It can be difficult to get your message out if people don't yet know you, or know how valuable you could be to them.
On this week's More Cheese Less Whiskers podcast we're talking with Craig Melby.
Craig is a real estate specialist helping people in Stuart, Florida release retail space, office space, really any commercial space, and save lots of money. He has a very specialized knowledge that's useful for people. The challenge is, most people don't know about him or that he can help them.
So we talked a lot about how to go upstream, and find people that once they find out about him, would love to be able to avail themselves of his services. We talked about taking a model that we've already developed in the residential real estate business and applying it to commercial real estate, before looking at the difference between scaling and syndicating.
He has an opportunity that is certainly ripe for syndication and I think you'll enjoy a how we evolve this conversation.
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Transcript - More Cheese Less Whiskers 106
Dean: Craig Melby.
Craig: Hey, is this Dean?
Dean: This is Dean Jackson. How are you?
Craig: What a huge pleasure it is to talk to you. I'm really looking forward to it.
Dean: Wow, wow, me too.
Craig: Well, good.
Dean: Welcome aboard.
Craig: Thank you.
Dean: I got my evil scheme hatching pad right here, and I got my phone, my headset on. I'm seated in my evil scheme hatching seat here. I'm ready.
Craig: Good. I am too.
Dean: What's the Craig Melby story?
Craig: Well, the Craig Melby story, I don't know. We don't have time for all that, but as it relates to business, right? That's what you mean. What am I doing?
Dean: Yes. That's what I mean.
Craig: Okay, well I kind of fell into a very unique niche. I help companies find spaces, but even more importantly, I help them negotiate their leases, and I've discovered that no business owner negotiates their lease properly. They always leave a lot of risk in that paperwork, and they never save as much money as they should. I practically feel a moral obligation to help people that need it, whether it's a tiny little nail salon, or a budding high tech company that's going to be expanding like crazy. They just, nobody knows what they're doing. My challenge is getting the word out there. A certain amount of people will, when they start doing the leasing and site selection process, they call on the signs, and they talk to the landlord, who is a very nice, pleasant person. Then they end up getting this lease proposal. At that stage, they go, "Whoa, I don't even know what half of these words mean. I don't even know what they're talking about."
Dean: Right.
Craig: Maybe I need help. Then they'll maybe google up lease advice, lease negotiation help, letter of intent review, or something like that. Or they'll muddle through that, and then when they finally get the lease, it's like holy mackerel, this is 50 pages, and most of it I don't even understand. They can call an attorney, which they should, who can do the legal review, but attorneys don't even like to do the business points of a lease, so if they're smart, they will google up the right terms or find me. Then I can help them there too. I've never failed to save clients tons of money and eliminate tons of risk. It's a sad thing when people don't use me, which is about 99.9% of the time they don't find me.
Dean: Right. Wow, so how ... When you talk about things like that, what's some of the numbers around the things that people are doing? What kind of typical leases are you best able to help someone with?
Craig: The size of the lease and the location of the property doesn't really matter. It's all common issues, but my typical deal might be 2000-3000 square feet of either office or retail, doesn't really matter to me. We're talking about the same issues. I'd like to do the bigger deals, they're even more exciting, but people need my help bigger or smaller. What's good for me personally is sometimes the people will decide, "Geez, I don't even want this deal. This is terrible, and I can do better, and we can't make it work with the landlord. I'm not going to go here." It's like all right, that's your choice. It wasn't my intention to kill the deal, but that's your choice.
Then by that time, I have a rapport, and they want me to help them find the next space. That's fine too. Then I make a leasing fee, I share in the fee the landlord is paying his agent, and that can be much higher than the upfront cash that I was requiring to do my work. Of course, the bigger the deal, the better. A 2000 foot deal is just as difficult and time consuming as a 20,000 foot deal, only it's way, way bigger payday. For that selfish reason, bigger deals would be better for Craig Melby.
Dean: What kind of commissions do leasing agents make from...?
Craig: It depends. The bigger leasing agents that are in the bigger markets, I was talking to a guy at lunch one day who had just made a commission of six million dollars on one single deal. People don't realize that. It was a law firm in Dallas needed four floors of a high rise, like a 10, 15 year lease. That all adds up. We make a commission, a percentage of the lease amount. It can be massive. People in my industry that work in the big cities, I'm thinking, hundreds of thousands of dollars on a given deal is not that unusual. I know people that once a year, once every couple of years, it would be over a million dollar payday.
Dean: Right.
