Negotiating With Your Own Client

Welcome back to another episode of CRE – The Unspoken Truth. My name is Charlie Coppola, with my father, Craig. Today we’re talking about negotiating with your own client, advising them, really trying to advise them for what’s best for them, maybe against what they own, you know, their own interest or what they really want. So my question to start is, you know, what would you say, you know, how would you distinguish between what a client wants and what’s actually in their best interest?

Well, I think when you say best interest, there’s really two things we’re talking about here. Something that they’re going to do that’s really bad for their interest. And the second thing is something that would be a negative to actually making the transaction. And I think that’s what we see 90% of the time. But how we’re going to walk through this, 90% of the time it’s just the clients don’t understand what’s going on in the marketplace, and the job of the broker is to kind of educate them. But maybe 10% of the time, Charlie, the first thing that you just mentioned there, 10% of the time they’ll want something that’s just not good for them, and that’s fairly easy to kind of explain, I think. Sometimes clients could be hard-headed, but the idea is the same. The process of how you talk to your client is the same regardless of whether it’s something bad for them or just an education on the transaction in the marketplace.

So you view it simply as an educational role of the broker, and I guess my question would be…

No, it’s more than educational. Sometimes it’s educational, but it has to be more, it has to be compelling. There’s a difference between… and this is, we call this all the time, we call it processing, right? So you are my client, I’m representing you, and you say, “Hey, I need the 5,000 square feet and I only want to pay 20 bucks a foot.” So I call the other broker and I go, “Hey, my client needs a space and they’re willing to pay 20 bucks a foot.” The broker says, “Okay, let me call my client.” He calls his client, says, “My client says the space is worth 30 bucks a foot.” I call you back and go, “Well, we tried at 20, but it’s really 30 bucks a foot.” And you go, “Well, I’ll do it for 25.” And then I go back, and all I’m doing is middleman. That’s not what brokers get paid to do, in my opinion. Brokers get paid to put transactions together, and we’re compensated when we do close a transaction.

And so there’s several types of brokers that do this, and they do it differently. I’ve run into a lot of brokers who process deals like I just gave you. I’ve run into other brokers that will go to the mat for every little thing. Like, they’re willing to blow up the deal for an extra covered reserved parking stop. And then finally, the best brokers that I deal with are reasonable, understand the market, and get deals done. And that’s the one I try to be all the time.

Yeah. Do you ever see, you know, brokers who are avoidant of those, like, they end up processing like you just explained because they’re avoidant of, you know, pushing back against their own client?

Yeah. It’s very common, and it’s common for a couple of reasons. One, there’s a lot of younger brokers who need these transactions to close, and so they’re willing to tell their client anything. You know, as we’ve coached our runners, and we have a guy who works for us right now that I’ve been coaching a ton, and he never wants to tell anybody no. And unfortunately in our business, we don’t get paid for no. We get paid for transactions getting done, which means a lot of times we have to tell our clients no. So I think there’s a lot of young brokers who need a transaction, and that transaction is very important for them to close, and they’re willing to say and do anything to get that done.

The second is there’s just a lot of brokers out there that don’t like confrontation. It’s really hard if you’re a broker that doesn’t like confrontation. It’s really hard to elevate yourself from average to excellent. And then third, there’s a lot of brokers who are super unrealistic about the marketplace. I mean, nowadays, we’ll get an RFP on a listing, and the going rate will be $40 a foot, and we’ll get an RFP at 30 bucks a foot from some tenant rep broker. And we’re like, you’re not in the market. Why are we… “Well, I know. I just had to put that out. This is what my client wants to pay.” It’s like, well, you should have that conversation. Like, here’s the last four comps in the building. They’re all in the $40 a foot range. This is what they’re going to go… and a lot of brokers…

So, I do have a process, a three-step process that we teach our guys to go through on these situations. And by the way, Charlie, they’re all the time. Every transaction is going to hit this. So, this is a lesson somebody needs to learn, and the quicker they learn it, the better. Really.

