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EPISODE #016

#16 Secrets to Negotiating a Commercial Lease with Julie Johnson

Julie Johnson shares her wealth of experience in negotiating leases from both the landlord and tenant perspective. Listen to learn the secrets to saving money on your business’ lease.  Apply these tricks to your next lease negotiation to save your business money.

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Key Takeaways:

1. In most all real estate transactions, a tenant should hire a professional to represent them. Because a landlord usually pays the broker who represents them in finding tenants a commission—which is also shared with whoever the tenant has representing them—it is considered a business expense for the landlord, not the tenant.

2. When determining the right location for a business, the type of business should be taken into consideration. Service providers for healthcare, for example, should be in an area where they are easily found, recognizable, where there is a lot of foot traffic, or where they would be near other medical providers. Office tenants should be near where their employees live to reduce drive time. Real estate professionals can help with these specifics in determining where a business should be located and can provide their expertise in specific industries.
3. Hiring a real estate professional can be invaluable when navigating lease negotiations. Real estate experts will have the knowledge and experience to successfully find a balance between the desires of the landlord and the tenant, and establish a positive relationship between them for the long term. Additionally, real estate professionals help their clients understand the language and terms of their lease, provide protection from additional problems in the future, and help clients understand and expect the specific costs of transactions as well as their liability for personal guarantees that landlords desire.
4. There are some situations in which tenants should build flexibility into their lease to account for the potential rapid growth of their business in the future. This can be accomplished through negotiating an early termination halfway through the lease term, building in the option to sublease space that is not being used, or working with a landlord to find additional space, extend a lease, substitute a different lease, or move to another location that is available with the landlord. Depending on the state of the real estate market, it is possible for a tenant to renegotiate the terms of their lease with their landlord. When there are higher vacancies in the market, lease rates are generally lower and concessions are more likely given. Tenants should always be aware of their contingency plan, knowing that the market will not always be as it is at the time of signing their lease.

 

TRANSCRIPTION:

Julie Johnson

Speaker 1:

From his first job flipping burgers at McDonald’s and delivering The Washington Post, Craig Willett counts only one and a half years of his adult life working for someone else. Welcome to The Biz Sherpa podcast with your host, Craig Willett. Founder of several multimillion-dollar businesses and trusted advisor to other business owners, he’s giving back to help business owners and aspiring entrepreneurs achieve fulfillment, enhance their lives, and create enduring wealth. The Biz Sherpa. 

Craig Willett:

This is Craig Willett, The Biz Sherpa. Welcome to today’s episode. I hope of all things that you get from today is the value of hiring someone that really won’t cost you out of your pocket. Actually, it will be paid for by the person you’re going to do business with. And that is to use an expert in real estate when you go to lease a property for your first endeavor or for renewing your lease.

Today, I have a special guest, Julie Johnson. She’s an executive vice president with Colliers here in Phoenix. She has extensive 30 years experience in negotiating leases and helping tenants procure space. In addition, Julie’s also a mentor, so she’s going to share some of her secrets before she goes today with you on how to build and grow a business. Julie, welcome.

Julie Johnson:

Thank you.

Craig Willett:

Glad to have you here today. I mentioned thatand this is one of the keys to a real estate transactionis the landlord, usually, is the one that pays the commission. Actually, it behooves the tenant to find someone that they trust to represent them in the transaction, knowing that they can hire someone that’s an expert and not really have to worry about what it’s going to cost them out of pocket.

Julie Johnson:

That’s right. In most situations, the landlord has a broker who was representing them to help them find tenants. And there’s a commission that’s being given to that broker. And that commission is shared with whoever the tenant has representing them. And so it comes out of the landlord’s pocket as a business expense, not the tenants.

Craig Willett:

Much like buying a home. Most people probably have experienced that when they buy a home. As a buyer, you’re not paying the commission, the seller is.

Julie Johnson:

That’s right. That’s right. It’s almost identical, and in some situations, the landlord might be representing themselves, but it’s usually rare.

Craig Willett:

Great. One of the keys to real estate that my dad taught me, and I heard this at the kitchen table and I also took his real estate class, is location, location, location. How important is it? And how does someone know what’s the right location for their business?