Craig: I'm not in that league. I'm dealing with the smaller guys. I'm living in little cities here in Florida and North Carolina. My niche is helping small businesses do their lease negotiation. Now what I'd like to do with you today, I can tell from the client reaction that they love what I'm doing, and I'm going a lot of good each and every time, but the vast majority of people don't find me. I'm experimenting with pay per click and my business model and this and that, and eventually if I get the magic words and messaging and methods and everything, I could do much more business, and I could hire and train people like myself to do this. Our volume could go way high once I figure out how to touch these people and make them aware that I exist, if that can be done. I don't know.
Dean: I didn't realize you're in Florida. Where are you? I'm in Florida, too.
Craig: I'm in Stuart.
Dean: Oh you are, okay. Perfect. Nice. I used to hang out at the beach quite bit.
Craig: Sure. Beautiful place.
Dean: Stuart is actually where there's a club med near there.
Craig: Yeah, in Port St. Lucy.
Dean: Port St. Lucy, yeah that's what it is. Awesome. Okay, so the thing that I'm interested in hearing about, you're a licensed realtor too?
Craig: Yeah, oddly enough I don't have to have a license to give business advice.
Dean: Right. To do the leases.
Craig: Right, so what I do, lease negotiation, I charge a couple thousand dollars, and I'll start calling the landlord and say, "Hey, you don't owe me a commission. Tenant is paying me, and here's what we're going to do here." Then I kind of take over the process. Other than that, for much less money you send me your lease or you send me your lease proposal, and just you and I will talk about it, and then you go back to the landlord. Either is fine with me. I don't care.
Dean: Are you primarily dealing with people who are, this is their first lease, or they're moving up to a little bigger space, or who is your ...
Craig: That's a good question. Many times it's their first lease, but many times they've already screwed it up the first time around, and now they know better, and they want someone to help them. It could be their first lease, or it could be later on and they just realized they don't understand what they're doing. I've actually had a couple people call me where they literally don't know what the landlord is talking about. The landlord will say, "Okay, you've seen this space, just send us your proposal." The tenant is like, "I don't know what you mean. What's in a proposal, what's a proposal?" Then they call me, and I call the landlord and say, "Betty Lou called and asked me to help her out," and the landlord is like, "Thank god. She was driving us crazy." Now we speak the same language, and I step in and it's all easy.
Dean: I gotcha. Perfect. Where do landlords kind of try and put one over on tenants, kind of thing? What would be a couple of the most costly mistakes that people make?
Craig: It's a great question, and I'll give you the two top ones. I'd like to just mention, the landlords aren't bad people. They're just doing what's best for them.
Dean: Yeah, I get it.
Craig: If you agree to it, then no harm no foul. You agreed to it, no problem. They're great people, but you need to watch out for yourself. If you don't do it, bad things might happen. The two biggest things are that the landlord will almost always say, "You got to personally guarantee the lease." What we've found is you don't. All the time we don't personally guarantee the lease, or if we do, we have a guarantee expire after a certain amount of time. That can be life changing, because you could be running your business and everything is fine, and then the economy crashes, or Walmart comes to town, or Amazon starts selling what you're selling much cheaper, or something. A lot of industry disruption going on. You need to be prepared that your business could falter. If you've personally guaranteed the lease along with your life, you're in deep doodoo. You owe the money, whether you shut down or not.
If you have eliminated the guarantee, now you've got a lot of leverage with the landlord. You can say, "Hey, things aren't going well. We need to fold up shop or renegotiate this lease or do something different. No fault of mine, but here's what's happening." Everything is different if you haven't personally guaranteed that lease.
Dean: Perfect. Okay.
Craig: That would be one. The other one, if you're asking for two of them, is a typical lease will say you hereby have inspected the space, and they're taking it as is, and blah blah blah, then they keep on going. Wait a minute, wait a minute, those few words that you just skimmed over, those aren't exactly true. You typically haven't inspected the unit very carefully, and taking it as is is insane. We typically want to add a few words that say, "Yeah, we'll take it as is subject to building code violation or hidden defects." Things like that. Normally the landlord will agree to that, like, "Oh okay, that's fair enough." Many times it turns out, oh wait a minute, no one knew that the building codes had changed in between the previous tenant and now the new tenant.
Dean: I gotcha.
Craig: You need to do some things here, or other violations. If you've got the right clause in your lease, or the right words, you just call the landlord, say, "Hey, no fault of yours, I know you didn't know it, but this and this and this is wrong with the property. Please fix them as fast as you can." Rather than you have to do it. It can be thousands of dollars.
Dean: What about build outs?
Craig: Build out is another good one. That's what almost primarily got me involved in the business, is when I used to work for a landlord. The nice couple would come in, and they want to rent some space in the shopping center. They like this space, and okay fine, how much rent, okay fine. Where do I sign? Whatever, we'll take it. They didn't even ask about build out, and I know, of course my honesty prevents me from treating my landlord, my boss, throwing his money away, so unless you ask me, "Can I have new carpet, can I have new paint, can you kick in some dollars on some interior improvements I want to do?" I'm not going to offer it to you. I'm the nicest guy in the world, and I'm not offering it to you because you didn't ask. That's when I realized, holy mackerel, all these business owners out here, they are clueless. It would be awful fun to represent them and get them much better deals than what they're dong. That kind of got me into the business.
