I was the guest on this radio show Monday night. We talk about selling to CEO's, CFO's, etc. Please listen and let me know your feedback. Here is the link - http://www.blogtalkradio.com/selling-to-the-c-level/2011/11/28/selling-to-the-c-level-with-bob-gibbons-of-reata-inc.
Here is the text if you prefer to read it:
Patrick: Welcome to Selling to the C Level. Today, my guest is Bob Gibbons and Bob is a commercial Realtor. One of the things that I’m really excited about Bob is that he’s not the normal kind, which is going to be fun. I think you’ll really enjoy that.
The whole idea behind Selling to the C Level really came to me out of the number of salespeople that are always trying to reach the CEO, CFO, COO of any company and to influence them in a way that is favorable for their company. I sell to them. Well, selling to that group is not like selling to a lot of other people. It’s a different breed is one way to describe it.
If you are a CEO, CFO, COO, you know what I’m talking about. Your time is extremely guarded and we get that, but as sales people, our objective is to help you get where you want to go and to reach you in the best way that we can.
Let me tell you a little bit about Bob. Bob is a corporate real estate advisor, or tenant rep, with Reata Commercial Realty Inc. Reata is a tenant advisory firm. In fact, Reata is an acronym which stands for Real Estate Advisor and Tenant Advocate – a little different.
Bob started his real estate career 27 years ago, still in college actually, and just shy at 21 years old. He spent the first 20 years working for landlords negotiating against tenants. He was responsible for over 13 million square feet of buildings from coast to coast owned by pension fund insurance companies and private equity investors. He was a property manager, leasing agent, and asset manager. Basically, he did it all.
Bob now uses that experience to exclusively negotiate for tenants, providing leverage to them when negotiating with landlords. In 2004, he formed Reata Commercial Realty Inc for that purpose and that purpose only. Bob is a Texas real estate broker, a member of trade associations and non-profit boards and holds a BBA in Finance, and an MBA from UTA, and the University of Dallas respectively.
Bob, thanks so much for giving some time today to be on Selling to the C Level.
Bob: Thank you so much for letting me be here, Pat.
Patrick: I want to get right in to your story. You have so much experience kind of working against the tenants. Now, you’ve flipped the fence. You’re on their side. How did you get there?
Bob: Well, I think like a lot of us we don’t actually end up where we thought we were going when we started out. When I was in college, I never thought I would be a corporate real estate advisor. Heck, I didn’t even know those existed, but I was building cabinets for houses and got tired of that and wanted to do something that was “business oriented.” So, I went to the UTA business office, student employment actually, and said, “What do you got?” and ended up finding a job for what was called a market research analyst and I thought, “Wow, that sounds impressive.”
I had no clue what it was, but I went for the interview and I got the job. It turned out to be a commercial real estate investment company – a Belgian investment company, to be exact – that was based here in Dallas. It was actually some guys that had come over here from Belgium for their MBA and started doing investments and didn’t leave. I started that and one thing led to another. They bought a bunch of buildings in downtown Dallas around the farmer’s market, and they asked my boss and I to lease them and manage them. So I suddenly was a property manager and leasing agent.
Then we kept doing a lot of things with them, but ultimately, that was the 80s. Most real estate companies went under in the 80s with the horrible market that it was and I ended up going to work for another company that was in commercial real estate. They were a national owner of high-rise office buildings and warehouses and that’s really where I got a lot of my great training on how buildings work, and how landlords work and that kind of thing.
Then went to a third company that was a Chicago based national company and I was one of their four regional VPs in the country. That was even a better place to learn how landlords think, what makes them tick and all that. We own about 80 office buildings around the county. When that company decided to sell everything due to a family squabble (they started suing each other so we had to basically shut everything down so that they could go their separate ways), I got to thinking, “What am I going to do next?”
As I got to thinking about it and talking to people who were advising me, it became clear that really nobody that represents tenants exclusively has that kind of a background. It’s sort of like the district attorney becoming a defense attorney. You switch sides and now you can represent the other side better because of the knowledge you have from the other side.