Julie Johnson:

It definitely depends on what type of business. If you’re a service provider such as for healthcare—which is my specialty—or retail, you want to be in an area that people see you, where it’s easily found, recognizable, maybe an area where there’s other foot traffic such as a retail center, or maybe with other medical providers. For an office tenant, you probably want to be where your employees are.

So to know where your employees work, there’s a lot of maps that you can do with zip codes of where those employees are located so that you can see where the best location would be that you would be able to be close to your employees. To be near a freewayespecially as our freeways have grown here in the Phoenix areahas also been really important, because that allows people a shorter drive time if they are coming from a greater distance.

Craig Willett:

That’s a great point. So if I’m a dentist, what makes a good location for me? You mentioned near other healthcare professionals, other foot traffic, how does that benefit me?

Julie Johnson:

Specifically for a dental practice?

Craig Willett:

Dental or another medical practice, say a family physician, where they tend to take from the general population and not necessarily referrals.

Julie Johnson:

The type of insurance today has changed over the last 10, 12 years. And so based on insurance and based on that a lot of the hospitals are now employing physicians, the hospital strategy is to go out and be close to where the patient is, so very suburban outpatient. So that, similar to live, work, play that you’ve probably heard a lot, that’s really beneficial for a healthcare provider. Because it’s easier to keep a patient well than to get them better if they’re sick, and it’s less expensive.

So in this mode of trying to make healthcare more efficient, that’s really good. Dentistry, specifically, has been, over the years, more seen in retail settings. And there’s somewhere between a five and 10 percent traffic flow that comes specifically from someone walking by that dental practice into a grocery store or whatever they’re going to visit within a retail center. So dental is a little bit more open in terms of getting new patients from just walk by. But so much of health care insurancehealth insurance drives where a family practice or primary care goes that’s a little bit different than just a foot traffic type of stop-in new patients.

Craig Willett:

And so why is that? I mean, they need to be near the patient, but is it certain amount of providers in an area if it gets saturated? Does that lessen the chance, if I’m a doctor, of getting reimbursement from the insurance that may help me to choose another location?

Julie Johnson:

Yeah. If you’re a patient and your company has a specific type of insuranceBlue Cross Blue Shield, or Cigna, is it a PPO, is it an HMOthat would drive where you would go or how your health insurance location would be paid for. So if you have a certain area that you’re trying to focus on, that’s the best way is to see, do you have to drivemaybe for a PPO you don’t have to drive more than five minutes, for an HMO location for primary care you might have to drive 20 minutes, as an example. So there’s a lot of changes, and that drives a lot of health care decisions for medical doctors.

Craig Willett:

So you actually could be a resource for them to help them know and do some of that research as to where’s a great location based on their reimbursement plans?

Julie Johnson:

Yes. We work with our clients to help them to see where, especially primary care, because primary care then is a referral source. And very often if there’s a in-network or in-hospital referral source for a particular specialty, that’s where they’ll refer. But if it’s a PPO and they can choose an independent specialist, they might do some research and choose an independent specialist, but it’s usually what’s considered in-network so that they have to pay less.

Craig Willett:

So it’s more than just driving down the street and seeing a nice office building and saying, “Hey, I want to put my practice here,” there’s a lot of research that goes into it. Not only does it have to be accessible and visible, but there’s a lot of behind-the-scenes financial understanding that has to go into it.

Julie Johnson:

Yes. And so, not only do we look at demographics income, because certain practices might specialize in Medicare or Medicaid, and it’s a different reimbursement than if that’s by private pay insurance. So if there’s a higher-income demographic, maybe that is more suited for one type of a practice so that they haveif someone needs to pay a copay, that they know that there is a more likely chance that that patient can pay their copay.

And then also, we use mapping a lot. So we’ll take a look at where other practices that are their competitors might be located, because they don’t necessarily want to be right next door. And then they’ll also take a look at where there might be a gap or a hole so that there might need to be a provider of their specialty in that area.

