What is net operating income or NOI anyway? NOI is the income derived from a property after all expenses except the cost of financing, or "debt service" have been subtracted. Since debt is voluntary (assuming you're filty stinking rich), think of NOI as the money you put in your jeans at the end of the year after you've paid for all other expenses. When you boil it down, determining NOI is a fairly simple process of adding up all your income and subtracting all your expenses. That said, a lot of people make serious mistakes when trying to calculate their NOI or when estimating the NOI of a potential purchase.
Often, newer investors don't take into consideration such things as vacancy and bad debt when calculating NOI. These are real expenses that should be accounted for when doing your calculations as they have a direct effect on the value of the property. Other overlooked items that should be taken into consideration are things like realty taxes, property insurance, off site management, legal and accounting fees, supplies like cleaners, brooms and mops, and payroll expenses if the property is large enough to have maintenance workers onsite.
Without a clear understanding of what NOI is and how it is calculated, you'll have a really hard time getting a handle on the real rate of return for a given property.
Example:
Found via retailtrafficmag.com
According to Sam Zell, founder of Equity Group Investments, LLC, the bottom of the US housing market will be a turning point in the American economy. He says,
“The key to everything is single-family housing because that’s where consumption comes from,” Zell said. “If people don’t have confidence in their biggest asset, they won’t have the confidence to spend.”While Mr. Zell is careful not to foster a false hope, he does give the impression that the economy shows signs of improvement, if not outright recovery right away.
Is this your first step into investment real estate? For many Canadians, investment in a multi-family or multi-tenant unit is attractive as an investment. If you’re considering that, welcome to an entirely new vocabulary, and terms such as NOI, or cap rate. A commercial REALTOR® can explain them to you in detail, and explain the impact each one can have on your decision whether a specific property is right for you and your investment portfolio.
Abandonment
A person or entity that leaves demised premises before the end of a lease term has ‘abandoned’ that space. Hence, an abandonment.
Absorption Rate
The net statistical changes in occupied space over a period of time. Positive absorption reflects an increase in occupied space while negative absorption reflects a decrease.
Accrued Expense
Expenses incurred which are not yet payable, or have not yet been paid.
Acquisition Cost
The total cost to the purchaser of a property; includes soft costs and sales costs.
Additional Rents
These are rents charged to a tenant for the maintenance, taxation, and insurance of any common areas.
After Tax Yield Rate
The annual rate of return on equity after payment of income taxes.
After Tax Yield
This is the annual profit remaining after payment of income taxes, or the annual return on equity after payment of income taxes.
Amenities
These are features that make a property more attractive, useful, desirable, and/or rentable and are usually included in the sale price or rent calculations.
Amortization
The process of paying off a debt, together with interest, usually with equal payments at regular intervals over a period of time.
Anchor Tenant
A prominent tenant occupying a large proportion of a commercial property and attracts customers and other tenants to the property.
Appraisal
An objective estimate or opinion of value of a property, as supported by the presentation of relevant data analysis.
Arrears
Money that is due or past due, but has not been paid.
Assessment
This is a levy against a property in addition to general taxes, and it is usually applied by a civic authority for improvements such as streets, sewers, etc.
Assignment
The method or manner by which a right or contract is transferred from one person to another.
Basic Rent
This is the rent agreed to through negotiation and does not include adjustments and additions.
Blanket Mortgage
This is a single mortgage covering more than one property, such as a mortgage covering all the lots of a builder in one subdivision.
Break-Even Point
This is the point where the effective gross income equals the cost of all operating expenses and debt service payments.
Build to Suit
The construction of a building or property that suits the particular needs of the occupant.
Capital Improvements
These are additions to the property or improvements that enhance or extend the useful life of the property.
Capitalization
This is the anticipated stabilized rate of return from an investment. Also known as the cap rate.
Cash Flow Analysis
A projection of the buyer's estimated cash flow over the holding period.
