Recently I was working with one of my family office clients regarding the renewal of a lease for a commercial tenant in a property that they owned.  The client has a long successful track record in real estate investing and operations.  However, for the last 5 years I have supported the aging founder, as well as trained and mentored the next generation.  At first glance the renewal appeared fairly straightforward, a long-time tenant and apparently successful business was unlikely to be going anywhere.  Yet they were not proactive with us and with less than 6 months left on their lease we approached them.  The property owners’ perspective was that while we have a full property, we also have 3 very weak and struggling tenants.  The tenant in question is material to our cash flow, representing 15% of the gross rent of the property.

My clients, the property owners, began to get anxious because they see and feel the fragile nature of their rent roll and a large tenant at risk of leaving.  They immediately started diving into details and how to negotiate, what to offer etc.  Upon reflection I was able to point out the following:

  • The tenant’s clock was running out, while they have multiple facilities, the premises with us is the only one that they have for at least 25-30 miles
  • Their initial response to us when we called was- “oh yes we want to stay”
  • Their broker made it clear that he was not investigating alternatives, or even market rents
  • The tenant and their broker see a property that is 100% occupied, with over half of the tenants in occupancy for over 10 years

My counsel was to step back from our own worries and concerns and focus on the tenant.  From our tenant’s perspective we hold all the cards and are in a strong negotiating position.  Now is the time for us to quietly wait on them.  Let them define their needs.  Our position of humble strength will work to our advantage.

The approach I advocated runs contrary to the sales mantra of “Always Be Closing”.  Yet, I suggest that the mantra to always focus on closing makes sense for those that are transactional in nature, like a broker.  For a principal or long-time owner, who is relationship focused, that approach can by dysfunctional and even destructive.  Patience and appreciation for the perspective of the other side in a negotiation always adds value.  The renewal mentioned above is not yet completed but appears to be on track with a 12-15% increase in rent, which compares favorably to the owners’ initial comments of “let’s not push it and ask for only 7-8%.   If we can add 4-8% to our cash flow on every deal by applying a bit patience, humility, and empathy we are huge winners.

Shortly after this discussion I was reading the book “Stillness is the key” by stoic philosopher, writer and teacher, Ryan Holiday.  He tells the story of President Kennedy’s negotiation  with Premier Khrushchev over the nuclear missiles in Cuba.  Despite the obvious panic and unanimous recommendations from his advisors, Kennedy slowed down the negotiation.  He was able to step back and empathize the Soviet leader’s position.  Khrushchev had backed himself into a corner and needed to put on a tough face, to test Kennedy and then find a way back from the abyss.  Holiday coined the phrase “Strategic Empathy” which I love.  It is a perfect description of a powerful approach to negotiation.

So, the next time you are in a negotiation, slow down and clarify the needs, threats, and challenges that the other side has.  Lean into your empathy.