Yeah. Yeah. So, it sounds like, I mean, you said you’re coaching your team on it. It’s a lesson people need to learn. It sounds like it’s a skill that can be learned, like having those hard conversations. You know, is it a personality trait or a skill, or both?

I think it can be learned…

If you want to be a great broker.

If you want to be an average broker, I think you can artificially set your limits and go, “I’m never going to tell my client no. That’s just the broker that I am. I’m a broker who just always says yes to his client, and then I make it happen.” And that’s not realistic in the world.

Yeah.

It’s not what they happen. But yes, I think it’s a skill that can be learned. You have to be super comfortable with who you are, and super comfortable of your knowledge of the marketplace, because a lot of these come into play when you don’t really know what the market is, and you’re getting educated on the market as you’re doing the transaction. So we see it a lot with out-of-state brokers coming to our marketplace and not really understanding it. They’ll negotiate, and they don’t really know what’s going on, but they’ll try to make it happen, and they’re using their perspective of wherever they’re from. So, we see that.

Yeah. So, you mentioned your framework. What would you say, like, do you have… like, how do you tell someone, specifically a client, “I think you’re wrong on this,” without making them defensive or bruising their ego, or, you know, how do you approach that conversation?

Well, I think it starts from the very first meeting, and it has to be something that you are prepared to talk to them about all the time. So my first step is always get ahead of the situation. And when you say you got to get ahead of the situation, when you sit down with your client, let’s just pick the landlord side, easy, because when you get the listing, you’re like, “Here’s the deal parameters.” And as you do or don’t make deals, you say, “We lost this transaction because we didn’t give enough free rent. We got this one because we did this.” So, it’s easier on the landlord side. It’s easier on the sales side, because it’s like, “Here’s the comps. Here’s our evaluation. Here’s the BOV.” When you get a listing to sell something, you typically compete, and a lot of these guys will give high BOVs and just try and get the seller down during the…

So the hardest part is the tenant rep side. So on the tenant rep transactions, it’s like, we have to understand, like, if you want to go to the nicest building in town, you’re going to pay X dollars. If you want to go to the next level down, you’re going to pay Y. And when I say pay, it’s not just rent. Here’s the TIs. Here’s the parking rates. Here’s the free rent. You know, all of… here’s the load factors, because these Class A building load factors have increased dramatically. And this conversation, before you even tour, starts framing the framework of what is out there. And I would tell you that average brokers say, “Let’s get in the car and see what’s out there.” And they haven’t done the homework to get ahead of the transaction. And it happens, this is not… happens on my own team, where I talk to my own guys and go, “Look, we have to go out into the marketplace.”

I’ll give you an example that happened to me. I had a law firm that I represented years ago, and he said, “Look, I just want you to know, Craig, that we will never ever pay parking for any of our attorneys or employees.” And I said, “Okay.” I said, “Why?” And he gave me why. “We’ve been 30 years, we’ve never paid.” So I said, “Okay, so what I’m going to do is I’m going to send an email out and say I have this 35,000…” It was a 40,000 foot requirement, 40,000 foot law firm. “I’m not going to tell you who it is.” But I know the buildings that they’re going to look at. “I’m going to send an email that says we will not even tour your building unless you will guarantee us up front that the proposal will include all parking, all visitor parking, and all parking for attorneys, staff, and visitor.” And so a couple buildings passed, and six of them said, “Yeah, we’ll do that.” So we got that out of the way up front, because that was a requirement of my tenant.

Now, normally I would have said, “I don’t think that’s doable,” but I thought we could do it, and they would just roll it into their rate, and they did, and we got the deal done that way. But there’s lots of ways to get ahead of the deal. But step one is always to get ahead before you start promising. And it is so easy to promise when you’re sitting down with somebody. We know this selling OneSource, right? We know this. We can promise the world. But that’s what makes us so good and valuable today. And because we have thousands of people who are on this every day, and they know… it’s like, we know now what we can promise and what people are using this for.

Yeah. Overpromising. So how do you… a client who is the CEO, right? You deal with CEOs, CFOs, big companies, they’re told yes all the time. Like, how do you approach someone with that persona, who is used to getting what they want, getting their way? And, you know, like you said, you have to get ahead of the issues, but any tips on dealing with someone like that?