Craig Willett:

Oh, that’s interesting. So you’re able to kind of help them target the exact right location for them. How do we go about budgeting though? If I’m setting up a new practice, or a new opening, a new office, how can I judge how much to expect to pay? And how do I get through all of this triple net gross? How can I figure out what the real cost is going to be at the end of the day? Because you can see it advertised $24 a square foot, but that may mean something if that’s gross versus a triple net. Help me understand the differences between the leases and how I can know what to expect to pay. What are all the add-ons or the hidden costs of being a tenant?

Julie Johnson:

Yes. And that’s one area that using a professional will help you immensely in, so that they can help you work through this language that most people don’t know, and also help you to provide protection for knowing that you have the best deal, but you also have the least outcomes for any possible problems down the road, or additional expenses down the road.

An average amount for a medical practice is probably somewhere in the 15% overhead, plus or minus. And for retail leases, you’re looking at, maybe, a percentage lease as the only rent payment. So that might be very different than what a medical practice is. But five to 20%, it’s a wide range for what someone would pay in overhead rent. Employees are usually the highest percentage of what business overhead is.

But taking a look at just the real estate and diving down deeper, there’s three different kindsfour if you include percentage rent for a triple net retail lease. But triple net means that none of the operating expenses are included. And operating expenses are property taxes, common area maintenance, building insurance, interior electric, and janitorial. And for just a thumbnail rule, that’s usually somewhere altogether about $10 to $12 per square foot annually. Arizona works on an annual basis, and other states, such as California, work on a monthly basis. So you’d need to take that and multiply it by 12.

Craig Willett:

Multiply it by 12, yeah. That’s interesting. So if someone reads it’s $24 a foot, and it says triple net, and I’m looking for office space before I hire somebodyI’m just trying to decide if starting a businessI can just add another $10 to $12 a foot and really figure if I need 5,000 square feet, it’s going to be somewhere around $36 a foot per year.

Julie Johnson:

It’s a good place to start. And then to find out your monthly rent, you’d divide that by 12. But that’s a good place to start. And then there’s also a modified gross lease, which means that there’s other things that are included in order to make it a full service gross. And full service gross means that every operating expense is included except for hazardous waste in a medical office. But usually it’s electric and janitorial. Together, those two are about $3. So if you’re looking at a modified gross lease then you’ll add $3 to get to a full service rate. But to, as you said, add everything together as if you were making a full-service lease payment, that would be the smartest thing to do for your budget.

Craig Willett:

So try to figure it out so that you don’t get there and say, “Hey, wait, why is my rent $40,000 a year when I thought it was $30,000?”

Julie Johnson:

Right.

Craig Willett:

Okay. That makes a lot of sense. What have you seen that has helped in a successful lease negotiation? As a professional, why would someone want to hire you in particular and someone like you? How can you help?

Julie Johnson:

So there is kind of a win-win goal at the end of every lease transaction. But at the beginning, both sides have different goals, the landlord wants to get the most rent, they want to get the most recourse, the tenant wants to not pay as much rent and not have as much recourse. So to find a good balance, because, hopefully, they’ll have a relationship that’s very positive for many years.

So looking at the lease rate is just one thing, it’s the start and the biggest thing that everyone talks about, but there’s also annual increases. And that goes both for the actual lease rate, as well as for operating expenses. And for the lease rate, if it’s a full-service gross, it’s usually done on what’s called a base-year expense stop, meaning the landlord pays for all of the operating expenses the first year, and then the tenant pays for anything over that. So a base year 2020

Craig Willett:

And it increases.

Julie Johnson:

Yes. And then for a triple net lease, it’s just whatever the hard coststhe actual costsare, would be passed on to the tenant, and they would contract independently for their electric provider and their choice of a janitorial.

Craig Willett:

So we have these opposing views, how are you able to successfully get them to have a good relationship at the end of the day? A friend of mine once said, “A successful negotiation is you feel like you gave up a little too much and the other person probably felt like they gave up a little too much.” But how do people get beyond that and really realize that they can have a good relationship with their landlord, and maybe should?