Patrick: That’s exactly right. I know that whenever you’ve got an opportunity to be somebody’s advocate and you’ve actually played the game against them long enough, and hard enough, and well enough that you become the greatest asset that they could put on their side. I imagine that has really served you well.
In your business, you represent the tenant. You typically are selling for the CEO of a company and negotiating for them. Is that about right?
Bob: Yes, it is. I would say it depends on the size of the company, however. Whenever you’re dealing with a smaller company, especially one that tends to be local or regional (let’s say a company that’s based in the Dallas area and primarily serves the Dallas area, or maybe they’re based in Dallas and they serve the Texas market or the southwest market), typically the smaller companies, we’re dealing with the CEO, the owner, one of the partners, etc.
As the company gets larger, however, then it tends to gravitate toward the CFO or somebody in that chain of command. When you get to the really huge companies, multinational companies –the Sears, and IBMs, and AT&Ts and all those kind of things – then you end up with a midlevel manager who’s sort of a commercial real estate executive who manages all of the leases and/or owned properties that the company deals with throughout their corporate structure.
Patrick: Right. I get that. In dealing with the CFO, how are you having great influence in that area? What are you doing to create the success you’re having there?
Bob: The main thing that a CFO has to look at is cost and how they’re getting the biggest bang for the buck that the company is investing in their business. What a lot of people don’t realize is that the real estate cost – the occupancy cost – for that company is typically the second highest expense of the company right behind everything related to people. You take all the people, the salaries and the benefits, etc., that’s number one in most companies.
Number two then is their occupancy costs. The rent for their office space or their warehouse space is usually number two. Occasionally, it might slip to number three if there’s a really capital-intensive business like a high-tech firm that requires a lot of high-tech machinery, equipment, technology, etc. Either way, second or third is still pretty high.
The big difference, however, between the real estate and the people is that – good or bad – people can be hired and fired relatively quickly, so it’s really a variable cost. Whereas, if you own a building or if you lease a building, it’s suddenly not variable. You’re stuck. It’s a fixed cost for the period of time that you own it or the period of time of the lease.
Most leases average about five years. Sometimes they’re a little less maybe three; sometimes there’s as many as ten or even 20 years. Once you sign that lease, you’re stuck to the terms of those leases. You really need to think strategically about where the company has been, where it’s going long-term (not just the next quarter – or the next year, even) because that can get you in trouble in a hurry.
Patrick: Exactly. One of the things that I would be concerned about is with the way that liquidity is so tight right now even getting a loan to buy a building must be incredibly hard, but then beyond that, things change to quickly in the economy where industries that used to be just untouchable, they were the Rock of Gibraltar kind of solid, have become far less than they were. How do you deal with that? What do you do? What do you recommend?
Bob: Well, there are a few things. The first thing I would recommend is don’t own the real estate. That is going to come as a shock to some people – a real estate broker saying, “Don’t buy real estate.” I don’t take listings typically. The only time I have listings is when a client no longer needs the space that they occupy for their company. Then they need to either sell it or sublease it because they don’t need it anymore – they’ve laid people off, they’ve closed a division, closed an office.
My goal is to represent the needs of the company. Usually, that means that we’re going to be acquiring space for the company to use, usually through lease. Most companies do not want to own their own real estate, the real estate they occupy. Even the companies that you would be surprised about – Wal-Mart, for example. Most Wal-Marts are not owned by Wal-Mart.
Bob: Yes. They build the building and they sell it to some investor, and then they lease it back and that gives them capital to go out and build the next one and to grow their business. Walgreen’s does not own their buildings. Taco Bell. Hotels. The Hotel Intercontinental in North Dallas is not owned by the Hotel Intercontinental, probably. It’s probably owned by an investor that owns the building and then Intercontinental is their management company. They manage the buildings. It’s what they call, “Flying the flag.” We fly the flag of Courtyard by Marriott or whatever.
Most property is not owned by the name that you see on the building. Companies do that number one because they want flexibility, which is where you were headed with your question. They want flexibility. Even though I said earlier that it’s really not flexible, it’s a fixed cost, well, that’s true during the term of that lease, but once that lease is over then they have the flexibility to go somewhere else to expand, to contact, to renew – a lot of them renew. So that’s one way to have the flexibility is to lease not own.