Clear Title
Any property that is free of any and all competing claims, mortgages, liens, and encumbrances.
Comparables
A term used to refer to area rents or competitive rental properties or area sales that have sold, implying that "rent comps" and "sales comps" are comparable in size, location, condition, amenities, etc., to the subject property.
Conditional Offer
This is an offer to purchase property subject to certain conditions, including the buyer's approval of income and expense statements, title commitment, physical condition of the property, loan commitment, etc. - being met. The specific amount of time allowed to clear these provisions is called the inspection, contingency, or most often a conditional period.
Density
This is the amount of total square feet buildable on a set land. For example high density properties feature more floors.
Encroachment
A building, part of a building or obstruction which intrudes onto another property.
Encumbrance
A claim, lien, charge or other liability attached to real property which may diminish its value.
Escalation Clause
A clause in a lease providing for an increase in rent at a future time. This could be a fixed or pre-determined rate increase, or a cost of living increase that ties the rent to a cost of living index, or direct expense - the rent is adjusted according to changes in the expenses of the property such as a tax increase.
First Right of Refusal
An option in a lease provided to a tenant in a lease contract providing first right to occupy space or match an incoming offer on adjacent space that may be required for the tenant's future expansion.
Floor Space Ratio
Also known as FSR, the maximum floor space of a building relative to its land area
Free and Clear
When there are no liens or loans against real property
Graduated Lease
A lease that features details for changes in the rental rate, usually based on periodic appraisal or time.
Gross Lease
A lease where the tenant pays all or part of the expenses of the leased property, such as taxes, insurance, maintenance, utilities, etc.
Gross Rent Multiplier
Sales price or value divided by annual effective gross income. For example if sale price is $325,000 and the effective gross annual income is $50,000 the G.R.M. is 6.5 ($325,000 /$50,000).
Gross-Up Area
It is the space leased but not occupied by the tenant, usually for areas such as washrooms, lobby area and utility centers.
Hurdle Rate
The rate of return expected by an individual investor below which he/she may choose not to purchase a particular property. This is not the same as a cap rate or ROI as the hurdle rate is an internal measurement of return desired by the investor and is independent of the real estate.
Internal Rate of Return
The rate of return over a holding period including periodic cash flows and reversion at the time of sale. Can be measured before and after tax.
Interest Only Mortgage
A non-amortizing loan where the lender receives only interest during the term of the loan and recovers the principal in a lump sum at the end of the term.
Landlord
Company or individual who rents property to another.
Lease
A contract where one party (the landlord) agrees to allow another party (tenant) the exclusive, common and/or joint right(s) to use a property for a specific period of time.
Leaseback
A transaction where an investor purchases property and then leases it back to the seller.
Lease Buyout
When a landlord offers to take over the current lease of a tenant.
Lessee
The tenant, or the party a property is rented to.
Lessor
The landlord, or the one who rents the property to another.
Letter of Intent
A formal method of stating there is interest in a property, but it is not an offer and generally creates no obligation.
Lien
A hold or claim which one person has upon the title of the property of another as security for a debt, charge, tax or judgment.
Loan-to-Value Ratio
This is the principal amount of a loan as a percent of lending value. For example, if property is purchased for $500,000 and is financed by a bank loan for $300,000 the 'loan-to-value" or "LTV" ratio is 60% of the property's lending value to a borrower.
Mortgage
A legal document pledging a described property for the performance of the repayment of a loan.
Negative Cash Flow
When the income from an investment property does not equal the usual expenses. The owner must come up with cash each month to meet these expenses.
Net Income
The difference between effective gross income generated by a property and the operating expenses including taxes and insurance. The term is qualified as net income before debt service.
Net Lease
A lease requiring the tenant to pay, in addition to a fixed rental, the expense of the property leased, such as taxes, insurance, maintenance etc. Often confused with net-net and net-net-net or triple net. These terms are all ‘net’ of some other expenses that may or may not be paid by the tenant.