Julie Johnson:

I think that there’s some things to give confidence to both sides, and to know that the landlord is not trying to push someone around, but they really are leaving some room for negotiation and flexibility. In addition to the lease rate, there’s tenant improvement allowance, which most tenants, if they walk into a space and they can’t use it just as it is, they’ll need to remodel it. And just carpet and paint these days is still pretty expensive. And for medical offices, there’s usually some updating for cabinetry or carpet and paint or some other things.

So the landlord pays for the tenant improvements, or they provide an allowance, and if the tenant has additional items that they want over that, then the tenant would need to pay for those out of their pockets. Sometimes if the tenant has good credit, the landlord will amortize that into the term of the lease at a certain percentage interest rate. Sometimes the tenant might ask for free rent over the good years. These last several years, it’s been a landlord’s market and free rent has been hard to get, but heading down the road, going forward, free rent probably will be a concession that will be given to tenants. The other thing that a tenant would really need to look out for is whatever their liability is for a personal guarantee landlords will want.

Craig Willett:

Yeah, that’s a big question, right? If things don’t go well in the business and you end up having to close it down but you have three years left on a lease, you may be obligated. How do you help a tenant shield themselves somewhat that way from the personal guarantee?

Julie Johnson:

And I think that that’s one area where people have to really have their win-win hats on, because if someone has good credit, the landlord’s willing to extend a little bit more generosity and the personal guarantee. But yet, historically, there have been tenants who have left in the middle of their lease term, and some of the condition of the suites might not be releasable, and they’d have to demo it and start over. Some of them might just be carpet and paint and very easy, but a landlord needs to look at the chance of someone not finishing their lease and moving out in the middle of the lease. The landlord amortizes the tenant improvement allowance over the term of that lease.

So sometimes, if it’s a good credit tenantif it’s a corporate, high-credit tenant, they might waive the personal guarantee. If it’s a private practice or a business that has someone that they’re looking at their personal financial statements, but they’re very good and very strong, they might limit it to just a personal guarantee of the out-of-pocket costs of tenant improvement and leasing commissions, or they might want a full guarantee of all of the out-of-pocket costs, as well as the potential rent payments.

Craig Willett:

Well, that’s good to know, because if I’m going to sign a lease, I want to know that, outside of the landlord insisting on a full guarantee, there are some options that are somewhat in between, some middle ground.

Julie Johnson:

Yes.

Craig Willett:

It’s not an all-or-nothing situation, which I think is really insightful.

Julie Johnson:

Yes.

Craig Willett:

Now, on tenant improvements. This is area I would imagine that catches a lot of people by surprise. Carpet and paint, what the landlord wants to pay for carpet and paint may not be the quality of carpet that the tenant wants for floor covering. How do you go about helping your tenants know what it might cost? Because you’re negotiating a lease and you don’t necessarily have bids or proposals necessarily for those tenant improvements at that stage of negotiation, do you?

Julie Johnson:

No. And that’s where it really helps, again, to use a professional who is used to seeing what the costs are of carpet and paint or other remodeling tenant improvement costs during other negotiations and deals that they’ve worked on. And then if they have some trusted contractors that they can get pricing from, then if the landlord says, “Well, we think carpet and paint is this,” you can confirm that. And also buildingsespecially more institutional buildings, buildings that are more professionalsometimes have what’s called building standard, so that someone needs to go buy whatever type of carpet, paint, cabinetry, weight of carpetso different checklists to keep the professionalism of the common areas, as well as the tenant space for construction.

Craig Willett:

Good. So that there’s just uniformity across the board, and so you may be looking at space that’s very expensive because they want to keep that at a high level. And that’s good to know going in.

Julie Johnson:

Yes. And people use—again, in professional spaces, usually there’s a building architect that, if there’s more tenant improvements than just carpet and paint, the architect will get involved, do a preliminary space plan of what the tenant would like to do to the space, and then have a contractor price that out where it’s good for the tenant’s rep to also price that out, to compare it. And those numbers are used for budgetary numbers in the negotiations.

Craig Willett:

Right. And so you want to make sure you don’t just jump through and sign the lease and accept an allowance until you’ve had a chance, during the lease negotiation, to get some facts, and figures, and verify?