Dean: Yeah. Amazing. Okay, so the big thing is that if you can help these ... I'm wondering, is it different, do a lot of people try and negotiate their own leases? Do people just approach, they go out and drive around and say, "Hey, there's a spot, there's a sign, or the poster in the window. Let's just call the number. That's the landlord."
Craig: I believe that is my single biggest challenge, because it's human nature that you'll go out, and you'll drive around, and you'll see shopping centers with For Lease signs, or office buildings with For Lease signs. You call on the sign and the person you speak to is a wonderful person. They're like I used to be. They're honest, they're nice, they're attractive, they're smart. You'd like them as your new best friend. They're great people, but they're not representing you. What most people do is, "Well that Mary, she's so nice. We can trust her. This is their standard lease that everybody signs. This must be the way it is, so let's just go ahead and sign it and move on." It's the path of least resistance. They have no idea all that they just left on the table.
Don't forget too that Mary is not allowed to show you other space. All she's allowed to show you is her space. There may be other space in town or right around the corner that's better for you, but you're not going to see that. There's a whole industry called tenant representation, where you call a tenant rep. They don't care what space you take. They represent you to find you the best space.
Dean: Most people don't know about that, is that like most people would not call? Not like buying a house where they would call a realtor, and the realtor would show them all the houses.
Craig: Yeah, buyers for residential.
Dean: Yeah. They don't think that way in the tenant world, like in commercial world?
Craig: Correct. Most of the time.
Dean: …that they call on a sign or a poster or whatever.
Craig: Right. Most of the time that's what they do.
Dean: I gotcha.
Craig: How hard could it be? It's easy. You call on the sign, you look at the space, the nice person shows you the space. Here's the lease. You don't need no stinking help, except you did. Even I can tell you that some of my clients have been titans of industry, just major geniuses. They still don't know anything about leasing. They don't even know the difference between a gross lease and a net lease and a full service lease and all these things. They don't know, and they're not supposed to know.
Dean: Triple net. That sounds dangerous. A triple net.
Craig: See, as smart as you are, you might not know what that means either, so that's a good example.
Dean: I don't even know what that means. It's just funny because it's like I own my office building. We were looking at space, I would see things like that that would be, some of them were listed as a triple net lease. I don't even know what that means. You're right. I was doing the same thing, just driving around seeing that there's a sign in the window, the space that I was looking at. There's not really ... I mean I found LoopNet. It is? Is that where people would look? How do people even find out about LoopNet?
Craig: The LoopNet, I don't know how they find out. I guess you probably google up office space, San Francisco. Then LoopNet and other brokers, they're all like, "Hey, here we are. We'll find you the office space. We have the office space." All the landlords want to be in there, so here's our office space. Come check us out, call us. It's easy to find office space in whatever city. That's how you would do that.
Dean: I gotcha. Okay. Your ideal scenario would be if people would use you to help find the space and negotiate.
Craig: That would be the most ideal.
Dean: If they're using you to find the space, then your negotiation stuff would come in along with it, right?
Craig: Yeah, that's true, although the competition for the tenant rep portion, it's more of a local business, where if you're looking for space in Denver, it'd really be better if you had someone there on the ground in Denver.
Dean: I gotcha.
Craig: My own niche is if you're in that place where you need some help negotiating your lease. Then you find me because I do it nationwide. Every place you can think of, I've had people call me with their lease or their proposal, this and that, and we go through it, and very successfully. Then if they don't like the deal anymore, which like I say, I don't intend to kill their deal, but if it gets killed, then I can find somebody in Denver who can work with them. Then I get a referral fee, which can still be pretty healthy. Once the rapport is established, then we can go that direction, but my primary funnel through the door was just helping people.
What I'm thinking of, I look at all the businesses in the country, or any city, you drive up and down a major street and look at all those stores and offices and all those leases that must have been signed. The renewals, and this and that, there's got to be 10,000 people a day that need this help, and if a slight fraction of them google up the right terms and find me, that's more business than me and a team of people can handle.
Dean: They don't even know what they're looking for, though, right?
Craig: Yeah, that's the thing. Right now my hope was if I do pay per click with the right keywords and the right funnel and the right information, that's fine with me, that's all I need. I haven't really thought much about if I wanted to go the direction of marketing through email, or advertising, or snail mail or whatever. There would be other ways to approach people. There's infinite, as you know, and I'm just trying to figure out what's the best use of time and money to attract new clients.