Yeah, I think one of the things that’s important that we have to kind of think about is, when you complete a transaction, it’s not one thing. It’s not price. And even a sale is not, like, “Hey, this is a $20 million deal,” or, “This is a five cap rate deal.” That is one aspect of it. There’s lots of other things that come into play on even sales. What, how long… like, I’m closing a deal today that the property was listed for $3 million, $3.2 million, and we had it on the market for a year and we didn’t get any bites. So I knew there was a guy that would buy the building, and I went to him a week ago, eight days ago. Today’s the eighth day. I went to him eight days ago and said, “You need to look at this. I think they’re ready to sell it.” He walked through it and said, “All right, I’ll pay $2 million and I’ll close the… today’s Monday. I’ll close Monday.”

And guess what? My buyer said sold, and he’s closing today.

Yeah.

So, it wasn’t just price. It was just terms. His terms were, “I don’t care about a survey. I don’t care about an inspection. I’m not even going to open escrow. I don’t even need a contract. I’ll just open escrow and we’ll put money in there, and we’ll give me the title.” And he was just so good about it. My client threw his hands up and said, “We’ll take the two million. We’ll take the…” You know, this is a divorce situation. “We’ll take, we’ll split the…” They’re splitting it, and it’s like, perfect.

So there’s lots of other things that come in. And so when I say get ahead of it, get ahead of the whole situation. They may be super focused on parking, as the law firm was, or focused on getting rid of the asset because it’s part of the divorce. There’s a whole bunch that goes along with it. So step one is getting ahead of the situation.

Step two is, and this is one of our non-negotiables at OneSource, be a buffalo. You know, like, you’re going to get ahead of the deal, but then the deal is going to hit you in the face again. So, everybody gets ahead, and then guess what? They don’t remember that you told them that this is a $40 building. So, they want the Class A building after you tour them. They’re…

They’re willing to pay $40, but if we’re paying that price, we better get this, this, and this on our side. You know, whatever.

That’s exactly what happens. The minute they tour, they go, “40? I thought we could get it down.” I go, “Do you remember when I said it’s $40? Here’s the comps.” They go, “Yeah, but I thought, you know, because of who we are, and the fact that, you know, we’re such professionals, and you’re so good.”

So, the second is you got to be a buffalo. So, then when it hits you in the face, then you go, like, I’ve already got it. And let me just give you one other tip on this. A lot of this needs to be in writing…

Because then you can say, “Look, here’s the email I told you. Here’s the general parameters. Here’s the spreadsheet. Here’s what it is.” And, like, you can give them a spreadsheet that says this is a $40 deal, and they’re going to go, “I know, but that’s just market rates, you know. I know we’re going to get it at 30.” And they’re not asking for a 2% discount, they’re asking for 30. So, first is to get ahead, second is you got to be a buffalo, because issues will arise.

And then the third thing that I think happens, and this is this constant circle, is there is a constant reminding that has to happen on every transaction. “You remember when I told you this was 40 bucks a foot? It’s still 40 bucks a foot. Now, what I’m going to try and do is get you some reduced parking. I’m going to get you some additional TIs. I can get you some free rent here. So, it’s going to kind of lower the effective rate, so that the whole package deal is something that’s palatable to you.” But this constant reminding them as we go through the process is important.

And we just went through it today. Nick and I, Nick, our partner at Coppola Cheney, Nick and I represent this law firm, and we had done this. They were moving. They don’t like the building they’re in. So, they’re moving in one of their… we represent them across the West. So in Sacramento, they wanted to move to this other building, and the other building just kind of gave us the bird. And we were like, “Hey…” They’re like, “Hey, we’re 90% leased, and we got off the deals, and we don’t need to give you turnkey TI.” So we had a backup, and that’s the next thing I always say on this, is always have a backup. So we went to the backup, and the backup goes, “We will give you turnkey TI. We will be $10 a foot cheaper than they are. Guess what? We own two million square feet. We’ll give you all of our legal work.” And guess what? We’re going to make a deal with that building.