Julie Johnson:

Exactly. Because tenant improvements can be very expensive. And often, if they are very expensive, there’s a process called value engineering, where they’ll say, “Well, we want this outcome, is there any less expensive way to get it?” So working with the contractor and the architect, they can very often value-engineer some costs out of it.

Craig Willett:

And I would imagine this is an area that may, to the uneducated tenant, find themselves surprised, getting ready to move in. They do this improvements and they get the bill, and they realize they have to pay that upfront if the landlord hasn’t agreed to amortize it. So it’s an additional startup cost to that location if they’re expanding or to the business startup.

Julie Johnson:

It is. And very often, if it’s a high number, they’ll go to a lender and get a loan for those additional construction tenant improvements.

Craig Willett:

Great. Now, if they’re asking for personal guarantees or I’m starting a practice or a business, is there any way I can build in some flexibility, if it doesn’t go right, that I don’t haveare there exit points I can build into the lease, that if we’re in there three years and have done our best, but we need additional space and we can’t get it in the building that we’re leasing from you, how can we get out of it? What are some things that tenants need to think about in a five- or a seven-year lease that they can have some flexibility in year three or four, if they’re growing faster than they planned, or things aren’t going well?

Julie Johnson:

If those types of things are something in someone’s mind at the beginning of the lease, then there are certain things that you can do to consider when you are looking at a building. So if you’re looking at a building, and let’s just say it’s a medical tenant and there’s extensive tenant improvements, that would be costly. If you do a longer term lease, then the landlord can amortize those over a longer term and give you more money, which would not have to come out of pocket. So for instance, over a 10-year lease versus a five-year lease, there would be a lot of savings if you did a 10-year lease.

But if you’re not sure exactly where you’re going to be, you’re just really kind of thinking you’ll be there in 10 years, but you want the benefit of a ten-year tenant improvement allowance, if you try and negotiate a early termination at five years so that you have the option to terminate early, most landlords will allow for a one-time early termination option, sometime at five years or at seven years. And then usually the tenant will pay any unamortized costs if they do move out early. But it’s a way so that they don’t have the full rent obligation during that time.

Craig Willett:

So if you think your business is going to grow fast, you may want to build that in and just say, “This is a cost of growing. I’m going to pay some unamortized costs and some unamortized commissions, but it’s going to allow me to get to space where I’m not renting on one side of town and another side of town, and I need all the employees in one location.”

Julie Johnson:

Exactly. And another option in pretty much every lease, is a sub-lease option. So if you don’t need the space, you can sublease it. The landlord needs to approve it, but that someone else will come in and make a lease payment. It might not be identical to yours, but you can sublease the space. And then also, if you really have an idea that you might be expanding or need some flexibility and you can’t negotiate an early termination, potentially that landlord has either larger space, smaller space in the same building that they could break a lease, substitute, and continue on with the lease, maybe extend it a little, or if they have another building or two, then they can move you to another location if that works for you. So something that is mutually advantageous to both parties.

Craig Willett:

That’s great. It’s good to think ahead a little bit too. To have that, I think it makes for good planning, just in case so that if things go better than expected, you have that ability. But you don’t want it to become the stumbling block to a lease negotiation either, but

Julie Johnson:

No. Options are always good.

Craig Willett:

That’s great. We’ve seen—you mentioned a sublease and you mentioned that you may not be able to collect in rent the same amount that you’re paying. Sometimes that could be more, most likely it’s probably less. What is that process like? If I all of a sudden realize my business isn’t going well, how long would, typically, I expect to have to market that space before I could really find someone qualified to come in and take over my lease? I’m sure it varies by market, but it’s not typical that I can find that overnight, is it?

Julie Johnson:

No. But you might if you’re in a great location and if you’ve got—if there’s no other vacant spaces in the building, you might

Craig Willett:

And your competitor wants to be there.

Julie Johnson:

Exactly. So it does vary tremendously, but maybe three to six months might be a timeframe. And it would also vary the type of commercial real estate space, whether it’s office or medical or retail. And so I think it’s something that would not be your first resort, because there would potentially be some downtime and no tenant is prepared for paying for a space that they’re not going to be using.

