Has anything changed since Trump wrote his 1988 best seller? Yes, a lot has changed. The fundamentals of deal making have not changed and perhaps they never will.

Making deals is one thing…now, however, the renewed skill that is most in demand is how to shape the deals we are making.

Due to today’s unique economic times, I’m discovering there is a big difference between securing signatures and shaping a deal for long term performance.

In fact, shaping the deal may be the requisite skill now in most demand because there are fewer deals to be done and the deals that are getting done require more perseverance and targeted thinking.

Negotiating Breakfast with My Daughter

Almost every day, we are all negotiating something. I did it this morning with my 9-year-old daughter. We negotiated about her breakfast. She wanted chocolate donuts, not one, but two! Once we formulated the premise for the sign-off, i.e., what each side had to have, we then had the core of the deal.

My position was clear. “You cannot have donuts for breakfast.” Her position was, “Donuts is the only way to make this deal work.”

Of course, like all parents, we often have to force the deal on our children, especially when it comes to property diet.

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’…that means I can have one if we don’t call it ‘breakfast’…we can call it desert 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, scrambled egg and one strip of bacon. On her side, she got half a donut placed in her lunch box. She got some of what she wanted…I got some of what I wanted and what I know as a parent she needs.

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 authority 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:

• Understand the financial framework of the deal; your side and the other side. Clint Eastwood once said in a movie, “A man’s got to know his limitations.”
• Create points in time where you give the other side what they want. If you cannot surrender a point today, when might you and how might you at some point in the deal.
• Engage in trade-offs that are tangible and represent real concessions…people are not stupid, so be honest and don’t try to smoke and mirror the other side.
• Keep reminding yourself that you may never have another opportunity to shape the deal in front of you. In today’s complex market investors and tenants are fickle and may not return to the table.

Of course, some deals cannot be shaped. When the numbers do not work, they simply do not work, period. You cannot shape a $30 per square foot deal in a $20 market, usually.

What you can do is shape the transaction, its terms and cash flow in a number of ways to create transitional value in the down market so that in 3, 5 or 7 years your value position is closer to the desired financial end point.

Say “No” too early in the process is often going to kill the transaction for all parties. Replacing “No” with “Let’s look at this to see if we can make it work” is the first step in shaping the deal.

Shaping the deal will protract the cycle, increasing the cost of sale; time is money. There are few quick-close deals in my market. The limited deals take longer. The economy has created Principals that are decidedly more hesitant and methodical as they wind their way through the deal.

Shaping is becoming the new norm and the skill-set required is not easily found and maintained. We have been spoiled by the easy deals that were part of the 2000 to 2006 real estate boom. These are gone, perhaps for good. The bar has been raised and shaping the deal is often a more powerful skill than simply making the deal.

As capital drys up, the pace of investment slows and qualified tenant pools shrink. Engaging in the science and art of shaping the deal always made sense but now it is the critical element.

Shaping the deal is the new watershed.

Now, some nearly 25 years hence, I truly do recognize the importance of “sorting” and the notion of elimination has become more and more a part of representing my commercial real estate clients effectively.

Of late, and driven by market conditions, there has emerged a new brand of bottom-feeding. It’s a concept I call “LOI Shopping” or, maybe “Networking the Deal” for better terms.

There is no doubt in my mind that this carp-like behavior among prospective tenants is a product of too much inventory and the desire of often marginal tenants to continue their vain attempts to shrink or even collapse the pricing envelope.

Mind you, there is no orchestrated conspiracy here; just a glut of inventory and an every expanding population of weak tenants who think if they shake the tree hard enough fruit will fall to the ground.

Well, I am mad as hell and not going to take it anymore! I am implementing new measures to expose and terminate the pretenders…these fakes and would be tenant hypocrites who are representing themselves to my clients as so much more than they really are.

Although I am not ready to strap on a six shooter like Richard Boone did in “Have Gun Will Travel,” and ride into some western town on a mission of settling scores, I am ready for a serious revision of my qualifying language and the way I handle the “wanna be” candidate.

Sorting through Hypocrisy

Since we are using some Latin, let me throw in some Greek too. The work “hypocrite” is derived from the Greek noun “υποκριτής” meaning “one who wears two masks.” It’s the source of the theater icon that depicts “comedy and tragedy.”

I am ready to pull back a few masks and find out what is behind them. I’m ready for a lot less comedy, especially since no one is laughing. Then too, I am not especially fond of the tragedy angle either.

