Developing Negotiation Skills in Commercial Real Estate Pt. 2 | Investors Round Table
We're sitting down to explore the art of negotiation in the dynamic world of commercial property transactions. Logan, Matt, and I will share invaluable insights and strategies to help you elevate your negotiation skills and achieve success in this competitive industry.
Whether you're a seasoned commercial real estate professional looking to refine your negotiation techniques or a newcomer seeking to build a strong foundation, you'll gain valuable wisdom and practical advice to help you excel in the art of negotiation and achieve your goals in the world of commercial real estate.
Matt Anderson, Anderson Legal
Logan Freeman, FTW Investments
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com
Key Takeaways:
Focus on active listening, nonverbal cues, and tactical empathy to better understand the other party's motivations and priorities.
Gather as much information as possible and build rapport before making offers or counteroffers.
Use anchoring and micro agreements to guide the negotiation in your favor.
Present market context and the impact of unrealistic pricing to help sellers be more realistic.
Be creative in structuring deals to satisfy both buyer and seller interests, such as adjusting interest rates, purchase prices, or payment terms.
Appeal to the other party's interests rather than getting stuck on positions when negotiating.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
Are you looking to take the next step toward investing in commercial real estate but don't know where to go? Series central offers a comprehensive education and coaching platform designed to help you get started. Our online courses cover a wide range of topics from the fundamentals to advanced strategies, ensuring you have the knowledge and skills needed to thrive in this competitive industry. As a member, you'll gain access to our exclusive online community and monthly group coaching calls, providing you with valuable networking opportunities and personalized guidance from experienced professionals. Whether you're a beginner or looking to take your career to the next level, cre Central has the resources you need, visit www dot cre central.com. To learn more. Welcome back to the commercial real estate investor podcast. I am live here with the Matt Anderson and the Logan Freeman coming at you with another investors roundtable guys, we're gonna be diving into part two of developing your negotiation skills as a real estate investor. As a commercial real estate investor. Specifically, last time, we covered a lot of the really preparation when it comes to these negotiations. But we're gonna dive right into strategies and tactics. Logan, I'm going to lob this one over to you. What unique negotiation strategies have you found effective when dealing with acquisitions or dispositions?
Logan 1:21
Yeah, number one, I'd say that you need to be working on two things. The first being active listening. What does that actually mean? Well, we've got to be able to discern through questioning what is being said between the lines, right? What are you reading between the lines? What are you hearing that they're not seeing? Love to do this when you're actually face to face. So you can start to see those nonverbal cues and the body language because that is going to tell a lot more to you than what the words that the other person might be saying. Obviously, that's pretty hard, right? We all negotiate, we all have calls, we all have virtual meetings just like this. And that can be somewhat difficult. So if you can't get them face to face, then doing a virtual call is actually their second best bet, meaning getting on a zoom or a Google meet, so you can actually see what you're saying, and how that's impacting them. So that's, that's number one. I'd say the number two is tactical empathy, meaning, you've got to be able to show what you know that you are understanding what this other person is saying. And it's difficult in some scenarios, because it sounds like you might just be paraphrasing, or repeating what they're saying. But believe it or not, through clarification, what I heard you said was, it seems to me that this is important to you, using those labeling techniques using those mirroring techniques. And that paraphrasing, you can actually get a lot more out of folks, when you do that. Because a lot of times they'll say, Well, what I actually meant was, or that's actually not as important to me as this is. And so you're going that layer D people, when you ask them a question, especially in a high, or a perceived high stakes environment, they're not going to be willing to open up to you directly, right off the gate. So being able to try to dive a little bit deeper into those words that they're saying through the body language. And using tactical empathy is two of my kind of strategies that I tried to implement from the get go. Also, my third tip, if you're if you can, and you're going into a negotiation on a deal, have somebody there that may not be even needing to say anything, but that they can really be honed in on the listening side, right? Because at some point, you guys are going to separate and maybe you're going to come back and restart the negotiations. Well, if you've got a counterpart with you, and you can say, well, this is John, he's just here working as a commercial real estate broker, he's a he's a junior analyst at my company, getting deal experience. If you have them really honed in on listening and taking mental notes, they may pick up on something that you missed because we as humans are so wired to be thinking about what we need to say next, that a lot of times we can miss what that person said. So those are my three, tactical empathy, working on having a counterpart with you. Right and the third one What was my third one guys?
