NACORE (National Association of Corporate Real Estate Executives) CORPORATE REAL ESTATE EXECUTIVE MAGAZINE

November/December 2001

How Technology and Software are Changing the Negotiation Process
By John Tobin

"As technology becomes a routine part of our business lives, more and more software is being made available to perform specific tasks.  This has proved helpful in the area of negotiation.  The writer has taken a different approach and surveyed various corporate real estate experts from across the United States before supplying information on his own experiences."  

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Corporate Real Estate Executive Magazine is the publication of NACORE (National Association of Corporate Real Estate Executives).

 

The greatest change of technology and software on the negotiation process has been not how quickly we retrieve information but how easily we can make a more accurate comparison of that information.  Before you get my own opinion, let's first hear from nine experts on the subject from around the country.

  

Meade Boutwell
Senior Director
Cushman & Wakefield
San Francisco

“What has changed?  Movement of documents (leases, floor plans, marketing materials, etc.)  via e-mail is #1.  Time compression of transaction communication because of cell phones and fax machines is #2.  Web based platforms for doing transactions has yet to have any impact other than space search, which is really just like our old data bases, just web enabled.  I use CoStar (private, intraweb access), Loopnet and Cityfeet in that order.  I have dropped all the others, which at one time were eight or nine of them.  I work with four different owners with four different leases and four different products, tough to put on the web.  Tenants are doing more lease management on-line (big-e-realestate.com, etc.) but nothing new transaction-wise.  I have no doubt that we will move more to the web, but it will be more evolutionary than revolutionary.”  

Gig Codiga
Director of Workplace Strategies
Blue Shield of California
San Francisco

“The key to negotiating successfully is information: understanding your own requirement, knowledge of the market place, who the players are, the ability to quickly analyze the data, and pulling together the proper presentation for senior management decision making.  To achieve an understanding of our requirement, we utilize a facility management software (CAFMTools by CAFM Solutions, Inc.).  This tool informs the team what current standards and ratios are to the workplace.  We couple the tool with a space programming software to demand-forecast our user’s growth, (Cawley International Space Programming - proprietary).  

"Then, consolidating the internal information, we connect up with a real estate advisor who can quickly identify, via a Loopnet program, the available space information in the market and identify the players.  After eliminating the obvious, the LseMod software is brought in to make financial comparison. With the combination of data and market activity, a power point presentation is established to present the alternatives to senior management.  Now we have improved guidelines, good direction and solid information to go back to the landlords, fully understanding our business requirement and the landlord’s economic position from their financial point of view. 

"At this point, personal negotiation skill and talent is necessary.  Negotiation is a science, requiring software tools to speed analysis in a speedy business climate, as well as an art, where the software really is peopleware.”

 

David O’Neill
Managing Director
Colliers International
Cleveland

“Technology has enabled transaction professionals worldwide to negotiate, revise and distribute documents on a 24-hour, real-time basis, eliminating momentum swings due to time delays that thwarts deal completions. Virtual tours, eBrochures and CAD give new meaning to the phrase, 'A picture is worth a thousand words', which can eliminate the need for distant travel (in these times especially) and help eliminate uncertainty of properties' physical characteristics.”


Michael Hobbs
Director, Corporate Services
Grubb & Ellis Company
Los Angeles

 “Technology and software change, like almost all change in our lives, comes about slowly and, once widely accepted, it becomes ordinary and unexciting.  My point is, change is taking place all the time, we just don’t notice.  We keep hearing future negotiations will be all electronic and done with generic documents and we say, well that certainly isn’t the case with me.  Yet it was not that long ago I got my first e-mail message.  Now I get over one thousand messages each month, and I am certain others get more.  Almost all transactions have electronic documents, and Microsoft Word and Excel files can be used by almost everyone.  Facsimiles and e-mail are now standard business tools.  This is a big change and it continues on an ever more rapid pace.  Do we see the change? No.  Do we know what will be next? No.  Will it change anyway? Yes.”

 

Jeffrey Weil
Senior Vice President
Colliers International
Walnut Creek, California

 “How Technology Has Changed The Negotiating Process:

  • Use of Internet material to support a client’s position, i.e. if my client’s position in the market is soft and headed softer, sending relevant news clippings by e-mail to the landlord’s agent in support of this.

  • In a sale negotiation, if there is another development or city action that might affect my negotiation, immediately sending the information off the web news service to the other side.

  • If representing a sub-tenant or sub-landlord and you need immediate financial information on either party (or your own client) go to www.freeedgar.com or one of several other financial information sources.  If not a publicly traded company, there is still a lot of financial information available.

  • Use of information sources such as www.officetimes.com which posts articles such as "The Art Of Subleasing Office Space,"  "How To Lease To Law Firms," "Current Breakdown Costs of Tenant Improvements," "Anatomy Of A Commercial Lease," or links to numerous on-line commercial real estate newsletters and hundreds of other pages of information. This can be used to help your negotiation position, and this type of information access was impossible just a few years ago.