Net Operating Income
Also known as NOI. This is the annual net income remaining after deducting all fixed and operating variable expenses, but before debt service and income tax. The specific formula is:
NOI = Scheduled rental income + other income - vacancy and credit losses - operating expenses
Net Rentable Area
Also known as net rentable square feet. This is the total amount of square feet that can be used for rental income. It typically excludes stairways, elevators, hallways, common areas, etc.
Net Rent Multiplier
The factor resulting from dividing the net operating income into the sale or purchase price.
Non-Conforming Use
Property used for purposes that do not conform to the permitted uses in the municipal or provincial zoning by-laws.
On-Site Improvements
Work completed on a property that improves its value.
Option
The right to purchase or lease a property at a certain price within a designated period of time for which a consideration is usually paid.
Payback Period
The time required for the complete recovery of an investment; often used with the concept that all income is considered a return of capital until the entire investment is recaptured and that income received after complete payback is considered profit.
Percentage Lease
A percentage lease is when the tenant pays a minimum rent then also pays a percentage of the volume of the business done on the premises whichever is greater. The percentage paid differs according to the types of business.
Phase I Environmental Audit
This refers to an initial environmental assessment of a facility by a qualified environmental engineering firm for potential contamination to determine if further investigations are warranted.
Phase II Environmental Audit
A more substantial investigation that requires further subsurface sampling, electromagnetic and hydro-geological study.
Pre-Lease
The leasing of a property or space that has not been developed or constructed.
Pro Forma
Means "for form only". A study prepared to estimate future income, expenses and potential profit or loss.
Radius Clause
In a percentage lease, it is customary to have a clause that details the distance from the property that a competing store from the same chain may be located. This is usually a distance sufficient so that two stores from the same chain are not in the same trade area.
Retail Premises
Premises used for the sole purpose of selling goods and/or services to the general public.
Reversion
The net sale proceeds from a property at the time of sale at the end of a holding period.
Solid Offer
An offer that is or has become unconditional and is now firm and binding on all parties.
Unencumbered
This is a property or land that has no liens, claims or mortgages against it.
Vacancy Rate
The percentage of total scheduled rental income lost to vacancy and bad credit costs.
Yield
This is the ratio of income from an investment to the total cost of the investment over a given period of time.
Zoning
The rules of a municipality that detail the allowable uses for the real property in specific areas, and only then on specified conditions.
Few transactions are as complex as those in commercial real estate. From finding the right property, lease space or investment to closing the deal, there is a lot more involved than most people think. This is where the expertise of a commercial REALTOR®, their negotiating skills, and procedural knowledge will prove invaluable. If you are looking to buy, sell or lease a commercial or investment property, these are some of the terms you should be familiar with.
Based on a list provided by the Real Estate Board of Greater Vancouver (REBGV) and found on howcommericalrealtorshelp.ca. Modified by poster.
Toronto misses out on stimulus money. - Toronto Star, July 27, 2009
I used to wonder where Toronto got such a reputation as an egotistic city. The center of the known universe and all that. I mean, I know a lot of people from Toronto, and they aren't that bad! Most of them are just like everyone else, trying to get by and make life a little better for the next generation.
Then I read this article in today's Star. Seems Toronto won't be getting any federal stimulus money because David Miller decided not to play by the rules that every other city and municipality in Canada had to abide by.
When will Miller get it? Toronto doesn't always deserve a 'special deal' just because of its sheer size. Why should it? Especially in this case where the stimulus money would come from all Canadians and not just Torontonians. His 'proposal' wasn't even close to being within the guidelines of a 'shovel-ready' project. It didn't even involve a shovel for crying out loud! No infrastructure improvement, no new employment, nothing within the guidelines at all.
T hanks to David Miller's bravado, John Baird's combativeness and the obduracy of CUPE Local 79, Toronto has scarcely received a dribble of national infrastructure money.The city was eligible for approximately $300 million of the economic stimulus in January's federal budget. All it had to do was submit a list of "shovel-ready" projects that weren't already slated for construction, created local jobs and could be completed by 2011. The deadline was May 1.