Tyler Cauble 4:39
I was getting prepared for my next statement.
Logan 4:43
It's tactical empathy. It was having a counterpart in active listening. Sorry, third one was which is exactly
Tyler Cauble 4:47
what we just showed you. We weren't doing
Speaker 1 4:51
well, no, I was actively listening, but I couldn't remember whether those two were part of the same like
Tyler Cauble 4:56
what the order was. Yeah. That's great. That's what you get when you do these live. This is phenomenal. I was I was prepping us to be the guy that actually plugs a book this time because usually slogan, this guy's an encyclopedia over here. Brian Tracy's psychology of selling doesn't matter what kind of sales you are in. Everything is psychological. It's just what Logan sang. Right? There's, there's what you said. And then there's what they heard. Those are two very, very different things. And, you know, if you ever want to test that out, just get a roomful of five people and tell a story. And and have everybody repeat it back to you and see what they say everybody's got a different perspective. And what went down, it's really important. So, man, I love that. That's, that's great, man. were you gonna say something? Oh, of course. Of course. He's got it. Yeah.
Speaker 1 5:45
Yeah, I mean, I can give you maybe I'll share half a dozen book recommendations. I love reading about negotiations and stuff. Yeah, I love the I love his points. One of the main things that I'll tack on is information gathering, right? Because sometimes negotiation is a battle of who has more information. Ironically, I just got back from a mediation in East Tennessee yesterday. So I was we were literally in an all day negotiation. And, you know, the mediator came in the room, and she wanted us to give an offer. Right? And he said, and I said, You know what, I think instead, we'd really like to hear from the other side first, right. And the reason I said that is because I felt like we were in the dark, and we needed as much information as possible before we made another move. And so I think that's a really important strategy. A lot of times, like, like Logan said, a lot of times we're we're kind of waiting for kind of like your example, Tyler looks like you're, you're ready to make your next move. We're not in a negotiation. But But it's like, a lot of times we do that in negotiations, where we're thinking about our next move, or what we're going to put in the contract or, or what the prices or the terms or whatever, where a strategy I like to use, I try to I try to pull two things, I like to try to pull as much information as I can possibly get. And I try to build as much rapport as I can build, right, before we move on to the next thing. And that's a patient's thing, too, right. And so I think that can be hugely important. And that leads on to another point, which is, we tend to think that other people think the way we do, and that's usually not true, right? And we and what that leads to, is making a lot of assumptions that might really hinder us in our negotiation, right. And so if you just spend the time to gather as much information as possible, build the rapport, you're going to learn the real motivations of the seller. If you can't really articulate in detail, what are the real motivations and priorities, I'm using the seller in this example, right, but of the person on the other side of the table, then you probably haven't done a good enough job on the information gathering report building side. Because if you're assuming those things, you're putting yourself in a big, you know, at a big disadvantage. And then that leads to another thing, where I talk with clients a lot, this happens a lot in the context of, you know, like the first draft of a contract, for example, right? Like, I'll work with the buyer who's working directly with the seller, and they're trying to put together a PSA or an LOI to buy a piece of property, then they'll have these different provisions in there. And they'll say, Well, Matt, I feel like that provision is a little too aggressive, or like, that's too much in my favorable or too much in my favor, right? And they'll want to try to what they're doing really an unknowingly, I think, is their bidding against themselves, really. So what I like to try to do is I try to keep as much of a canvass as possible, right? So if I'm doing a contract, to the extent I can do it, and still appear reasonable to the other side, I want everything to start as close to my side as possible. And then find out what the seller cares about. Right? You know, maybe I thought the seller would care about this provision, and they don't, they're not really concerned about it, right. So in other words, I want to start off with as many things as my side as on my side as possible, so that I've got a lot of things I can move in the seller's direction. Because if there might be five things I can give to the seller, that I don't care about that if I would just would have assumed the seller did didn't care about it. You see what I'm saying? So so that's another another strategy I like to use.