  • Using the search engines such as www.google.com to locate information on the specific individual you are negotiating with, possibly discovering their hobbies, nuances, etc. that might benefit your side during the negotiation process.

  • Using the speed of e-mail to accelerate the negotiating process, being able to send information simultaneously to multi-parties, using cc or bcc to control the information flow.

  • Using technology to take notes and then disseminate the information either on the spot or quickly thereafter, i.e. using the Palm Pilot to take notes, upload to the desktop or laptop, cut and paste, and immediately send by e-mail to all in attendance for information verification.

  • Using a digital camera during negotiations to illustrate to out-of-town parties particular points being made (i.e. the quality of the project, location, problems) There are now cameras which can transmit, on the spot, e-mail photos with a built-in cell connection to the camera.”

 

David Kamen
Senior Manager
Ernst & Young
Chicago

 “With the development and progress in technology applications related to real estate, information has become more obtainable and more of a commodity then ever before.

"Where technology has not and may not ever extend to is the area of negotiation.  The accomplished corporate real estate professional must take advantage of the availability of information and use that as a tool when embarking on a negotiation task.  A clear advantage is there, as this information is available to virtually anyone, so a resourceful use of this tool has become critical in order for a successful outcome.”


Ben Amoson
Director of Real Estate, Southeast Division
The Sherwin-Williams Co.
Atlanta

 “Advances in technology and software have been a plus, but it has been on a bit-by-bit basis.  I’ve seen a big jump with the use of the Internet.  I can now access sites that allow me to review an area and obtain up-to-date information immediately.  A big part of negotiations is having information and how you use it. However, for me the biggest advancement in technology has been the cell phone. By far and away it has made my job more efficient. Wherever I travel I can still respond in a short time.

"This past summer I was involved in relocating a Sherwin-Williams store (forced relocation) from East Sunrise to U.S. Highway 1.  I’ve been to the area several times, and I was able to do some preliminary work on the Internet and confirm the ownership through county records.  Fayette County, Georgia and more and more counties are making their records available on the Internet. Also, we can run a preliminary environmental site assessment on the Internet, which helps.

"As for the cell phone, its invaluable. On a recent trip to Birmingham, I was able to negotiate a few final points of a lease in Murphy, North Carolina and handle an emergency at one of our stores while driving to Birmingham (HANDS FREE of course).”


Paul Garity
Managing Director
KPMG Consulting, 
Corporate Real Estate Practice
Los Angeles

 “From our vantage point as technology consultants to corporate real estate managers, we see the impact of new technology and software supporting transactions in four areas: availability of information, ease of communication, deal pricing and automation of transactions:

 Availability of information- The biggest impact so far on the transaction process is the improvement in the availability of accurate and timely information on market rents, space supply and demand, and the factors of production (land, labor and capital).  Sources such as REIS, CoStar, and Loop Net provide inexpensive repositories of data on residential and office space, while other sites allow desktop research on state and local tax incentives, population trends and mortgage rates.  News sources tailored to real estate like Globe Street and Pikenet as well as the major portals like Yahoo keep everyone up-to-date on deals in the market.  This information flow has not 'disintermediated' the brokers involved with the transactions, but it has made everyone sharpen their pencil and examine the value that any third party brings to any negotiation.

 Ease of communication- Okay, so the 'big bang' theory did not hold for the Internet in the real estate space.  New technology did not overwhelm the marketplace and radically change the way we do business.  But look around.  There has been steady change in the way we communicate on a deal.  The starting point was e-mail, which allowed (or imposed) 24/7 communication by all participants.  Next there were tools pioneered by construction-oriented dotcoms like Bidcom and Buzzsaw, which aided collaboration of teams on documents including drawings.  Another wave, just beginning, is workflow.  Soon, transaction participants will have systems that notify them through e-mail of events, allow access to documents, and capture best practices through knowledge management systems.  And internally, companies are designing self-service portals that allow employees to access information on space, equipment, work orders, moves, and other internal 'transactions'.

 Better deals- Can technology actually lower rents for tenants or decrease the time it takes for a retailer to open a new outlet?  Yes, absolutely.  For example, sites such as eProperty and Pericon that distribute packages and follow-up on prospects over the Web have helped corporations do bulk sales faster and at prices above expectations.  Netstruxr can allow companies to test landlord pricing better in the open market than brokers can do through a traditional market survey.  The issue is not whether this technology works, it is when will the adoption in the market be pervasive enough to show quantifiable benefits for all participants?