Yeah.

Even though they wanted the other building, we set it up. So, we had the backup. The backup knew they were the backup. They threw the sweetener into the legal fees, and, like, we’re going to make a deal with them. And the other guy’s going to come back and go, “Wait, we were just kidding,” but it’s too late. The momentum has shifted now.

Yeah.

And we tried to tell the other, like, “You don’t give us turnkey TI, you’re not going to get the deal.” And they were kind of hemming and hawing. And I know they were just playing hardball, thinking that we would pay their premium, and we won’t.

Yeah. Yeah. So that’s fascinating. Yeah. I love it. So you know, this is what all the brokers want to talk about, right? This is the…

Interesting part of our business.

It’s not the hard part. The stuff that we sell, right? To automate, follow up with your database, making sure you make your calls, updating your contact records, doing all those things that we do.

Yeah.

That’s the hard part.

That’s the mundane. Yeah. Yeah. Blocking and tackling. Yeah.

Yeah. You know, it’s…

This is the star wide receiver, the negotiating the big deal and playing hardball and all that.

This is what everybody wants to get into. “Let me tell you, I’m repping this guy, and then he did this.” There’s a million of these stories. I don’t do transa… I don’t, yeah, I don’t handle, you know… I was always doing 80 deals a year. I do very few now, and then I just laugh when I get into them, because this transaction that’s going to close in a week, I knew the guy, I’d already done a deal with him, he loves me. As soon as I called him, he picked up and he’s like, “What do you got?” He told me yesterday, he says, “Craig, I love doing business with you. Bring me one of these a year.” Because he knows he can get a deal done with me. I’m not going to bring him a deal that he can’t close.

And that’s just 42 years in the business, 40-plus years in the business. But I’m like, I’m trying to give our younger partners, even though Andrew’s been with me 23 years, and great 15, and Nick five…

They love this part of the business.

And it is the fun part, if you’re good at it.

We, obviously, we talk to brokers all day, every day, all around the country, and there are different types of brokers, and we call this one the deal junkie. And we’ll get on a 30-minute, you know, Zoom call to show our software, and we’ll hear about 10 of the person’s deals, and he’ll tell us the intricacies and the negotiation strategy and the market rates, and we’re like, this is irrelevant to our conversation, but you can tell they really want to talk about that stuff. Brokers get in the business for this side of the business.

They don’t get in it to make cold calls. They get in it to get into a high-stakes negotiation with transactions…

Closing deals.

Closing deals. And that is really the fun part of our business. But the hard part of our business, and the really great brokers, are the ones who actually make the calls, do the follow-ups, do the day-to-day stuff.

So, we talked a little bit about ego, and, like, you know, working with the CEOs who want what they want. How about the emotional side of it, right? Someone who, a divorce situation, or this is one of their big assets and they need the sale for their retirement. So, I want to talk about the emotional side of communicating with an emotional client. And then part two is the emotional side of, as a broker, I need the commission and I need to get the deal done, and I don’t want to rub, you know, my client the wrong way, and, you know, stir the pot that way. So, let’s start with the emotional client, and how you would help advise someone who’s, you know, emotions are running their negotiation strategy.

You know, your wife is in the res… is a realtor, residential realtor. All housing purchases are emotional. So, it is amazing to me how they make a living. And they do. Today they’re making tons of money. The residential side is making way more money than they used to 25 years ago. It used to be the spread between commercial and residential was fairly big. It’s not anymore. And a lot of the reason is these people are psychologists. The realtors are psychologists for sellers and buyers. Our business is not nearly as emotional, unless you’re dealing with local business owners. A lot of these corporations, it’s just a part of their business.

But I’ll give you an example. We are selling a deal now, that family’s owned this property 50 years. The dad bought it, the son owns it, the son’s 70, 74, 72 or 74, and they’ve owned it 50 years, and he finally wants to get rid of it. So there’s an emotional side to it. So, you know, I’ve had to kind of walk him through it. He’s a friend. I mean, I’ve known him. I’ve done all his real estate for the last 15 years, and still there’s been some, “Craig, I don’t think that’s right,” because he’s not a seller. He’s a buyer of real estate.