Tyler Cauble 9:29
Yeah, I love that. I mean, it brought a couple of other points up for me, which is one, never bid against yourself. Oh, yeah. The other group doesn't have the respect for you to respond to your offer. And they just say, Nope, that's not enough. redo your offer. I won't do it. I will walk away every single time is I'm not here to appraise your property for free. And I'm not here to bid against myself. I just won't do it. I mean, it's maybe maybe that's a dumb principle for me. But those are some of the negotiation. I Card slides that I have. The other thing, you guys both really talked about this, ask questions, ask all the questions, ask every question you can think of. Because again, the more information you have, the better off you're going to be. And it all comes down to the quality of the questions that you're asking. And then one thing that I try and do is get micro agreements. Does that make sense? See, both guys just nod their heads. If you're listening to the podcast, that was a micro agreement, I made a statement, I asked them a question that just had a yes or no response, then I knew it was going to be yes. And if you do that, throughout a conversation, you get a bunch of micro agreements, psychologically, the person now wants to start agreeing with you. So that's a little tip. For the next time you're in a negotiation, Jeff is jumping into the live chat, he's saying never want to negotiate or out leverage yourself. In these cases, try to be the side giving less info. While you gain more. Couldn't agree. Couldn't agree more on
Logan 10:56
micro agreements, I would add to that, that, you can use what's called anchoring. Okay, so let's try to get some micro agreements on what the market cap rate is currently, where it might go in the future. So Hey, John, I know that you're looking for $11 million. On your piece of property here, you've got the noi, at right around 650,000 bucks, if the market cap is six and a half percent, which you told me or which we agreed upon previously, that would put this price at right around $10 million. So tell me where you were coming up with an additional $1 million? Or can you help me understand where you're coming up with another million dollars worth of value. So if you can get a micro agreement or anchoring, with micro agreements early on, on cap rate on per square foot, if it's a lease, or if it's a purchase of a commercial building of occupancy and vacancy rates, of construction costs? Those are all things that you can get these micro agreements on, for example, Hey, John, I saw that you just put a new roof on what that Roof Cost Year Was it close to 250,000? What Logan, actually, that thing was about 290,000. And here's why. So now you're starting to get those micro agreements on things that are outside of just the price anchoring. So it can be, it can be terms, it can be how long the negotiate or the PSA is actually going to be. And if you can get those in early, then when you present your offer on behalf of your client or on your on behalf of yourself, you've you've actually laid the groundwork to make your offer make sense,
Speaker 1 12:43
in this exact same way to connect to that. And this goes back to something I was talking about earlier, but it ties it to anchoring, as many times as you can find out what the other side thinks is reasonable. First, before you say anything, the better position you're going to be. And it doesn't matter what we're talking about right? Price, it would be great to hear what the other side thinks is a reasonable price before you say a word length, you know, length of term, due diligence period, right? You know, if you bring these things up in conversation, and they're able to say, what is what is reasonable in their mind, because you know, like price is just as an example. There is amazing amount of times, where if, you know, let's say you think the property's worth a million dollars, right, there's an there's a very reasonable amount of times where the seller is going to start off at 800. Right. And you don't know how many times it's going to be, but that's the same thing for each provision to write. You might be thinking that 60 days is a good amount of time. And you but you'd like more, and the seller might start off at 90, right? So every time every time you open, you allow the seller to speak first and give you their point of view, you're creating an opportunity for you to get a better deal without doing anything. Right. So I think that can be really important too.
Tyler Cauble 14:00
That's exactly right. I mean, it's a fact finding mission. You know, we've got we've got a deal right now that a couple of my brokers are working on two listing they have and the seller wants 1.8 million, the buyer has made an offer at 1.6, they actually made an offer at 1.5. They came up to 1.6 after the seller countered and they're not willing to move anymore. And the seller is adamant about getting his $1.8 million price. The buyer is more adamant about their monthly payment because they're asking the seller to sell or finance it. So I looked at it and I was like okay, well under the current terms of what the buyer wants, their payment is 7880 a month. That's at a 6% interest rate. If we got the seller $200,000 More what does that interest payment look like to keep the monthly payments the same? And it's 4%. So now we know okay, well this side wants have a bigger price point, this side wants to make sure that their payment stays the same. Either way, because of interest, the the loan, the total amount paid over the term of the loan is the exact same, like that's the wild part about it, whether it's 1.8 million at 4% interest, or 1.6 million at 6% interest, it is the exact same over 20 years. And so that's what we're going back to present the boat, both parties now, because we understood exactly what each side wanted. And we found a creative way to make that happen. I mean, that when you're when you're working on these offers, for a lot of your clients, it's up until recently, it's been a competitive market. And I think more of us are accustomed to a competitive market, how do you structure your offer, so that it actually stands out to a seller, but still protects your interests?