Dean: Yeah. If you were going to be ... How much of your business is helping people actually find space in Stuart? How broad an area do you travel from Stuart?
Craig: About half of my time right now is finding people space, just because I've been doing the site selection for so long. People find me and refer me.
Dean: How far north and south?
Craig: I do like from West Palm Beach to Stuart. Then I have a place up in North Carolina, so I do the Ashville area and the Greenville area.
Dean: Not south Florida.
Craig: Yeah, and sometimes depending on the situation, I can do a lot of my stuff from my desk. I'll actually have my clients go look at the space without me, and then once we narrow it down, I've done deals with clients I've never met and spaces I've never seen because they don't need me to chauffeur them around. That's not my value. My value is my network. I'll look through LoopNet and all that kind of thing. Then I'll use my own personal network and send mass email out, or make a bunch of phone calls to the brokers and the developers in the area and say, "Hey, here's what I'm looking for, what do you have?" Then I'll find what we call off market properties. They're not listed anywhere, maybe there's a tenant in there, but the landlord knows the tenant is on the way out, or would boot them out if they had a replacement. I'm always looking for off market properties too in order to do the job complete.
Dean: Perfect. Part of the thing is, then, you've got an opportunity to be a market maker. I always love that positioning, in a way, that you've got access to spaces. If you have access to tenants as well, that puts you in a really valuable position on both sides. It's a matter of finding each. Is the lease side similar to the residential side in that a landlord will lease it with a realtor, or do they typically have their own in-house leasing department?
Craig: It could be both, but it's not unusual at all for a landlord to list their office space or shopping center space with a commercial broker. That would be the most typical, just have a landlord's broker. Actually, commercial broker, they'll do both landlord and tenant work, and you'd list it with them.
Dean: Right. It's really interesting that part of the thing on both of these situations is the information that people are going to need to as a beginning stage of making this decision, so that ... It comes down to that of all of the retail space in Stuart, or in West Palm Beach, or Jupiter and everywhere in between there, is owned by somebody, owned by a landlord. That list is a valuable thing. Do you have access to who owns what?
Craig: We have our own databases. It used to be we did, but now the easiest thing is LoopNet and your own personal database of owners, because the spaces change all the time. What's available now won't be available later, and vice versa.
Dean: That's my point. That's my point. What's not going to change is the actual space. Right now it's like ... I look at it from on the real estate side, the residential side. What we look at is say in Winter Haven, where I am, the niche that we look at is let's say lake front homes is the most desirable thing in Winter Haven. We don't have any oceans, so you can't have ocean front, but lakefront homes in Winter Haven are the most expensive. There's 2100 of them in Winter Haven. 4% of them are going to turn over each year, so about 80 or 84 homes are going to come on the market in the next 12 months, and we don't know which 84 it's going to be.
If we take that and extrapolate, if you look at strip plazas as a niche in the market as opposed to office buildings, like office space, let's say retail strip plazas, that, right now, when you go to LoopNet, what you're getting access to is the properties that are available right now. But just like you said, a lot of your things that happen are off market because you're networking with the people who own the properties. They're saying, "This one may be available too." To know the owners, I'm just curious just from a magnitude of this, how many strip plazas would there be in Stuart, say? Or in that area, like if we just look at them.
Craig: Market there'd have to be hundreds of them, whether they're anchored or small little ones, whatever.
Dean: Yeah. It doesn't matter because it's all the same. It's retail, a retail ground level strip plaza store front is... That's the model, right? That would be the equivalent of a three bedroom, two bath, single family home kind of thing, right?
Craig: Yeah.
Dean: That's kind of a category, a staple of the lease market would be storefronts. Now, those strip plazas aren't all going to be owned by ... Some of the landlords may own multiple of them. That would be a valuable list to have is who owns what, the information of that, right? Being able to view, would you have anything like a Google Map that would take that data and drop a pin on each of the strip plazas and have the owner of those like to have that data available?
Craig: I haven't gone that direction. When the owner of a strip plaza lists it with a broker, the brokers get highly offended if you call the landlord directly, so it wouldn't be good business for me to call the landlord in that case, the owner in that case, anyway.
Dean: I'm not talking about calling anybody.
Craig: Right.
Dean: I don't want to call anybody anyway. What I want to do is I want to send direct mail, right? I would build my future... If I'm looking at this, I mean you sound like a young enough guy that you've got a long window of opportunity with this, right? You're not looking to get out in the next year or two. You've got time to really nurture this. If I'm looking at something, I go into it. Profit activator number one is to pick a single target market and plan to dominate.
Craig: Right.
