Get Mark Kolke's ~ 3 - R's: Reduce, Renegotiate, Rethink
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3 - R's: Reduce, Renegotiate, Rethink
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I've been leasing real estate - office, industrial, retail, special purpose and education real estate for most of my career. I'm pretty good at finding real estate for people to see, so on that front - as most capable agents should be - I can find lots of availability, where our clients want to be, where they want to go, and I can get them there on time!
Lately, however, as we find in the market in Calgary today - a repeat for markets we've seen before, but a high vacancy rate particularly in my specialy, office leasing, for different reasons than we've seen historically.
But the post-pandemic malaise, the over-built marketplace, on top of several years of retrenchment and downsizing in large measure in the oil & gas industries, new approaches to 'Green-think' in real esate and climate change concerns are all factors - but the most glaring add-on to this has been new thinking about how, where, and in what ways we 'office'. Nearly every company contemplating a change, a move, or a re-stacking plan, has these issues on their mind. That's not a problem - as an agent, these are high on our list of criteria to be satisfied in any new transaction. But, and there is a big 'but' most tenants face today:
Most Tenants are not about to move, most Tenantss are somewhere in the midst of a lease - usually leases that were orginally, 3 years, 5 yrs, 10 years, or longer in their orginal term. The stronger the Tenant is finanically, the more their landord loves them - and the less likley those landlords are to renegotiate the Lease to the the benefit of the Tenant because they see that as a detriment to the Landlord, so why would they agree?
Exactly, why would they agree to anything which reduces occupancy, reduces renvenue, or reduces/eliminates any covenants from the Lease in place?
Exaclty the contractual gridlock that sees most Tenants - whether that's the Facility Manager, CFO, CEO - they have to look to other remedies under their control to trim costs, impact their G&A expenses and impact their bottom line positively. While many companies in Calgary are benefitting from recent improvements in revenues due to higher commodity prices of late - it hasn't been that long since those prices were much lower pre-pandemic, and horribly low in the early stages to the pandemic.
So, as Winnie the Pooh would have said, "Oh bother, what to do?"
A recent situation gave us an opportunity - in almost every respect, to execute a strategy to address these issues:
- the Tenant has two years to go on it's Lease
- the Tenant was up to date, had been penny-perfect in their rent payments (in fact, due to an intercompany accounting glitch), they were paid ahead and had a substantial credit with their Landlord, notwithstanding they were working remotely during the pandmemic shut down period, paying full rent and operating costs on empty offices
- the Tenant loved the building, loved the space, loved the area - and had no desire to relocate
- the Landlord was unwilling to renegotiate anything, except to offer 'new tersm' when the Lease would expire in the future
- the Landlord was a large and national public entity with a diverse portfolio (which describes most landlords with office buildings in their Calgary portfolio)
- what to do?
Exactly, what's a Tenant to do in a situation like this?
The Tenant's CEO and CFO reached out, were referred by someone they knew, liked, and trusted - and were advised to meet with Mark Kolke.
Why Mark? What could he do, what could he bring to the situation?
As the Case Study describes, very capable CFO and CEO saw themselves as able negotiators, but their inability to move the needle convinced them they needed a solution, needed a talented negotiator, and there was no time to waste to deliver a substantial reduction in costs, to not move if that was possible, and to move if they had to - so it was a call for help!
When I met with the CFO by phone, then with CFO and CEO by video conference, we discussed my strategy - generally - for how to address this situation. It was clear there was urgency, and a financial metric to be met.
Upon being given a mandate and instrucions to proceed, the strategy outlined in our Case Study was employed. While various options are outlined in the strategy, it is impossible to plan 'next steps' without first taking 'first steps'.
The Case Study outlines the strategy, the execution, and the result.
The results:
- a delighted client
- the Tenant did not have to move
- the Tenant's downsizing and redevelopment of the space - Landlord's work and Tenant's work were funded by the Landlord
- a new long term Lease was negotiated
- the Tenant's target for cost reductions were not met; they were exceeded by a substantial margin
The Case Study proves several things:
- professional negotiation makes a difference
- Tenant's 'buy-in' to cooperation with their Agent/Representative - speaking with one voice, communicating fully and candidly, was an essential ingredient. In the subject case, the Landlord's attempts to circum-navigate that strategy at two stages in the process failed - as the solidarity of Agent-Client was firm and clear
- the process, as described in the Case Study is not a 'one size fits all' methodology; it has been developed over more than 25 years, particularly in down-turn economy + high vacancy markets in Calgary and Edmonton
Mark Kolke is happy to meet with prospective clients, walk them through the Case Study and present our strategy. We are no prepared to share this strategy with Landlords, or with our competitors, for obvious reasons.
Scheduling a meeting with Mark to review the strategy and case study does not obligate anyone; Mark invites inquiries and looks forward to meeting with interested parties;
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