Speaker 1 15:49
Well, I mean, honestly, I think the best answer is what I've already said, is the way to stand out the most is actually to understand what the other side wants more than the other offers, right? Because when when people see, you know, when you have those conversations, and you really understand where the other side's coming from, you can emphasize those things that you know, the other side cares about. Right? So from my point of view, that's probably the most important thing, building the trust building the relationship and then showing in their offer, that you're emphasizing what they care about.
Tyler Cauble 16:25
Yeah, I couldn't agree more. Because once once they understand you guys are actually on the same side. I mean, I had a mentor telling me this. You when when you get the deal, right, you guys are actually working together, you're on opposite sides of this, but the seller wants to sell and the buyer wants to buy. So I mean, Logan talking about that. I mean, sometimes sellers want to sell, but they're not really in this reality. When it comes to pricing. We're seeing that everywhere. Right now. sellers have 2022 pricing on their minds, but it's 2024. Interest rates are different the markets, different bank sentiment, investor sentiment, totally different spot. How do you navigate these deals with sellers that have unrealistic pricing expectations?
Logan 17:09
Well, I'm glad you asked. Because knowing that we had this episode coming out today, I went ahead and wrote a LinkedIn post exactly as we did this is you got to open the conversation. Right. So the way that we're getting these conversations open right now is through data driven insights, meaning, I know that a lot of loans were put on in properties in 2018 2019, and 2020, which means if it's a commercial property, likely it's a five year term. And so they may start to be thinking about what they're going to do, are they going to refinance? Or are they going to sell? So we're trying to open the conversation with property owners right now, in regards to hey, we see that you have a loan maturity coming up, or maybe coming up, what are your plans and trying to add value in regards to should you look at a refinance, and here are the options? Or should you look at a sale? So that's how we're trying to open the conversation. Alright, the second step is establishing that tactical empathy that I mentioned earlier, right? So you're just trying to understand that, you know, you understand their position, right? They may have thought three to five years ago, that they were going to push in a lie 25%. And unfortunately, a bunch of new supply came online on the multifamily side, and rinse got suppressed. So what are their actual options right now? Right. So that's number two. Number three, is those calibrated questions that we've already talked about? Right? What are your main priorities in this in this in this project? And what are you're trying to accomplish? Right? Those are, what and how type of questions. Don't give them the ability just to have a one word answer. Providing market context. Look, people keep saying look at the last 12 months of sales comps. And I've busted that, that myth here of recent because like, how am I going to look at a property right now and look at the last 12 months of sales comps when transaction volumes have dropped 42%. Really, we're getting back to truly underwriting what these analyze actually are on these properties and seeing if you can be positively leveraged or not, you know, that's what's getting deals done. Not necessarily looking at comps from 12 months ago, or even 24 months ago, because the go forward situation is going to be a lot different. And I tried to provide some market context in that saying, hey, in 2022, we saw this amount of sales at this per square foot basis. And 2023 We saw this and 2024. We've seen this right? So that's the market context, presenting the impact, right? So look, if you price above what I believe what the market believes this property is worth, you're going to probably put yourself in a bad position because people are going to look at the deal. It's going to sit on the market, it's not going to trade and then when you decide to bring your price down because of market expectations of where it's at right now. And it's already been listed for 60 or 90 days. Now it has a stain on it. Now it feels a little bit, you know, Hey, what's wrong with that deal? Even though if it's a perfect deal, is it just priced incorrectly. And so you really want to make sure that you present that impact upfront with individuals prime example, I had a listing appointment for some duplexes and for plexes, in a great area, I told him that the price that I would go to market was at 1.9, they decided to list with somebody else at 2.3, it sat on the market for 75 days, they dropped the price to 1.85. And in less than 24 hours it was under contract. That's a perfect example. Now, they were lucky because they had good product in a good area. Right? If it wasn't, then