In the world of commercial real estate, references are often made to market deals. Cocktail talk and casual conversation are when tenants like to tell-all about recent deals they’ve done. Generally, few specifics are volunteered. Somewhere in the conversation though it comes out -”I got a market deal.” So what are we to make of this? Is it validation that they got what they should have gotten? Is it vindication that they didn’t get taken advantage of by some crafty landlord? It could be either, but it certainly isn’t that they got something better than the rest of us.
The notion of market deals stems from two areas: 1) residential real estate relies heavily upon “comps” or comparables. The comps system works well in residential because houses generally are part of tracks or developments with similar models and sizes. So, comps have more uniform reliability than most commercial properties. 2) commercial listing brokers rely heavily upon comps and “market deals” to advise their owners and landlords about pricing. In order to be competitive in marketing, owners need to advertise asking rates that are in line with other similar properties.
That all makes sense. So why is it that a tenant should not brag about a market deal? The reason is this; at best they should have gotten better than a market deal, and at worst should have gotten at least a market deal. The way to get better than market takes some work, but it is achievable. It also makes good business sense. The key is competitive bidding.
With most large purchases (or leases) people should shop around. This exposes them to multiple options, and it serves to educate them as to pricing, features and benefits. Competitive bidding (which we have explored in a previous article) is the process of negotiating with multiple owners or landlords. In doing so, it is often the case that one owner becomes more concessionary than the others. The reasons can be many, but the signs are clear. The advantage to the tenant is that they can choose to aggressively negotiate with the hungry landlord, or use the favorable terms offered to negotiate with other landlords. Either way, the tenant benefits.
Following this process of competitive bidding, the end result almost guarantees a better than market deal. Now that’s great cocktail talk!