Dean: When I look at that, the thinking and the thought process that I'm going through here is ... I'm not saying only and ever focus on strip plazas, but that's one viable niche. That's something that would be the staple of it all, a foundational thing. Looking at that, if I'm planning to dominate it, I'm not only focused on what's on the market right now and who's looking right now. I'm looking to build and establish this underground, invisible sort of inventory of what's coming in the next year, two years, three years from now, to know that the landlord that has one unit, or one space in a 20 space strip plaza is that's what's available right now, but he's got 19 others that at some point over the next 12 months, 24 months, 36 months is going to come available. There's constant turnover in these things. I'm looking to establish a relationship with that landlord in a way that's going to create a long term approach to this.
Now, one of the things that might be valuable for them is to know what is the lay of the land in terms of the market data. If you're able to prepare information on lease prices, or the lease report to see what's actually going on for landlords, like what other spaces are leasing for. They must do some sort of competitive analysis, right, to determine what the right lease rate is.
Craig: Yeah.
Dean: Services that a broker would do?
Craig: All that is pretty available. One of the things that tenant reps, and particularly me, we're always worried about conflict of interest, where if I'm representing a landlord, and now I'm representing a tenant, am I really going to fight to get that tenant the best possible deal when I really want to be friends with the landlord, or maybe get a listing or this or that. I stay far, far away from representing any landlords. All that information, I don't know if that would be the best use of time and resources to know all that, because until my phone rings, I don't know if I need to know about office space in Winter Haven or retail space in St. Petersburg.
Dean: Right.
Craig: It changes so fast that you would need a research team, and some of the big companies have this, or claim to have it where they're keeping track of stuff, but it's big, huge companies that have statisticians.
Dean: Right. What would be ... The same thing is applicable to the buyers' side, or the tenants' side of this, that that information would also be valuable on the tenants' side to know how much a retail lease space should cost in Stuart. The only thing ... The only thing that matters to somebody looking for a space in Stuart is how much is retail space in Stuart. They don't care about Denver or Fort Lauderdale, or any of that stuff. When you start thinking about your business is not so much scalable as it is duplicable. There's a difference, because your market is not staying in one place and gathering a broader number of people. It's localized. Everybody is consuming it locally, so your system of getting in front of people, they're behaving the same way in Denver as the people in Stuart behave. That's the advantage that you have, but they're only focused on their own local market.
Craig: Yeah.
Dean: Just like the real estate industry, right? Buyers are not looking, they don't care about how much condos are in Denver if they're looking in Stuart. They're looking only for the Stuart condos. If you're taking a tenant-centric approach to this, then it's still valuable because you told me that the thing you're able to do mostly is off-market deals, right?
Craig: Well on and off market. I always look for off market so that I've done my job properly, but the majority of deals are still on market. People like the help. They don't have the resources or the premium this and that, but they don't speak the language.
Dean: I get it, but how do you harmonize what you said to me about that you like to do the off market deals, because you know the landlords and you're often able to find something that isn't even on the market, with then you're saying, "I avoid at all costs representing both sides"?
Craig: Oh yeah, that's very simple.
Dean: How does that?
Craig: When my client comes to me, I feel the moral obligation to find every possible choice for them, and that would be on market and off market. The way I look for off market is to contact the landlords or the landlords' agents and say, "Hey, what do you got? What do you got coming up? Here's what we're looking for." That type of thing.
Dean: I gotcha.
Craig: They bring it to me.
Dean: They're represented by their own representative.
Craig: Yeah.
Dean: And you're representing the tenant.
Craig: Right.
Dean: That's still valuable. That's still the thing that would help you get that opportunity for the tenant. If we're taking a tenant-centric approach to that, what would be valuable for somebody looking for retail space in Stuart would be to have a guide to leasing retail space in Stuart that shows them, like if you had the research, if you had the map of here's where all the ... If you knew this is the kind of thing where there are 1232 retail spaces available in Stuart, and you've got access to the ones that are on the market, but you also happen to know some of the landlords to be able to find that, I'm just thinking that people who might be looking for that, looking for lease space, would find that valuable, right? That kind of information, to be able to say, "This is what's available." That puts you in communication with somebody who is looking to lease a retail space in the next little while here, that they're on the market right now for it.
Craig: Yes, to get known as a super expert in a niche in an area would be an advantage for sure.
Dean: Yeah. Because the time they know that they need a negotiation expert, often it's too late. By the time they found the space, there's no real way that they're going to find you. The most likely thing that they are looking for is not retail lease negotiation specialist. It's storefronts available in Stuart. That's really what they're looking for, right? One step before they find a negotiation specialist.
Craig: Yeah, I guess I'm racing ahead thinking if I did spend the time and trouble to do that type of database, then how do I alert the business owners of the world, all the other retail tenants, that I know this and I'm the expert in that. I don't know how big of a rock you'd be pushing up how tall a mountain to get well known for that.