So a lot of times, if we’re getting into the emotional side from the seller, it’s more local. You’re talking to somebody who’s owned the property for a long time, or somebody who’s having to discount it because they have a zomb… Like, right now we’re seeing zombie buildings, where people have syndicated buildings, and, you know, these office buildings have run out of money and the value is not there anymore. So they’ve lost people’s money, they’re not getting their promote, they’re not even getting fees. And so that is just… you know, I can’t answer that, other than to say be a buffalo in this case too. It’s like, look, I totally feel for where you are, and I get it. I have those conversations. It’s a lot easier for me at 65 years old next week to talk to somebody and say, “Hey, look, I get it. You lost us on this. And I totally… I hope that we can make, you know, some magic out of this, but the reality is, here’s where we’re going to be.” So, just being a buffalo up front.

On our side, I made a personal decision 40 years ago to chase every size deal, because I didn’t want… I think we’ve talked about this before on Unspoken Truth. I didn’t want to do two or three deals a year, that those were my deals. I mean, we have a guy in our office that does retail sales, and he may close three or four deals a year, but every deal is a stressful deal to him. I made the decision to not go that way. And so we still do, you know, we just sent out last week that we did 46 deals in the first half of the year. So we’re doing 100 deals a year, maybe 120 deals a year. So we’re closing deals all the time, just to make sure that we know we’re in the marketplace.

But I would encourage, and I say this to OneSource, if you’re super nervous about your pipeline, get more pipeline, right? The people who are nervous… After about year six or seven in the business, I was never nervous about deals, because I just always had a big pipeline. It takes five to seven years to kind of build that. And then when I built the team, I had to triple the size of the pipeline. So every time we added somebody to our team, I had to kind of understand how the pipeline had to grow. But I’m the primary, or I have been the primary… Andrew is now equal to me, primary breadwinner of the team, of bringing in transactions. So learning, understanding how big your pipeline needs to be for you to sleep, is a very big lesson to learn as a broker.

Yeah. I think I’ve also heard you say on these podcasts that you made a decision early in your career that you were going to do the best thing for your client with the long term in mind, not just try to close that specific deal, right? So, I think that goes to this as well, is you were, as best as possible early in your career, even when you needed the money, trying to do the right thing for your client. If that was a one-year lease versus a 10-year or five-year lease, you were trying to do the right thing. And I don’t…

We used to represent this engineering firm that became a national engineering firm, and, you know, we did, when small, we used to call it plant the… They were growing. I grew them from 30 offices to 150 offices. And when my real estate director retired, they did a pitch and they hired one of the big firms. Within 36 months, the real estate portfolio had doubled in cost, because we were doing one-year deals, three-year deals, whatever the right deal. If it was a new market, we called it planting the flag. We weren’t doing 10-year. Immediately they went to 10-year deals on everything. And it was like, wow, all of that time, for 20 years I represented, all that time we were scraping, and we held it. And then they brought a new real estate director: “No, we’re just doing 10-year deals.” Super, in my opinion, lazy.

Yeah.

And today they’re still doing 10-year deals. And I think it’s just not… in my opinion, cost me a bunch of money. But that’s just not how I… I sleep way better knowing I take care of my clients.

Yeah. Yeah. Recap your framework.

Okay. Get ahead of the deal. Always get ahead, from the first meeting that you’re hired on. Number two, be a buffalo. Go run into the storm. You want to know. They want to know if there’s a problem, to let them know. And then there’s this constant, a very constant reconfirmation of what you told them up front. You have to let them know. Almost every meeting I will say something like, “Hey, we got this, but remember, this is a $40 deal. Remember, we’re chasing… this is the nicest building. If we don’t want to pay these rates, we still have to keep this other one in,” or whatever it is. And so there’s this constant reciring back to what you think you can get them, and what you can actually achieve for them, that they need to understand.

Yeah, it’s great. So, early and often. Be a buffalo. Early and often, over and over again.

And it’s a skill.

Yeah. Can be learned. Great.

Be learned.

Thank you so much.