There are other benefits to leasing versus ownership like you get to write off the whole thing instead of having to capitalize and amortize the cost over a long period of time. You don’t have to carry it on your balance sheet, so it’s not going to dilute your return on equity. And there are other things I’m not going to get into here.
There are a lot of ways to get flexibility in the lease, and it’s usually in the form of options. Options are always bad for a landlord and always good for a tenant, so you always want to get as many of those as you can.
Do you know what the game is Jenga with the little wood blocks?
Bob: Think of a building as Jenga. In Jenga, the goal is to take the blocks of the bottom and put them on top, but every time you do that you make the stack a little more unstable. Well, that’s exactly the way a landlord looks at a building. Every space in that building is occupied, hopefully, by a tenant and the more stable that tenant base is the more stable the rental income is, and therefore the more value it has. It’s easier to finance. It’s easier to sell. That’s what the landlord ultimately wants to do.
But every time they give the tenant an option – an option to renew, an option to terminate, an option to expand – now they’re taking a little bit of their control and saying, “Here it is, tenant.; you can have a little bit of control,” which means that that stack of blocks get a little more unstable from the landlord’s perspective and a little more stable from the tenant’s perspective.
One of the big things we do as tenant advisors is we try to stack the deck in the favor of the tenant. We want to get as many of those little blocks for the tenant and take them away from the landlord. That way, our tenant has more control over their destiny instead of the landlord.
Another example of that would be something that most people don’t even think about when it comes to a lease is a death and disability clause. Now, we don’t get these on most deals and they don’t make sense on many deals. But let’s say you have a company where the rainmaker is the owner of the company. If he or she leaves or gets hit by a bus or becomes permanently disabled or dies, the company basically doesn’t exist anymore because they were the ones that brought in all the business and they have all the relationships.
Well, if that’s the case, you might want to try to get a death and disability clause in your lease so that if that person does get hit by that bus now there’s an option to terminate the lease. Landlords hate that. Again, you’re taking control away from them. You’re making their stack of blocks a little less stable. It’s not an easy thing to get, but we have been successful in getting that at times. Now, that can be insured. You can buy life insurance and insure it that way, but if you can keep the insurance for the heirs and not for the landlord, all the better.
Patrick: I get that. That makes a lot of sense to me. That’s a great thing to look at. What are the ways that you can get more favor for you and remove some of the control for them? I’m sitting here listening to what you are saying and thinking this real estate game is really all about continuity and how can you build a box that has more sources of revenue coming out of it, and they’re solid and they’re just a continual, renewal, auto-debit kind of thing every month so that you’ve got a more valuable asset for resale or just for revenue generation. That makes sense.
You’re working with folks. I do want to get into who you ideally try to find as a client. Who’s your ideal client?
Bob: Well, for me, specifically, my company is a very small boutique company, so the kind of client that we’re looking for is going to be typically a local or regional company in the Dallas area or a national company that allows their local people to make the decisions on the real estate.
For example, if Google wants to open up an office in Dallas, they probably midlevel manager somewhere in their California office that’s going to handle that. Well, that midlevel manager wants to do a good job for Google, his employer, but one of the biggest issues he’s concerned about is “don’t screw up, don’t make the wrong decision, be able to defend the decision I just made.”
Patrick: I was just thinking is just that old CY -whatever. Cover yourself.
Bob: Exactly. In the 1980s when the saying was, “Nobody ever got fired for buying IBM,” and it’s pretty much the same way in my business. A midlevel manager, for the most part, is going to try and make a decision that they can defend, so they want to be able to hire one of my big competitors. Jones Lang LaSalle, Cushman and Wakefield, CB Richard Ellis - these are large international commercial real estate companies that have lots of offices all around the country, and in some cases, around the world. That’s who the big, big companies with a midlevel manager are likely to go work with; whereas, my clients are typically going to be the local companies, the regional companies, the companies where I’m dealing with somebody who is being paid by the bottom line.