Dean: Yeah. What would be the thing, if we just take this path of somebody looking for retail space, where would they go, what would they be searching online, like if you're saying ad words, looking at the thing, what would be the keywords that they would be searching to find?
Craig: I would think they would…
Dean: To go to negotiation specialist.
Craig: Yeah, they would just put in like shopping center space, Stuart, Florida, is what I would guess.
Dean: There's probably a…
Craig: Yeah, retail space. There are probably a few things, and then they would come up instantly across LoopNet and other databases, and then all the other shopping center owners will have paid for those keywords too, so they'll quickly see all those things.
Dean: Perfect.
Craig: And I could be there too, is what you're saying, I guess.
Dean: That's my point. That's my point, is that what would be the dream come true. This is like where you have the opportunity is to almost present them with the equivalent of the teachers' edition of the algebra book. It's like here's the July, 2018 report on retail space prices. 1832 spaces available in Stuart right now, up to the minute market data, find out how much leases are costing. It's almost like giving people the Blue Book, the Kelly Blue Book equivalent for lease spaces. Anybody who's in research mode, that's going to be valuable information for them to know what the lay of the land here is. Then they look at...
I remember looking in Winter Haven, and lease spaces were, one of the spaces we were considering was going for... First floor space was like $20 a square foot, the upstairs space that we were actually looking at was like $16 a square foot. It was a 3800 square foot space. I look at that and think I didn't know how to even calculate what that is, or what that means, or what ... Do you know what I mean?
Craig: Yeah. No one knows.
Dean: The best thing on LoopNet that they have is you can sort by amount per months. That's what real people think of. Real entrepreneurs are thinking not in square foot per year for the lease space. They're thinking, "How much is it per month?"
Craig: Yeah. By the way, LoopNet isn't even ... They don't even include what the triple net charges are, so you'll see that number, $18 net, and that doesn't mean anything. I don't know what your cam charges are. I got to call and find out.
Dean: That's exactly right. Yes. To have that kind of information, to have that available as like the toolkit, the piece of information that anybody who is looking for a retail space in Stuart, and I'm saying retail space, but we could easily put office space, industrial space...
Craig: Or warehouse space.
Dean: Warehouse space, whatever the big categories are. It's the same model. The same thing that we talked about. I'm going to recommend actually that you listen to... I did an episode with Henry who is a lease guy in Montreal.
Craig: Yeah I heard that. I thought it was a fabulous recording. I really enjoyed it.
Dean: Okay, good. That kind of thing, for people, I'm just really curious about, because now the other thing is that what you also have are ... I'm just using 1800 retail spaces in Stuart as the example, but you also then have those tenants are potential relocators, or renegotiators. How long is a typical retail lease?
Craig: Three to five years.
Dean: Right. You know that that's the thing. If you look at it that for you, this is how I love to calculate the leads. It's like an inevitability, right, that the ... If you look at the total yield from a space, in the next five years, most of these people, their lease is going to expire, and they're either going to move or renegotiate. How many, how often ... Do they always have an opportunity to renegotiate at the renewal, or is often the renewal negotiated at the beginning?
Craig: That's a really good question. Landlords don't like to give renewal options, although it's fairly common, and so they're used to it. Many times renewal options are based on a, if you're able to get a fixed rate, that's best, or it's based on market rate. Many, many times the tenants don't realize that's really a negotiable event. They feel they either have to take it or leave it as written. Of course when they talk to me, I'll go, "No, no, no, we don't have to do that deal if it's not to your advantage." Especially if you get to the landlord early enough to say we can and will move unless we can work out something more fair. Here's what we were thinking. Then they improve on it in a big way.
Dean: Okay. What did you say, if you're negotiating, if you're representing them, what would be ... You said $2000 if you're doing it for fee only, but if you're getting the representative fee, the paid from the ...
Craig: Landlord.
Dean: Landlord, yeah. What would that be?
Craig: It's a sore spot, because they think they already own the tenant, and they don't want to pay anything, but there might be a half a commission built into the deal, and they might be willing to share that. It's not too much, and sometimes you can get the tenant to pay, and it's well worth it. You're saving them much more than they're spending, but to answer the question, if you handle it gently enough in advance enough so the landlord knows that you, this evil tenant rep is going to pull his tenant out of his center unless we get what we want, then you can negotiate something more reasonable.
Dean: What would be a typical dollar amount, not with a renegotiation, but if you represented that tenant in finding a new space?
Craig: If it just was super rough, if it was like a 2000 foot tenant in an average center, average lease length, the commission might be $5000.