But the mayor chose to ignore the rules. Gambling he could get a special deal, Miller submitted just one proposal: that Toronto's entire allotment be dedicated to the purchase of a fleet of state-of-the-art streetcars, built in Thunder Bay and scheduled for delivery between 2011 and 2018.
The federal infrastructure minister responded with a two-word obscenity. Fuming that Toronto was the only city that flouted Ottawa's guidelines, Baird rejected its application.
In late June, Toronto filed a second infrastructure application, consisting of a long list of small projects – close to 500 – that meet Ottawa's criteria. "We haven't heard back," said Stuart Green, the mayor's spokesman. "It's still under review."Yeah. Good luck with that. Read more...
No transactions means no basis of comparison for cap rates: retailtrafficmag.com
The Problem
The point of the article is this: without numerous transactions taking place in an open market, determining the prevailing cap rate for a given property type in a given market is nearly impossible. Traditional wisdom says that buyers pay what other buyers are willing to pay for a similar asset. That price is usually based on the income stream generated by that asset and the risk associated with the source of that income, namely the tenant. As the world economy has contracted, and in particular as the American real estate business has imploded, buyers, even those that are well capitalized and have the ability to buy, have taken a wait and see attitude.
This has done a couple of things which have exacerbated the commercial real estate drop:
1) it has stopped the flow of transactions (bad news for those of us in the brokerage business!) and therefore has reduced the flow of money through the system which normally creates ancillary benefits like construction and renovation sales and land transfer taxes to name just two; and
2) a lack of transactions takes away the ability for those buyers who are ready to buy to make, what they deem to be, intelligent offers based on historical deals.
As to the first, there's not much we can do about the economic side benefits of real estate transactions until those transactions start flowing again. It's the second item that I'd like to discuss.
As I said, traditional wisdom is that buyers pay what other buyers are willing to pay for a similar asset in a similar geographic area. Geography matters because of the local employment climate, demographics of every location, and a host of other factors that can affect investment decisions and risks. What does all of this mean?
In the investment vacuum in which we find ourselves today, no body really knows what to pay for property because no one else is buying!
On an intellectual level, I understand this. This is what we were taught in CI 101. On a gut level though, I'm having a hard time with this. Here's why: if I expect to make a certain rate of return on my investment dollars, does it really matter what everyone else is paying for similar assets? Doesn't this kind of mentality smack of playground kids whining, "That's not fair! Jimmy got TWO popsicles, and I only got ONE!" If one popsicle was refreshing and you really only expected to get one in the first place, does it really matter that Jimmy got two? Similarly, if a 9% ROI was a sufficient rate of return last year or even ten or twenty years ago, why isn't it sufficient this year (assuming similar risk factors etc.)? If you have a clear set of investment goals and you can find a piece of real estate that will allow you to achieve that goal, does it really matter if a similar property might be purchased more cheaply? What is the opportunity cost of waiting until someone else buys property? What if, by waiting, you not only lose revenue today, but you wait too long and miss the market?
A Renewed Thought Process
I think it's time we stopped looking at what everyone else is doing. Let's use our heads and look at investments that have sound overall fundamentals. Make sure the tenant is solid. Ask questions about their ability to access cash, why they're moving or staying, who is their customer, how long have they been in business, is their industry growing or in decline. Insist that you have an opportunity to look at their financial statements if you're really concerned. Take a good look at the bricks and mortar of the deal. Make sure that the building and grounds have had appropriate capital reinvestments over time and plan for future expenses. Make intelligent decisions about which properties you buy, but stop worrying about what everyone else is doing.
When everyone else is selling, you should be buying. When everyone else is buying, you should be selling. Don't follow the crowd to dinner or you'll end up at the back of the line and all the really tasty food will be gone! All you'll be left with will be the scraps left by those who had the foresight to get moving now!