Craig Willett:

Okay. I sit here and I imagine, I open a business, I’m doing well, and I’ve signed a 10-year lease because I was really ambitious and I thought, “This is the perfect location for me. I think it’s going to drive my patients or my clients to me.” And so I commit to 10 years, but then—and it was at a time when the market was just doing really well. And I couldn’t get much of a break on the rent and I paid top of the market for rent, but five years into it, the market gets very soft, and people stop using office space. And it’s less in demand, and the rate might be 30%. If I were to go lease new space, I might be able to get 30% less. What do I do? Is there an opportunity for me as a tenant to renegotiate with my landlord?

Julie Johnson:

Absolutely. And that’s a perfect question for where we are in the market right now.

Craig Willett:

Oh yeah, with the pandemic.

Julie Johnson:

There are a lot of office spaces who have decided that for a long time, their employees can work from home. And so a lot of general office spaces have been put on the market for sub-lease. And potentially, there might be some medical office spaces put on the market for sub-lease. But when that does happen, I think that people are going to be looking at a lower lease rate going forward. It’s all market supply and demand. When there’s a higher vacancy, the lease rates are generally lower, more concessions given. And when there’s a lower vacancy, then it’s a landlord’s market and rates are higher.

So if it’s a tenant’s market, the tenant can go to the landlord and say, “Here’s my issue.” And if they are a good credit tenantagain, it definitely depends on credit and their payment historythe landlord might renegotiate the lease based on

Craig Willett:

But he’s not obligated to.

Julie Johnson:

They’re not obligated to, but it’s a legal contract both parties have signed.

Craig Willett:

Right. So what are some of the points that you would say to a tenant, “Here’s the best way to approach the landlord”? Because, I would imagine a lot of landlords sit there and they’re probably practical like me, being a landlord, “Well, you signed the agreement when we did it, no one saw this coming, and I’ve made commitments based on that as a landlord.” How do you get the landlord to soften his heart? His or her heart, I should say. It’s heart, if it has a heart.

Julie Johnson:

This April, I had many clients call me because they had to close their practices. They weren’t seeing patients. They had no cash flow. They still had expenses, rent being one of their expenses.

Craig Willett:

And that’s because of the governor’s order if it’s not

Julie Johnson:

Yes, the governor’s order. And then before a lot of the PPP CARES Act came out, there were still communications. And very often a tenant could call a landlord, especially if they had a good relationship. They could work through, potentially having one or two months of free rent, adding that one or two months on the end of the lease so that the landlord still was compensated. And some of my clients ended up working through attorneys. But there is a trickle-down, because when the landlord doesn’t get paid, then if that’s a long time, then sometimes their mortgage doesn’t get paid. And so I think we’ll be seeing a lot of trickle-down here as we go forward in a lot of the different commercial real estate types.

Craig Willett:

And I think this is probably most visible in the economy. It’s hard to watch the business news and truly understand the impacts of major shocks to the system, but I think it’s best demonstrated in the real estate market. While the real estate market has continued to be strong because the government did put PPP money and allowed people to borrow money, to pay rent, and then be forgiven that, to keep them in place thinking this will turn around, but when it has a longer term impact, once we see rents weakeningsay in New York or California, right now with people moving out in residentialit will still have a trickle effect through all of the real estate market.

And it tends to go in waves. And you’ve said it really well. Sometimes it’s a landlord’s market, sometimes it’s a tenant’s market. And where you are, it kind of brings everybody back to the table to see that, but I think it’s something to think about. That in real estate, while it’s good to secure what you need for your location, you have to be careful not to commit to too long a term, and you also need to realize that it’s not always going to be like it is today.

Julie Johnson:

Yes. And there’ve been some trends that have been happening over the last couple of years, that this pandemic has fast-forwarded, that will affect commercial real estate. The e-commerce has affected retail. And there’s been so many retail companies that have filed for bankruptcy. Some of them have already come out of bankruptcy, but some of them will have a lot of excess space, both in malls, as well as potentially just freestanding buildings. And over the last five, 10 years, we’ve been considering how to do adaptive reuse for some of that retail space. But now that’s happening a lot faster than we have ever had to imagine. And people are very creative and resourceful. And so they’re looking at

Craig Willett:

That’s the American business dream, right? To be creative and resourceful.