Masks don’t work well in the empirical world of commercial real estate. Masks are only suitable for the stage, where the emotions of an audience are supposed to be toyed with.

I’m going back to what Del Webb taught me as a highly skilled Sales Counselor…the principle of Terminatio Simulatio Velociter or, in plain English, TERMINATE THE PRETENDER QUICKLY.

You see, guys like Del Webb understood clearly the principled approach to professional representation. There are only two types of real estate investors or, in the case of Del E. Webb, home buyers; the ones that will and the ones that won’t…the ones that can and the ones that can’t…the ones that do and the ones that don’t.

Those that will are those than can and those that can are those that do. No mask, no pretense.

To the Webb organization, the deliberately implemented sorting process begins at the first business encounter (give name, get name, use name) and continues as an integral component of all the follows, culminating in securing loyalty, examination, agreement and execution.

For the foreseeable future, the market is going to continue to hammer us all, owners, tenants and brokers. Too many properties, too little time and too few truly qualified tenants and investors.

I’m going back to the principle of Terminatio Simulatio Velociter or, in plain English, TERMINATE THE PRETENDER QUICKLY.

Posted by Donald Teel – Arizona Commercial

In today’s commercial investment environment, property taxes can be lethal. Many investors are still paying property taxes that are reflective of the market run-up of 2000-2006 and not necessarily on the current valuations of their investments.

The questions are what can you do about inflated tax valuations, where do you turn and more importantly, how can investors challenge property tax values successfully?

Property Tax Analysis. Create an analysis of the assessed value of your property for the previous five years to determine the trend line. The analysis should show the assessed values and compare those with a legitimate Broker Price Opinion (BPO) to show market value trend compared to assess valuation trend. It might look something like the following (Download the FREE sample spreadsheet here).

Assessed Value VS Market Value Sample Analysis - Sample of Presentation for Tax Challenge

Commercial BPO. Secure a commercial property broker price opinion (BPO) for your property to help determine the market value trend line. Arizona Commercial can do this for you for a nominal fee. The report includes photos, recorded sales values, spreadsheet analysis and conclusion.

The BPO must include such detail as location within the market, property style, age, square footage, lot size, parking, vacancy/occupancy rates, number of leasable office/areas, and other issues that demonstrate the empirical value of the property.

Appraisal Approach. If the first two suggestions demonstrate that you have a potential tax overcharge, the final requirement may be to secure a full appraisal with detailed analysis of comparable properties. Appraisals are expensive and should only be used if the economics of the situation warrant such a measure. However, when push comes to shove, a certified appraisal will carry more weight than a commercial BPO.

Challenge Process and Procedure. States have specific procedures for challenging property taxes and the process must be respected in order to be successful.

The process will include forms, time frames and details that must be completed prior to consideration of a claim. Following these procedures and time limitations will be a critical factor. Most likely you will be required to pay the taxes while challenging their validity and if taxes are not paid in a timely manner, other negative consequences can occur in the form of interest and penalties and in severe cases, assessors may sell the delinquent taxes with a lien or even sell the property after a specified time.

Appealing a tax bill is not easy and may include several layers of review including a hearing for the property owner and even judicial recourse. Ask your County Assessor’s office for a copy of their appeal process.

Failure, Refusal or Inability to Pay Taxes. It is unlikely that a refusal to pay property taxes pending the outcome of a challenge will carry any weight and may further exacerbate the problem by creating a hostile situation.

Philosophical, political or principles of conscience are irrelevant to the process. However, in some cases, hardship may be considered as a factor in when and how the taxes are to be paid. Hardship exemptions are difficult when it comes to commercial property and typically are more successful when the property is a primary residence.

Generally speaking if an owner cannot pay the commercial real estate property taxes that owner should immediately communicate with the County Assessor’s office where the property is located and seek advice.

If a challenge is in order, owners may want to contact a competent lawyer with experience in real estate property tax law.

Declining Commercial Values. Most property types have declined in value and this naturally leads to an examination of all expenses related to market value and the cost of the property, including property taxes.

Declining values are now creating a backlog of challenges and yes, it can get very nasty, as some governments are deliberately protracting the challenges and the court cases to their advantage.

There is no doubt about it, however, that some owners are still paying taxes based on unsupportable valuations from previous years. Despite the declines, property taxes have continued to climb in far too many markets. As an example of the lagging, for the first time in 12 years, property taxes in some areas of Los Angeles County declined up to 15% while others increased.