The Tenant - Landlord Relationship
For Christoph Zinke, KPMG’s Asia Pacific Head of Global Strategy Group, the emphasis on strategic alliances reflects the disruption CEOs face — collaboration gives them answers to problems that M&A cannot always solve. “Strategic alliances are driven by the capabilities you need to succeed in the future,” he says. “Take a look at the automotive industry, which is now focused on mobility and not just producing cars. It’s a totally new ecosystem that redefines the value chain. Alliances also offer flexibility if you need to add new partners or get rid of certain partners you aren’t happy with.” But Zinke also points out that strategic alliances, similar to M&A, often fail to deliver the hoped-for results — often because leaders lack the right attitude.
“You need to sit at the negotiation table with a partnership spirit — not as a buyer or as a target,” he says. “You need more time to discuss ambition and not price. This is very different from an M&A standpoint. It’s much more about understanding what each party brings to the table and how you achieve your joint objective.”
As I read the KPMG 2018 CEO survey, I thought about Zinke's sentiments and concurred. In terms of how the most beneficial deals come to fruition, they center on the compatibilities of solution-oriented leadership. That focus is often lost on tenants and landlords as negotiations heat and emotion intercedes to overtake logic. Losing that focus becomes a drag on empathy development that naturally occurs when a strong foundation is first created.
Brokers often worry about the inclusion of too many decision-makers and influencers in the process of leasing space and for good reason. It can be difficult to create an environment where both parties of opposing motivations are willing to come together in a spirit of partnership. Engagement with a limited number of influencers & decision-makers avoids confusion and unnecessary delay and it expedites the transaction. Pushing the transaction forward quickly is of benefit to the client so as to avoid a loss of opportunity and momentum. That is, until it isn't...
Fools rush in. Is here and now the right place and time for this particular tenant-landlord pairing?
Fast forward. The deal is signed, the deposit and commissions paid, and the honeymoon begins. The tenant and landlord begin to navigate living together, managing financial responsibilities, and allocating time to the important facets of a reasonable but rapidly negotiated agreement. The parties consulted experienced legal counsel before executing an agreement, so what is there to worry about? Smooth sailing right? Regardless of the engagement of experienced attorneys, disagreements may still occur as unforeseen conditions arise, misunderstandings escalate, and uncertainty develops. On such occasions, circumstances can be improved if both parties approach discussions with a solution-oriented approach where early alignment is found. A complementary relationship where both tenant and landlord values align and priorities are focused on a successful, long term relationship are integral to better outcomes.
Before the deal is inked, for each party, it is important to answer:
What is the value placed on a smooth occupancy and amicable relationship where focus can remain strongly on operational success?
What is the cost of disruption or better yet the value of operational & strategic focus on business growth? Distraction by tenant-landlord woes can be hard to quantify but consider the operational, opportunity, and emotional costs of reduced productivity, loss of focus on strategic execution, and the introduction of additional uncertainty.
How does injected uncertainty impede the growth and future success of both parties?
Many actions and decisions affect the landlord and tenant relationship. Most factors can be managed in advance when candor is applied to a thorough discussion of the parties' expectations for the relationship. Such an exchange illuminates how both parties problem solve and their inherent desire to attract each other. This information and "test" is critical to understanding the potential for the fit. Take the time to court carefully and perform the necessary due diligence to determine internal motivations for the opposing party. Doing so provides insight into the quality of the tenant-landlord pairing that will ultimately transcend the legalese of the guiding lease document.
Consideration of internal motivations throughout negotiations enables a healthy empathy which often proves a stronger asset than brute force attack on the other party's bottom line.
Such understanding is crucial to early identification of misfit expectations and also to securing favorable terms beyond the bottom line that support the underlying value of the relationship.