those previous buyers probably already moved on. Okay, and then it's okay, how can I explore some solutions? So can we this is the question I like to ask, can we explore options aligning with the market value that might meet your goals? Right? Are there any other factors playing into your decision, and just listening from that, right? And then I try to close with fairness, like, Hey, I'm here to try to work together with you to try to find a fair market aligned price. If that doesn't align with what your vision and timeline is, right now. That's fine. But I highly doubt if you decide to go to market at $11 million, that that price is you're going to actually get that price. And here's why. Right. And so then I tried to say look, I mean, at the end of the negotiation, or one of these first conversations I tried to reassure and then seek agreement, right. So like, hey, I want to make sure that you feel like you're being treated fairly. How can we move forward together? Again, another one of those calibrated questions on what and how, how can we move this thing forward? What are our next steps, you told me this, I told you this, let's go execute on that. So that's sort of how I'm doing that with these property owners. And let me tell you, not every single one of them is willing to do all of that work. And so I just put them into another bucket, and check in and 15 to 30 days, make sure that they're seeing the recent sales that have happened in the last two to three months, and try to give them some forward looking guidance in regards to where I think the market is going to go. And just continue to check in with them, are you ready to have another conversation, but it's not really my job to it's not my goal, to try to change people's minds, if they are so anchored on a price right now. And I'm not going to waste my time. So the impact again, is, hey, our time is valuable. You know, I and I have a little I know, Tyler, you have this. But you know exactly per hour, how much your time is worth. And so I go through a little spiel about, hey, my time is worth close to $1,000 an hour, and I'm sure you really value your time similarly. So if we decided to go list that $11 million, and we waste 60 to 90 days here, what could we have done other than this, that would have produced value for your property and or my company, right, so just trying to make sure that that impact is really strong. And again, it doesn't work with all of these property owners, and all of these scenarios, but it's worth a shot, it's worth a shot. And at what I'm seeing is the second or third time that we're starting to have these types of conversations, people are starting to be more open and more realistic about it, especially if they have a loan maturity coming up.
Tyler Cauble 23:27
Yeah, I mean, look, at the end of the day, every single deal. Every single negotiation is just a wall of levers, you pull one lever down, another one goes up somewhere, right? I mean, the the the old adage, in commercial real estate is he who dictates the terms. The other person gets the price. Whatever dictates the price, the other person gets the terms. Right. I mean, you know, man, I'm gonna volley it over to you hear it a second to hear an anecdote, you know, because I know you've worked with a lot of clients that have gotten very creative on some deals and would love to hear some creative negotiations that have gone down. When I first got into it, I saw deal. Were one of the guys negotiated for the seller to throw in his Range Rover as part of the deal. And I was like, Oh, that's really interesting. You're like pulling something in that has nothing to do with real estate into this deal. But it was kind of just like a you know what, I want your car and the guys gave the terms like it worked. I was like, Man, that's, that's really creative. These guys are getting out of the box. You know, I did a deal this past year where we were we were I was selling a project and the group wanted seller financing and I liked seller financing not on every single deal, but I like it every now and then because it's it's awesome. You should certainly consider it and add it to your portfolio if you don't have it, but they wanted a lower monthly payment when it came to it. And you know, I was like well, I mean, I've got to get my price like there. I'm not going to give you a lower interest rate just so you guys can get a lower payment. So what we ended up doing was we increased the purchase price. And I ended up doing an interest only payment for the five years that they have it. We both got what we wanted, right at the end of the day, I get more than what I wanted on in terms of the purchase, the payment that I'm getting is still, you know, it's I mean, it's lower than what I would have been getting for that purchase price. But it got the deal done, because it's what the buyer really wanted. And it works. It works for both of us. Right? Like it's, it's awesome. So Matt, creative negotiations, interesting negotiation stories, let's hear some.