My ideal client is a local or regional company who already leases office space and may want to move, may not want to move, may not know which they should do. Maybe they want to stay; maybe they want to move. They’re not sure. They want to explore their options. Maybe they’re thinking, “Should I buy or should I lease?” We can do the buy/sell analysis as well.
Like I said earlier, most companies don’t want to own. There are some that do. I have a client that will never lease space. He only wants to own. It’s just the way he’s wired. There’s nothing wrong with that; it’s just what makes sense for him.
And really that’s something I should’ve said a long time ago is we really start with the corporate goals and objectives. Let’s face it: nobody really wants to have to pay rent. You don’t want to pay that money out every month if you can help it. You’ve got to do it to run your business, but you really don’t want to. You’ve got to make sure that that expenditure, especially since it’s your second or third highest expense, is supporting the goals and objectives of the organization.
When we start with a client, we don’t want to talk about real estate. We want to talk about where have you been, how have you grown, where do you see your company going in the future, who is your customer, where are they located, where are your employees located, where do you live. That’s a big one. If you ever want to know where a company’s going to locate, find out where the decision maker lives, and that will give you a huge clue.
All those things are important, but start with the corporate goals and objectives and then figure out how to fit the real estate into that picture to support those goals and objectives instead of the other way around.
Patrick: If you were to try to reach the North Dallas area and you had the ability to tell them, “This is what we really bring to the table?” what would you say to that? How would you answer that question?
Bob: Basically, what you’re asking is what are the benefits of using a broker like myself or, more important, what’s the benefit of using me versus other brokers? The typical, most important things you get when using a broker is, number one, you get negotiating leverage because if you’re not in the real estate business, you probably don’t know how to really negotiate a real estate transaction.
Just like I’m not in the IT business. I don’t really know how to do anything in the IT world, really. Or pick a world – insurance. My wife’s in the insurance industry. I don’t know jack squat about the insurance industry. And you know what? I want to keep it that way. I want to let her deal with it. I don’t want to.
Patrick: Ignorance really is bliss in some areas, isn’t it?
Bob: Especially insurance, my goodness. Anyway, I digress. Leveling the playing field is a big thing and giving the tenant leverage, giving them negotiating leverage. They don’t have all the knowledge, but they can hire me and I’ll give them all the knowledge, especially all the knowledge from the landlord’s perspective that I had in my first 20 years in the industry.
That’s a huge one: market knowledge. You can negotiate without knowing the environment in which you’re negotiating. If somebody’s coming out of a lease term right now thinking that they’re going to have to pay 20% more than they had been paying over the last five years, well, that’s crazy. They ought to be getting a discount or at least the same amount. Whereas, if we were talking about 1999, people were coming out of their lease terms after five years and their rent was doubling. They were freaking out. Well, their broker at that time was shopping the market and searching for all the options and trying to figure out ways to reduce that cost to the minimum so that it doesn’t kill them on the bottom line.
How to structure a deal – I talked about it a little while ago, the flexibility and all the different kind of options that are out there and we didn’t even touch expansion options. There are a ton of variety of ways to expand a lease if a company’s growing. How to structure a deal is pretty important and how to come up with all the different services that are going to be necessary as part of the lease once the lease is signed.
Let’s say if somebody’s going to move, they’re going to need to talk to a mover, a phone company, an Internet/voice data company. They’re going to need to talk to all kinds of people - an attorney who is a specialist in commercial leases. All those kinds of relationships I have with a lot of people and can make those referrals to the client so that they’re not just running to the internet and trying to type in “commercial leasing attorney” and hoping they get somebody that knows what they’re doing.
Being a lease provisions expert, how to negotiation the lease language because what everybody focuses on are the dollars and cents, the rent that they’re having to pay, but ultimately that’s really only one part. If all your broker is doing is negotiating the rental amount, then you’re really losing because if you can’t translate whatever you negotiated into these leases, which are often 40 to 100 pages long, you’re really potentially setting yourself up for a fall because there could be a lot of language in that lease that could come back to bite you later on.