Julie Johnson:

That’s exactly right.

Craig Willett:

So what are some of the ways they’re adapting to being creative when this space comes available? What kind of uses are

Julie Johnson:

So for retail, everything from self-storage tocold storage right now is actually a very big, booming business and some

Craig Willett:

Really, never would have thought. Cold storage?

Julie Johnson:

Think vaccines.

Craig Willett:

Oh. Okay.

Julie Johnson:

And because retail centers are very well-located strategically in neighborhoods with signage and adequate parking, a shift from retail to medical has been happening already the last five to 10 years, but I think that that’s still an opportunity. Affordable housing in some of these retail centers is another possibility. So from e-commerce to warehousing, that last mile for a lot of the delivery services. So people are looking at every opportunity. Some of the opportunities would reduce the value based on the use, but still, if it’s vacant, that’s not a very good value.

Craig Willett:

Yeah, we’ve all driven by buildings that have been vacant for years and years and years. I think of old parts of certain towns where I’ve lived, and you drive by, and when the railroad stopped coming, the railroad spur that’s there, and the warehouse sits there empty next to it for 20 years in some cases.

Julie Johnson:

Yes. So getting those creative real estate hats on and seeing what we can do that would be the highest and best use.

Craig Willett:

I think that’s great. Now, often, we tend to get excited as entrepreneurs and want to go out and start our business, and maybe we rush out and sign a lease, not being necessarily represented on our partthe landlord’s broker did the deal. How many times, or what kind of situations have people come to you with mistakes that they’ve made? And of course, they didn’t make them because you were their helper. How are you able to help them? And what kind of things are common that people will make when they’re really, maybe rushing it and not getting the adequate help that you’ve been able to help them later solve?

Julie Johnson:

Yeah. I think that looking back at some of the things that we talked about earlier, might they need to sub-lease it, and helping them figure out where the best place is to sub-lease it. Because a real estate agent can help you sub-lease their space. There’s usually a good commission involved, but it’s much less than having to pay rent on a vacant space. So taking a look at what their options would be, whether it’s complete relocation, or can you help them sub-lease the space, or however you can help them mitigate whatever their gap is in what they’re paying, and what their solution should be.

Craig Willett:

Okay. So they come to you and say, “Look, I kind of overextended, I need some help,” and you’re able to help them figure that out?

Julie Johnson:

Yes.

Craig Willett:

So that’s probably one of the more common ones, “I got into this lease and it’s more than I can handle”?

Julie Johnson:

It doesn’t happen often, but it does happen. And that’s the situation it would happen under.

Craig Willett:

Okay. Now, here’s a question, and I know you’re very reputable, but if I’m inexperienced at real estate and I’m starting a business or starting a medical practice, how do I know who’s trustworthy for me to hire to represent me?

Julie Johnson:

If you ask your peers, if you ask if it’s medical, if you ask physicians or medical groups who have signed leaseswho they used, did they like them. You can go to different professional organizations and ask them for their recommendations. So to get a personal recommendation, I would think would be the best way. You can look online. And often, websites will have reviews. Sometimes you can contact the people who wrote the reviews personally. So really to do your due diligence. A personal recommendation is always the best, but you can also do some digging through other areas, professional associations.

Craig Willett:

I think that’s great. So now, probably the biggest question, and I kind of said this at the beginning, what do you do? What are some of your secrets that have allowed you to become the premier agent that you are as your reputation and the following that you have with clients that have been long-term clients? How do you develop that? And how do you maintain that? Basically, how do you market yourself?

Julie Johnson:

I think I have a leave-no-stone-unturned philosophy, no matter who I’m representing, if it’s the landlord or the tenant, and looking at just absolutely every detail, and is there anything that we haven’t done or that we should do. And especially after years of experience, you know what those stones are that you need to turn over. But I also think that having your client’s best interest always leads to your best interest. And again, it’s a win-win philosophy. It’s just instead of a landlord tenant, it’s your client and you. And if you have their best interest in mind, then you will come out winning as well.