Invest for cash flow today, and let time do the rest.
Found on Reuters Blogs. I was beginning to wonder when opportunistic funds would show up at the party. American REITs are starting to show some initiative in the new commercial real estate market by setting up funds to buy up distressed properties and loans and to take advantage of drastic reductions in US CRE prices.
Essentially what’s happening here is that debt (in the form of CMBS) is being rolled over into equity (in the form of REITs). This is a good thing, and I hope we see much more of it.
This is a two-stage process, I think: first the REITs will buy up distressed CMBS at a discount, then they will wait for those CMBS to default, at which time the REITs will take possession of the collateral — the commercial real-estate securing the CMBS. In other words, the REITs — and the REIT investors — aren’t looking at yields, they are looking at property values. - Felix Salmon (Reuters)
Phil Wahba and Ilaina Jonas (also of Reuters) report:
Several large investment firms are creating new lending companies that plan to go public to raise billions of dollars to take advantage of the distress in the commercial real estate market, and more are on the horizon.
The planned IPOs, which include units of firms like Apollo Management and Alliance Bernstein, could be just the beginning of what some bankers expect to be a boom in Real Estate Investment Trusts (REITs) going public over the next few years.
This could be part of a larger solution as billions of dollars in mortgages and securities in the commercial real estate sector come up for renewal over the next few years; possibly reducing the effect of so much capital evaporating all at once.
I'm excited to see some creative uses of equity at a time when so many seem certain that the sky is about to fall on commercial real estate. I've said it before, and I'll keep saying it, opportunity exists for those willing to take a good look around and take some calculated risks. Investment fundamentals don't change, just rates of return.
Is it just me, or is there a real sense in the marketplace that buyer's feel that they should be getting blazing hot deals these days? I'm all for trying to get a good deal; after all, isn't that what we get paid to do, negotiate deals that both parties feel are beneficial? But do you get the feeling that some buyer's think that they're doing sellers a favour by 'taking that property off their hands'? I don't know about you, but I think we've got a ways to go before buyers and sellers are on the same wavelength again.
As one of our clients put it, "The point of capitulation hasn't been reached." Well, I don't know about 'capitulation', that sounds like someone has to give up something valuable, and that makes me uncomfortable.
I'm a believer in the win-win scenario after all. If all parties to a transaction don't feel that they got something of value, then I don't feel as though I've done my job well.
Captain Kirk said it best in Star Trek II, The Wrath of Khan, "I don't believe in a no-win scenario."
In talking to my colleagues, clients and customers, I'm getting mixed signals about the market and pricing. Some are extremely busy (as we are right now - buyers seem to be coming out of the woodwork right now!), and others seem to be in the doldrums still. In an effort to gauge how the market is being priced right now, I'm running a little poll to see how listings are being priced.
Please take a moment to vote - the poll is at the top right of the main page of this blog. Assuming I can get a reasonable number of responses, I'll report back with my findings in a future post. Let me know how the market is treating you right now, I'd love to hear someone else's war stories!
Over the last few years, different pundits of every stripe have advocated watching different commodities for signs of economic turbulence or improvement - depending on his/her point of view. I came across this article today in the Globe and Mail, and was amused, and somewhat surprised at the indicators discussed.
Take a look, it's a quick read and you might just get some new ideas - I know I did.
Take this for example:
Mark Zandi, chief economist at Moody's Economy.com, said he follows the price of titanium dioxide fairly closely: "It's stretching a little bit, but I think it has historically been a good barometer of broader economic conditions."
He noted that yesterday's U.S. figures matched other signals about the economy making a slow recovery.
"It's consistent with the idea that the economy is still soft. We are still in recession, but we're headed in the right direction," Mr. Zandi said.
...and this:
Mr. Yamarone, for example, said one of the most important indicators he tracks is the sale of women's dresses.