Those are all the kinds of things. Ultimately, we’re saving time and we’re saving money. The good news in all of this is that there’s no additional cost for our service. In fact, the rental rate that a tenant pays has all of the landlord’s costs included in it: whatever return on investment they get for having bought the building, the commission to the landlord’s broker, the legal fees, the construction cost to build out the space for the tenant and that tenant’s brokers’ fee. All of that’s included in the rental rate. If a tenant negotiates a lease directly and doesn’t use a broker, it’s sort of like paying for one without getting the benefit of it.
Now, most of my competitors will tell you that we are a free service. In one sense that’s true and in other sense it’s not. I don’t work for free. I don’t do this because I’m a charity guy. I do a lot of charitable work, but I’m not doing this. This is my for-profit business, so I’m here to pay for my kid’s college tuition and my house mortgage and everything else like you and everyone else.
We’re not free. We do get paid. It’s just that the tenant doesn’t pay us directly. It gets paid by the landlord, but it is coming out of the rent one way or another, so the tenant needs to make sure they’re getting the representation that they’re paying for in the long run.
Patrick: That’s exactly right. We want to get to get to how someone can engage with you and what they get when they do that? How would you want somebody to contact you, if they heard this show and they wanted to connect to you?
Bob: Well, they can do a couple things. The easiest thing is just to go to my website, which is www.TexasTenantRep.com. There’s a “Contact Us” button there and you can fill out that form and that’ll come right to me. Or you can send me an e-mail: just firstname.lastname@example.org. Or, of course, the phone which is (972) 468-1946. All of those are the easy ways.
The one thing I always tell people is I do a lot of public speaking on these topics. Typically my topic is “What Your Landlord Doesn’t Want You to Know,” and that’s really because of my background as a landlord I can talk about the things that landlords really would rather the tenant not know.
It’s not because landlords are bad people. I’ll say that right away. I have a lot of friends that are landlords. I was a landlord for 20 years and I wasn’t a bad person. It’s just that they have a different goal and objective. Their goal is to maximize the return on investment to their investors. The way to do that is to charge as much rent as they can at the least cost. That’s what they should be doing.
On the other hand, I should be, as a tenant agent – my fiduciary is to a tenant – I should be trying to get the best deal for the tenant, to minimize the rent and to transfer as much of the cost to the landlord as possible. The first thing whenever we engage a client is we talk about the goals and objectives we mentioned a minute ago and make sure we understand what they’re doing, make sure what kind of property they’re looking for in what location, make sure that we’re the best fit for them.
If I’m not the best solution because of some expertise location issue, I’m going to be real quick to tell the client that and refer them to somebody that I know is the best choice for them and is an expert in their particular niche of some sort.
I specialize in high-rise office buildings and warehouse and then what we call “flex” which is sort of the office/warehouse combination. You see a lot of technology companies in that. We talk about all those kind of things and we sign an Exclusive Representation Agreement. I agree to exclusively represent a tenant and not the landlord. I have no conflicts of interest.
You should never ever use somebody whose name is on a sign to represent you because they represent the landlord. You can’t trust them to represent you, too. In fact, that’s a misnomer. You can’t represent two parties in the same transaction. Make sure that the person you hire is free of all conflicts of interest and only represents tenants. In return, they’re going to want to make sure that you agree to let them represent you and that you’re not working with other brokers.
No broker that’s any good is going to work with an exclusive because they know that they can’t count on getting paid at the end of the day. You want to hire somebody on an exclusive basis. It’s in the tenant’s best interest, and you know you’re going to get somebody good who’s really going to work hard for you. It usually takes me from the time I start an assignment anywhere from six to 18 months working a deal before I get paid.
Bob: Yeah. So I’m not going to start down that road if I know the person is not going to commit to me like I’ve committed to them.
Patrick: That’s good. Well, Bob, I know we’re really coming down to the last 30 seconds or show of the show and I want to say thank you. Thank you so much for being on the show. Do connect with Bob at email@example.com or call him at (972) 468-1946.
This is Selling to the C Level and we will talk to ya’ll next week. Thanks again, Bob, and we’ll talk to ya’ll again.