So most of my clients have become my friends, as you are a perfect example. But I think that just having a win-win, that you want to help them, you want to do your best for them, and that you put yourself in their shoes. And then everything that you can do that would help you look forward to what you want out of your career. Because so often in commercial real estate, you look at what you have to do. When you’re answering phone calls or emails, you’re reacting to what you need to do, but setting aside proactive time to do what your business plan is, and reaching out to people who might be previous clients or might be clients that are on your top 10 list.

So to not only take really good care of the clients you have and do the best in every conversation you’re having, but also to reach out to others and see how you can help them. So often, my business development might include sending someone an article I think they might feel as helpful. So again, having a win-win approach.

Craig Willett:

I love that. And I think that’s, to me, one of the tenants of success of any business, is to care enough about the person that you’re doing business with, that you go above and beyond and meet their expectations and exceed those, and make sure that you are beyond reproach as far as caring about their needs and making sure those needs get met, whether it’s a service or a product. I think you embody that, which is one of the reasons I invited you to be here.

Now, no one can escape The Biz Sherpa podcast without answering a difficult question. What’s your greatest challenge that you’ve faced in your career challenges, and what’d you learn from them?

Julie Johnson:

Well, I think time management is a huge one to me, and I think to a lot of busy professionals, is to make sure that you’re doing what you want to do for your career every day, and not just reacting. Because you’ll only be doing what comes to you, and maybe that’s not what you want to do with your career. So that’s a challenge, everyday time management. But I think that in real estate, and probably a lot of other businesses right now, I think there’s no business that’s unscathed from a challenge. And so taking a look at where you can grow, where you can benefit. And during times, for instance, the last recession, there wasn’t a lot of real estate deals going on. There was a lot of one-year lease renewals rather than five or 10-year lease renewals.

Craig Willett:

Probably didn’t seem worth your time at first.

Julie Johnson:

And I was grateful for that.

Craig Willett:

That’s right.

Julie Johnson:

So time was something that I had to manage differently, and taking a look at the time that I had, how could I use it best if there wasn’t a lot of deals that were in the market? And that was building relationships. So a lot of those people who normally were very busy, who were clients that didn’t have time to meet, well, all of a sudden they have time to meet. So I was out planting seeds and watering my garden. And then I had the most beautiful garden filled with great clients when I came out of the recession. So I think that, although every day was a challenge, when I looked at the time management that I put into that downtime, there was a lot of good, and a lot of business, and a lot of profits that came out of it.

Craig Willett:

I think that’s great. I think you just totally embodied one of the things that—we have a thing called The Biz Sherpa scorecard that I talk about in our third episode. The brilliant thing about the scorecard is it coaches you to spend 80% of your time in what’s going to make the most difference in your client’s life and your customer’s life.

Julie Johnson:

I need to listen to that.

Craig Willett:

Yes. And so when you do, you’ll see that you already do it. And I think that’s the key to time management. If you’re spending your time building those relationships, the results will take care of themselves. Maybe not tomorrow, but over the long term, you’ll exceed even your goals and expectations as you take them to heart. So I appreciate you sharing that with us, because I think that’s a great example that everyone can strive for to use their time to the greatest extent.

Julie, I really appreciate, first off, your friendship, and secondly, your willingness to come today and share your insights. I think it will help many of our listeners and audience understand better how to make a decision when it comes to where to locate, but not only location, but different tricks or tips on how to negotiate a lease. And probably the most important of which, that they need to hire somebody like you.

Julie Johnson:

Yes, definitely. Especially, because it’s not money out of your pocket and you can benefit tremendously, not only with the money you can save, but also to take a look at all of your liability that you don’t really want to commit to unless you know what you’re doing.

Craig Willett:

Right. And I think that’s where the advice you shared with us today, especially, would be go find somebody that’s a professional to represent you to help you with those issues. Great. Well, Julie, thanks for being with us today. This is Craig Willett. Thanks for joining us on The Biz Sherpa. Be sure to watch also. This is not just a podcast, it’s also on YouTube. Go to BizSherpa.co on YouTube and you can enjoy actually putting a face with the name of the voice that you hear on our podcast. Thanks for joining us.

Speaker 1:

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