Dean: Okay, there you go. That's what I'm looking at. When you look at this, that ... If you take it, where would we guess the number of spaces in Stuart to be? Would it be 1000 retail spaces? Would there be 2000?
Craig: You mean vacant at the time, or what are you talking about?
Dean: Not vacant, existing, that there are.
Craig: Oh yeah, there's easily 1000 spaces in Stuart, sure.
Dean: Okay. If I look at that over the next, this is the way I look at the total yield, here. If we take 1000 retail spaces, typical spaces, that are going to expire, leases are going to expire in the next five years, if they're typically three to five year leases, if we just took a snapshot of it, every day for the next five years ... 100% or almost, if they don't have a longer 10 or 20 year lease or whatever, the majority of them are going to renew in the next five years. There's a potential of five million dollars in commissions are going to be paid to somebody over the next five years for those. That's the way I kind of look at that math there.
Craig: Yeah.
Dean: The tenants are a potential prospect for you as well, even if their lease is not up yet.
Craig: Yeah. I've often thought, and I didn't know if you and I would chat about it, but if there was a snail mail list I could buy of all the business owners, and I could think of the right punchline, headline, graphic, whatever, and continue to send it out, if I could let all the business owners know in town that I do lease negotiations, including lease renewals, that would probably be money well spent.
Dean: Right. That's what I'm saying.
Craig: I've never tried that.
Dean: That's what I'm saying is that that's the self-contained thing, that you're looking at it. How I got to that five million is 5000 times 1000 over the next five years, is five million.
Craig: Yeah, but renewals of course are much less than that. Then you have to slice out about 80% of those tenants. They're just going to do it themselves. They're going to see they have a lease coming up for renewal and say, "I hereby exercise my option to renew," and they're just going to stay. It would be a lot less than that, but still it would be worth doing.
Dean: I'm saying that at the very least it would be worth... Would you be able to, under a renewal situation, help somebody save enough money that it's worth it that they pay you $2000?
Craig: Probably, but whether they'll perceive that in advance and hire me is another story. That would be another issue is pricing. I have this cognitive dissonance where if it's a tiny little nail salon, they don't want to spend more than $150 for advice, but if it's someone that's paying 20,000 a month in rent, if my price isn't high enough, they need better advice than that. They need to see a higher price that relates to quality. It's a constant battle to figure out what should my price be? I don't know.
Dean: Yeah. When I look at it, then the new thing, new tenants coming in, this is where it kind of gets interesting is that if you look at it historically, through your experience, how many of the people that you help or that do leases are brand new versus people who are moving from another location?
Craig: I never put my finger on it, but I'd have to say most people have already been in business, and they're looking for a new location.
Dean: Right.
Craig: Sometimes they might even be smart enough to do it themselves or attempt it, but they don't have the time. They're busy running their businesses. They need a third retail location, or they're running this office. It's like, "Oh wait a minute, you'll handle it for me?" Especially if I'm sharing in the leasing fee the landlord is paying, you're going to help me get a better deal than I can get on my own, and it will be free to me? Okay, where do I sign?
Dean: Right. Exactly.
Craig: Most of them have, they already have a business and have a lease, and they understand basics.
Dean: I got it. That means then that that is a valuable prospect for you is somebody who is renting right now in those thousand retail spaces right now.
Craig: That's right.
Dean: Right. That makes all the sense that there's the three kind of opportunities there in terms of knowing who the landlords are, knowing who the current tenants are, and knowing what's available so that people are thinking about coming out. I'm even thinking you've got, these all have addresses, right? It wouldn't be that difficult to ... The tenants of the retail space are not trying to hide behind an LLC or hide behind something. They're out there, and they've got a business. They're out there trying to do something. That's what the retail space is there for. They're trying to be...
Craig: Sure.
Dean: Being able to hit on the ... If you're looking at the turnover rate, do you have a sense of, if we took a cat scan of those 1000 spaces, how many would turn over in the course of a year?
Craig: In one year, I wouldn't think it would be too many. There will always be some. Maybe 5%, 3%.
Dean: Yeah, so 50.
Craig: Yeah.
Dean: So there's 50 opportunities in the next 12 months out of 1000. Very similar to the lake front homes, or to a real estate kind of thing. People are either in the market and thinking about moving, or they're not. That's really how it comes down to it. I really think that that ... I would test that approach, with 1000 retail spaces sending to both the landlords. Imagine that you probably have ... There may only be 200, not even. There may only be 100 landlords that own the 1000 spaces.
Craig: Right, sure.
Dean: In Stuart. I would have those as certainly a target audience, but I would also have the 1000 businesses that are in there, and start sending a direct mail piece, but offering the July 2018 report on Stuart retail lease prices. Same way we do with the real estate, because we'll send out the July 2018 report on Winter Haven lakefront house prices. Somebody who is in a lakefront house that's thinking about selling, that's going to be a valuable piece of information for them. Somebody who is in a retail space right now, and they're thinking about moving or renewing, that's going to be an interesting piece of information for them.