"The woman is traditionally the [chief financial officer] of a household. She sees when times get tough," he explained. "When things get tough, she postpones a 'self purchase.' And there is no greater self purchase for a woman than a dress."
Right now, his dress sale indicator "is still contracting."
Is there anything you look for in assessing an economic recovery or real estate recovery in particular?
Looking for a way to get an idea of the cost to build a new shopping centre? How about an apartment building? A retail store? Try www.rsmeans.com
Their Quick Cost Estimator is free to use, and provides a really good idea of the cost of construction for most projects. While the detailed reports (paid) are far more detailed, the free estimates are pretty good. I've used this site a number of times to come up with an estimate of replacement cost for properties we've had listed for sale. It's pretty powerful stuff to be able to say that the institutional property you have listed for $8.3M would cost over $18M to replace. What a bargain!
The site produces a cost estimate based on your location (major centres in Canada and the US), so it takes into account local labour costs, and provides a high, medium, and low range of estimates.
Some things to keep in mind:
1. The Quick Cost Estimator does not take into account the cost of the underlying land;
2. It does not include an estimate of brokerage or legal fees or most other soft costs for that matter;
3. It ignores the cost of financing.
This is a great little resource for getting started on your journey toward building your commercial real estate empire. Give it a try and let me know what you think of it.
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Here's a question that I'm sure most sellers are wondering about: In what other ways besides putting a property on the MLS® and a sign on the lawn or building do REALTOR®s market and promote properties for sale? What other techniques are used to get the word out? In other words, what you really want to know is, do you guys actually DO anything, or do you just sit around waiting for the phone to ring?!
Here's a snap-shot of some of the things we do and use for our clients. There are myriad ways a REALTOR® can get the job done, but this is a good start:
Professional Marketing Package
A professional package for distribution both electronically and in hard-copy (ugh!) of information should include: rent roll, zoning, photographs, aerial shots, maps, floor plans, survey or site plan, property details including recent capital improvements, area information, and a call to action - instructions on how to arrange a showing through the REALTOR®.
Website
The REATLOR®s website should be easy to navigate and provide similar information as the marketing package in an online form.
Blogging
Similar to the website, the blog should contain contact information, but more than that, the blog is the REALTOR®s chance to interact with the buyers directly. This isn't always a direct marketing tool for your property, but it creates credibility in the eyes of the buyers and provides another vehicle for communication with investors.
Commenting on Other Blogs
Again, this isn't a direct marketing tool, but it generates credibility and traffic for the REALTOR®s blog and website and therefore visibility for your property.
Facebook and Twitter
These social networking tools are becomming necessary tools of today's REALTOR®s. Quick bursts of useful - highlight on useful - information is critical to the success of REALTOR®s today. When we're successful that means we're selling your property!
Economic Development Contacts
Maintaining a good relationship with the economic development office in your area is vital to staying connected and top of mind when new businesses are coming to town or for finding out when existing businesses are expanding or moving.
Investor Tours
Tours put on by the provincial government through local economic develoment offices provide an opportunity to showcase listings to buyers who are not only going to see the property, but are ready, willing, and able to make a purchase.
Municipal contacts
Like the economic development contacts, these people are well connected. They know when zoning and development applications are being submitted almost before the applicants do! We try to stay on their good side, so that when we need their help, they'll be there.
Targeted Database Development and Marketing
Every property is unique. As such, there are only so many buyers for each property. We take a look at the permitted uses for the property and any other likely uses and develop a list of potential buyers and buyer types. Then we develop databases of contacts and start emailing and telephoning until we get a bite. Simple, direct and effective.
Sphere of Influence Marketing
The longer a REALTOR® is in business, the larger their sphere of influence. This sphere includes people like lawyers, accountants, mortgage brokers, bankers, investors, developers, builders, etc. Having a large sphere of influence means that a REALTOR® can quickly make contact with the major players in a given market for any given property.
