for breakfast.” Her position was, “Donuts are the only way to make this deal work.” Yes, this sounds a lot like commercial estate sales and leasing, doesn’t it? As with all transactions, each side has an initial position and posture as the dance begins.
My daughter knows the limits when pushing dad around. We have long ago established the negotiating framework. She opened the shaping phase of the negotiations with “So, Dad, You said no donuts for breakfast and that means I can have one if we don’t call it ‘breakfast’ so, let’s call it dessert from last night’s dinner.”
Suddenly, I was reminded of the power of “shaping” the deal, rather than simply “making” the deal.
The negotiations were shaped and the deal finalized after a healthy breakfast of fruit, one scrambled egg and toast and no fat milk. On her side, she got half a donut placed in her lunch box. She got some of what she wanted, but not entirely the way she would have preferred and I got some of what I wanted.
Shaping Deals with Adults who Fight Back
There is a big difference between negotiating and shaping a deal with a kid over whom you have parental rights and squaring off with adult negotiators who fight back and refuse to be shaped.
In the commercial real estate arena, the principles of shaping the deal are the same and here they are for you master negotiators:
- Seek to Understand both sides of the financial framework; all sides. Clint Eastwood once said, “A man’s got to know his limitations.”
- Create Concessions where you give the other side something they want. If you cannot surrender a point today, when might you and how might you.
- Engage in Trade-offs that are tangible and represent real concessions. People are not stupid, so being honest and avoid smoke and mirror tactics is important.
- Remind Yourself the chance to shape the deal today is in front of you and might not return.
Admittedly, some transactions cannot be shaped. When the deal points do not work, they simply do not work, period. You cannot force a $30-per-square-foot lease into a $15 market. Even if you succeed, market forces may kill the lease when the tenant can’t pay the rent.
Shaping the purchase or the lease often means finding ways to create transitional value in the down market so that over time, the parties reach their desired end point.
Instead of coming out of port like a fully loaded battleship, try replacing “No” with “Okay, let’s look at this to see how we can make it work.” This is the powerful first step in becoming a shaper of the deal.
It’s the Economy, Stupid
Today, there are not many quick-close deals in the market. The transactions that will be completed take longer. The economy has created a climate and a set of economic fears where tenants and owners value hesitation and where a methodical approach to buying, selling or leasing is preferred.
Shaping is the new normal. This skill-set is required and is not easily maintained. The bar has been raised and shaping commercial transactions is a powerful and necessary skill.
Pass the donuts! QCBN
By Donald Teel
The author, Donald Teel, is a Principal Partner with JT Purvis at Commercial Properties Northern Arizona (CPNA). CPNA is a full service commercial firm located at 140 N. Montezuma, Suite 300, Prescott, Arizona 86301. 928-445-7000. Emails can be directed to reCP-NA.com. Website: www.CP-NA.com.
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