Here’s the secret to survival in commercial real estate: People.
That’s it. It has far less to do with crafting whiz-bang deals or stenciling the name of your holding company on every office park sign.
Without the right attention to the right people, on both sides of the deal, markets like this one will eat you up. For Bob Palestri, partner of the Long Beach Island-based consulting firm the Property Institute, this concept is a basic.
Palestri will moderate a panel of commercial real estate experts for the state chapter of the National Association of Industrial and Office Properties entitled “Tenant Retention In Tough Times” on Wednesday, December 3, at 7:30 a.m. at the Eisenhower Corporate Campus in Livingston. Cost: $105. For information, call 732-729-9900 or visit www.njnaiop.org.
“Tenant Retention” features a panel of real estate experts including Glenn Buie of First Industrial Realty Trust, John Marazzo of Mack-Cali Realty Corporation, Seena Stein of Newmark Knight Frank, and Andrew Zezas of Real Estate Strategies Corporation.
While Palestri has made a 30-year career in commercial real estate and tenant retention, it is the second part of the seminar’s title that he reacts strongest to. “Tough times,” Palestri says, is somewhat irrelevant. “Tenant retention is always the goal, in a difficult market or not,” he says. Whether the economy is booming or busting, keeping tenants in their office spaces is going to keep you in business as a property owner.
Ironic as it might sound, a boom can be just as tricky. A major contributor to tenant loss in tough times is whether that tenant can actually survive. If a business folds, the landlord loses a steady check. But in a boom a business might be doing well enough to expand and feel the need to move. And it will be less problematic in flush times because those tenants can better handle the expense of moving.
“It is extremely expensive for a tenant to move,” Palestri says. “They would need to be extremely dissatisfied.” Landlords know this, he says, and less professional ones rely on it. Smart unprofessional landlords can cut a few corners and save a few bucks knowing the tenant will put up with minor problems here and there rather than upend their entire operation and go somewhere else.
Don’t, however, think you can push tenants very far. If the environment in which they work becomes too problematic — heat keeps shutting off, lighting routinely goes on the blink — tenants have little motive to stay, especially when there are always other places to rent. Tough times, then, are not necessarily the final arbiter.
Service counts. “It all starts with the people,” Palestri says. “You’ve got to pick the right people.”
He isn’t talking about tenants. The right people are the ones on the property owner’s staff. They need to be communicative and responsive to tenant needs. In other words, they need to embody customer service, which is something Palestri admits is a side of commercial real estate that many people do not consider.
But, like an airline reservations agent or an auto mechanic, the most successful companies involved in commercial real estate need to be on top of their customer service game.
Citing Jack Walsh, GE’s legendary ex-CEO, Palestri says that finding and keeping the best people should be an ongoing process. In the 1970s Walsh began a practice of hiring only the top talent and then firing the bottom 10 percent of the pool every year. Over time the best become the absolute best and service stays high.
Face time. You can outsource the mechanical side of things — plumbing, maintenance, painting — but not face time, Palestri says. “Maintenance people are the first responders,” he says. The ones who show up to fix the immediate problem.
But they are not the ones who should be handling the business. An office building or park has many tenants, and those in A-list buildings are paying a premium. They want to be able to connect with the landlord whenever they need to. Having the landlord — who usually is off-site — come out to fix problems in one area takes him away from other tenants, rather than leaving the heavy work to those who know how to do it and the customer service to the experts in that field.
“Tenants want face time,” he says. “They want to know they’re getting good service. Did you follow up on requests? Are they comfortable in their environment? Can they get in and out in bad weather?” These are important questions and could make the difference between a tenant — particularly a small one for whom it would be less trouble to move — staying and going.
Learning vs. doing. Finding out how people feel about anything is easy. All you have to do is ask them. But what do you do with the information?
Most landlords listen to their tenants, Palestri says. They survey them and make records of issues. “Where they fail is in the implementation.” It is not enough to get or even look at the results of a tenant survey. Those result must be quantified and interpreted. Real issues need to be weeded from the smaller complaints.
This, again, is where having the best people on staff will help. If you are armed with people who know how to interpret and solve problems, the economic climate matters less than the ability to make sure the HVAC is working, that people are comfortable, and that tenants feel they are being taken seriously.
Palestri is, if nothing else, an authority in the intangible field of human relations. A former mayor of Independence Township, Palestri received his bachelor’s in handicapped education and his master’s in personnel and counseling from Kean University. He started working in high school and stayed until his second child was born. “Then I needed to go to work,” he says.
Palestri went to work for the Linpro Company and then to Gale & Wentworth, where he worked in management services for 25 years. In 2004 he set out on his own, co-founding the Property Institute and selling real estate on LBI.
If Palestri himself did not come from a line of commercial real estate agents — his mother was a housewife and his father a distributor — he may actually be siring one. His two daughters, Jen and Jill, are big names in the field. Jen works for Normandy Real Estate Partners and is president of ICREW-NJ. Jill is a property administrator at the Parsippany office of Jones Lang LaSalle, one of the largest commercial real estate firms in the world.
Bear market benefits. There might be one good thing to come out of these tough times, Palestri says. A veteran in corporate property management, Palestri says he learned while doing outsourcing that many companies with real estate issues have space issues — too much space, to be exact.
Large companies, spread across many states and employing thousands of people, often overshoot their space needs. Palestri has, in fact, seen companies that literally have acres of unused space. With the economy in the downswing, he says, more companies might take a closer look at how much space they have versus how much they really need. Still, he admits, it is never an easy task, given the cost and logistics of relocation.
“I can’t imagine being in a corporation today trying to make some of these decision,” he says.