Networking
Overused word that means rubbing elbows with peers and potential prospects. Participating in things like the Chamber of Commerce and volunteering on community boards provides a really good way for REALTOR®s to interact with a large group of people very effectively.
Other Agents
Talking to other agents who have their own spheres of influence. Each REALTOR® has a group of unique contacts and you never know where a lead will come from just by making conversation. Watching the market and calling agents who have similar properties listed is another great way to leverage the efforts of other agents; they might have picked up buyers for a similar property that just didn't quite make the cut and maybe your property is just what they're looking for.
Referral Networks Within Franchises or Associations
The large franchises like Century 21, Re/Max, Prudential and others all have internal referral networks that work very well across great distances. Often a request will come in from another affiliate office across the country or even the other side of the continent! Agents who work independently or with smaller boutique operations also leverage large referral networks through professional associations like CCIM and SIOR among others.
MLS®/ICX®
Well, you didn't think it was just for show did you? The database based websites of MLS® and ICX® for commercial properties remain a powerful marketing tool. While MLS® means much more than just listings, these services run by your REALTOR®s national association provide worldwide access to your property and they do the promotion!
Sign on the Lawn or Building
The 24 hour salesperson. Would you play hockey with one player in the penalty box - on purpose - for the whole game - every time!? The sign is not the be all and end all of sales, but it sure does raise local awareness.
These are just a few of the things we do, what else do you expect from your agent?
Found via Sibdu.
Last week I wrote about the state of commercial real estate in the US and posted a video featuring Richard Lefrak. This week, another take on the situation in the US with a much more positive spin.
William Rudin, of Rudin Management, has a very upbeat and positive position as it relates to the future of commercial real estate. While he agrees that not all of the pain has been felt yet in terms of pricing corrections, he is seeing signs of renewed strength in the market. His firm is doing a lot of new leasing and is seeing a fair amount of sub-let space being taken off the market as firms move back into space that they had formerly vacated.
Here in Peterborough and central Ontario, we're seeing a fair bit of renewed energy in the market too as investors who had been sitting on the sidelines get back into the game. New money is coming into the market from outside as well; we're getting calls from the GTA and elsewhere inquiring about development opportunities again.
The good times aren't back yet, and likely we won't see a boom again for a while, but it looks like the worst might just be behind us.
I recently had a contact, a charitable organization that is leasing space, ask me if they could somehow get a reduction in their rent by offering a charitable donation receipt to the landlord. The problem they had was that they weren't sure who the landlord was or how to approach him to broach the subject. They had a contact, referred to as the 'property manager', so there had been no real problems with maintenance or upkeep on the property. They just didn't know who the owner was.
Turns out that the owner had just been calling himself the 'property manager' and since they had signed a lease through a broker and the name on the paper was a numbered company this was the only contact they had.
Calling himself the property manager allows him to 'refer to a higher power' i.e. ask the boss if it's okay, a tactic used during negotiations when all he really wants is an opportunity to think over a proposal without making a snap decision.
The counter to the 'refer to a higher power' tactic is this: Agree with him, but ask for a commitment now that is conditional upon the approval of the higher power.
Example:
Tenant: "John, we are a registered charity and we would really appreciate a modest reduction in our rent in exchange for a charitable donation receipt from us. This will do a couple of things, it'll really help out our organization which is trying very hard to do some good in the community and you'll receive some tax benefit for allowing the reduction. What do you say?"
John: "Well...I'm not sure. I'll have to check with the owner to see if this is something he's comfortable with and get back to you.
Tenant: "Okay, I understand completely that you can't commit to something like this without authorization. That said, should the owner be amenable to this kind of arrangement, is there any reason we couldn't start this with our next rent check? Assuming you get approval, of course! When can we expect an answer?" (Said with a big bright smile!)
What's he going to say? No? So what if he does? At least you tried and now you know. Turning this around and trying to get some kind of commitment from the person using the higher power tactic is a good way to try pin them down.
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