Speaker 1 25:38
Okay, well, I'll start with a quote too, because I feel like this ties some of what we're talking together, I actually just shared this with a buddy the other day, which is this is Benjamin Franklin. And he said, if you would persuade, appeal to interest, not reason, right. And that's a lot of what we're talking about, right? Because a lot of what we get trapped into in these negotiations is trying to be trying to convince the other side of logic and, and why we're right, and why their price is too high. And you know what I mean? Like we get in that trap, and at the end of the day, if we can just appeal to their of interest, a lot of times, we're going to figure out a way to get a deal done. So this isn't actually like a real estate deal. But it's a funny example of that. And it really kind of ties in some of the things we're saying, we were we were in this lawsuit with, you know, a construction lawsuit with this with this couple. And it was just unreasonable back and forth all over the place. It was a constant negotiation, but we couldn't get anywhere. And then finally, we found out that they were, they smoked a lot of weed. And they were really concerned that the people in the community were going to find out that they smoked a lot of weed. And so at the end of the day, what got the deal done was for us to tell them, you know, what, we think weed is fine. It's not a big deal. But we won't tell anybody about this, don't worry. And then they and then we got to deal done. And you know, there's just so many examples of that, that I've seen where you know, and that's why when I go into these mediations, or negotiations, I never assume that I understand what's relevant and what's not relevant, because you never know what people really care about, right? Sometimes, you know, I've had a seller where all she cared about was that somebody was going to, like, appreciate and care about the building as much as she did in about her legacy. Right. And so what got the deal done for her with the seller financing deal was to build that rapport, make it clear, hey, we're a family run business. This is a big deal for us. This is going to provide well for me and my children, and yet come by any time. Like literally she called me. I'm not even kidding. Last week, she called me. And she told me how she just walked through her building. You know, hurt. She called it her building still, right? I've owned it for like, three or four years. But she said, Yeah, I went and checked on my building the other day, it looks great. And she just went in there and walked around, you know, but but that relationship is the reason I got the deal. It wasn't about the price. It wasn't about the terms, really, we figured all that out. But that was her personal interest. That's what she wanted. So yeah, I
Tyler Cauble 28:06
had a I had a coaching client that was working on on buying a property from somebody that had inherited it. And they had a lot of emotional attachment. Because of I mean, obviously, it was a family member that had passed it on to them. And it didn't seem like price was all that big. And so I said you know what Call, call the seller, and tell them that you're going to rename the property after the dad and see what they say and ended up getting the deal done. Like little things like that, that honestly have nothing to do with price. They have nothing to do with timing, they have nothing to do. Sometimes people just they have that's why you got to ask the questions. It is a fact finding mission, you've got to figure out what their motivations are. Because for that person having their father's name on that building is infinitely more meaningful to them than another $50,000. Right. So anyways, guys, we're coming up on the half hour. Final Thoughts on negotiations? Well, good. Okay. At first, yeah,
Logan 29:10
I would just say, Go in. We've talked about the negotiation, one pager, be prepared. And I love what we've talked about here today, which was take all of your preconceived notions and assumptions and wipe them away. Have your hard and fast rules that you stick to. Right. Make sure that you understand micro agreements and anchoring. And I think that's a great place to start. So that's what I would say.
Speaker 1 29:39
I guess I would say I think most people come into a negotiation thinking about themselves and how to solve their own problem or what they want. I have found the most successful negotiations are when you figure out where the other person is coming from, and you've solved their problem first, and then figure out how to fit what you need into it.
Tyler Cauble 29:58
Yeah, and for me just to ask, if you never ask, you'll never know. And with that being said, we'll see you guys in the next one. Are you looking to take the next step toward investing in commercial real estate but don't know where to go? Series central offers a comprehensive education and coaching platform designed to help you get started. Our online courses cover a wide range of topics from the fundamentals to advanced strategies, ensuring you have the knowledge and skills needed to thrive in this competitive industry. As a member, you'll gain access to our exclusive online community and monthly group coaching calls, providing you with valuable networking opportunities and personalized guidance from experienced professionals. Whether you're a beginner or looking to take your career to the next level, cre Central has the resources you need. Visit www.cre central.com To learn more
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