 Automated transactions- Perhaps the Holy Grail in the real estate space, automated transaction systems are not yet ready for prime time.  But Rome wasn’t built in a day!  There are just so many moving pieces, from multiple players (banks, title, brokers, tenants, lawyers, etc), to multiple data standards, to software and network issues, the 'click here to lease' idea is not going to be easy.  This is one area where consortiums make sense, but given the sluggish start that Constellation, Octane and others have had with their more modest initiatives, automated transactions are a ways off in real estate.  Look for the major financial institutions to pick up the ball and run with it soon (just the float is worth it)!”

 

Michael T. Cohen
President
GVA/ Williams Real Estate Co. Inc.
New York City

 “The commercial real estate industry is looking for a new tool to streamline the management of brokerage transactions.  Several technology companies and consortiums of real estate service providers are in the process of searching for this new technology platform – a 'Transaction Manager' – which will bring customers better, more efficient service.

 "While most brokers still don’t know such systems exist, or what the term 'Transaction Manager' even means, within five years this technology will be as ubiquitous as cell phones and Palm Pilots.  To cite another, more closely related example, they will become as common as CoStar, the comprehensive database that enables brokers to list and identify spaces and prospects.  

 "Currently, seven or eight Web-based alternatives are competing to become the industry standard.  Only two or, at most three, will survive.  GVA is currently testing and auditioning several web- based transaction management systems.  This ASP will automate many of our processes and will allow us to assign tasks, post documents, notify parties of actionable dates via e-mail, assign team members to particular activities and post and track notes or comments.  Some of the other essential functions that we will require of our selected platform will include:

  • Generating detailed RFIs and RFPs that can be transmitted to interested parties in a format that facilitates their responses on-line through the transaction management platform.

  • Prepare side-by-side comparison of proposals and responses including discounted cash flows and item-by-item matrices, using international analysis standards as well as U. S. standards.

  • Managing individual and team assignments throughout the lease transaction process, including 'ball in court' accountability.  

  • Measuring and forecasting performance on an individual, team or group-wide basis. 

"The development of a standardized transaction system will save tenants, tenant representatives and leasing agents time and money.  Most importantly, the systems will help brokers to service their clients more effectively by providing them with better and quicker access to the crucial information needed during the decision-making process.”

 

John Tobin
Partner
TENANT reps.net
Cleveland
  

"As a tenant representative driven to create lease analysis software for the average tenant, you may have already guessed my point:  The greatest change of technology and software on the negotiation process has been, not just how quickly we can retrieve information, but how easily we can make a more accurate comparison of that information. The ability to execute a quicker, more accurate comparison of information during the negotiation process has greatly tipped the financial scales toward the landlord over the last two decades.  Since well over 95 percent of all commercial real estate transactions are leasing transactions, let's focus on lease analysis software.

 "There are at least 20 key cost factors in the average lease negotiation that affect the bottom line cost of the lease.  As a rookie tenant rep broker in Manhattan in 1984, the tools available to tenants for determining the bottom line cost of a lease were A) a regular calculator or B) a financial calculator.  I first used lease analysis software in 1990 as an in-house landlord negotiator for JMB Properties Company, which later merged with Heitman Properties, Ltd.  These national landlords used lease analysis software as the cornerstone of their lease negotiations.  The software enabled them to understand the bottom line and present value return of every potential lease transaction within minutes.

"As a landlord negotiator for both JMB and Heitman for eight years, I was involved in thousands of potential leasing transactions. During that time, over and over and over again I had tenants across the table negotiating at an extreme disadvantage.  Those tenants did not have the software I had to quickly complete a bottom line cost comparison of their leasing alternatives.  All the information was available to the tenant during the negotiation process, but using a hand-held calculator to sort out all the landlord- driven cost factors was extremely time consuming and therefore prone to be neglected. 

 "Software available today enables the average tenant to make lease cost comparisons up to 100 times faster than they ever could with a hand-held calculator.  It provides the tenant with much greater accuracy, pegging the tenant cash flows to their exact payment/receipt dates.  Instant cash flows and graphs illustrate the comparisons.  Tenants are able to quickly customize specific costs and credits. Lease analysis software clearly puts the tenant back in the driver's seat, allowing the tenant to “stay in the ring” with the landlord rep and calculate the true bottom line impact of any landlord proposal in minutes.  Lease analysis software enables the average tenant to quickly jump to “Level 2” which is forcing several alternative landlord’s to compete on a true bottom line cost basis for their tenancy.

"What has not changed since 1984 is that the majority of office, retail and industrial tenants across the country have yet to use lease analysis software, letting the financial scales continue to tip to the landlord during the negotiation process." 

 

John Tobin is a Partner of TENANT reps.net Corporate Real Estate Advisors and the developer of Swiftcalc®, the tenant's calculator for commercial real estate.  He is an 18-year commercial real estate lease negotiator and spent eight of those years as an in-house leasing negotiator/financial analyst for two national landlords.
 

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