Craig: Yep.
Dean: Now that's our profit activator too, where we get people to raise their hand, you know?
Craig: Yeah. Yeah, I could see that. Even just people are always curious, what was the most expensive house, you could say here is the highest rental rate in the county seems to be XYZ center where they're asking $45 a foot, it's like holy mackerel. That would be just an interesting little data point, like wow.
Dean: Right. Imagine if every, that you did at the very least, a monthly report on what's going on in the lease market, with the opportunity for people to ... I would model exactly what we do on the real estate side. Just do it exactly the same, sending out the monthly update of here's what's come on the market, here's what's going on, and offering kind of the next steps, where you can do a something like the daily tour of homes, the daily retail space tours.
Craig: Now this would be a monthly mailing, is what you're saying?
Dean: I would, yes. I would be looking at it that I would send a postcard every month that offers the report that people can respond for, and when they respond, I would subscribe them to your monthly Stuart retail space newsletter, where you're answering questions. This is where you get a chance to educate people about things that they don't even know that they don't know. Which is why they end up spending so much money, because they don't know what they don't know.
Craig: Yeah.
Dean: You're educating, you're sharing stories and situations, and if you even take things like answering the questions, the most commonly asked questions that people ask you about leasing, and then asking or answering the questions that they should be asking, but they don't even know to ask.
Craig: Yeah.
Dean: Then highlighting activity and highlighting stuff, maybe taking, even if there were some way of doing, pointing things out video wise. If you're saying, if there are hidden things that could cost people in a lease, like you're saying why you never accept a property as is, if there was a thing that you said if you had accepted this as is, look at what this ends up costing here.
Craig: Yeah.
Dean: Then what you've got in doing this is that, when I say that you have a business model that is duplicatable as opposed to scalable, is that you've got a model now that you could train other people to be retail lease specialists in a different geographic area.
Craig: Right.
Dean: Yeah.
Craig: You could definitely just do it again and again. It would be the same message, the same everything.
Dean: That's it. That's the whole point. You can syndicate it. That's the thing is syndication versus scale.
Craig: That's certainly a new thought. I'd have to flesh that out a little bit.
Dean: I mean it's so... I think that's really the thing. You know what I would recommend for you is to check out gogoagent.com, go there, and then that's my platform for the real estate agents. We have a program called getting listing, which is all part of that. I think it was just one to one exchangeable, but it's like doing that same thing instead of saying the report on lakefront homes, the report on Stuart retail leases, retail space leases.
Craig: Yeah.
Dean: No difference. It's exactly the way that I would do it. I think there's a big ROI potential on that, because it doesn't sound like anybody is really thinking that way. I know I as a business owner, even though I own my building, I never get any mail from commercial realtors about my space. Never. You think about those people who are tenants, like the initial thought from a retail lease specialist is, "Those people already have one. Those aren't my clients." Without thinking that you just mentioned that most of the people that you help are coming into another space, and that most of those people are in a space right now, if they're relocating. They're there. They're already there.
Craig: Yeah, they came from somewhere.
Dean: They are. They're not invisible. They're 100% visible, right there in all the retail spaces available right now.
Craig: That would be, I'll have to look into all that. Do you have a recommendation for who can help do the postcards?
Dean: Yeah, me. I mean that's the whole thing, looking in that...
Craig: The GoGoAgent does the postcards?
Dean: Yes, exactly, to model it after that would be a really good start.
Craig: Okay. All right.
Dean: That's kind of cool because it sounds like you really have some specialized knowledge that would be ... What I always look for are people who have a dream come true for the end user, right? You are a dream come true for anybody leasing retail space.
Craig: Yeah, retail or office. I have people call me who did not use me. Then they look up how do I break a lease, and I have a video and a blog and things like that. Then they reach me, because like, "I signed a seven year lease, we're out of money. What do I do?" Then they send me the lease, and I look at it.
Dean: And you personally guaranteed it. Yeah.
Craig: Yeah, yeah, it's like oh man. A little knowledge would have saved generations of your family a lot of heartbreak. It's just too bad.
Dean: That's awesome. It's nice to ... I really enjoyed talking. I think you have a really big opportunity in terms of figuring it out in Stuart and syndicating it around the country.
Craig: Okay.
Dean: That would be a cool, a great opportunity for you.
Craig: That's a new direction I hadn't thought of, and I will go that direction and see where it takes me.
Dean: Awesome. I enjoyed it. This was really great to connect.
Craig: Me too, I appreciate your time.
Dean: The Florida people too. That's good. Thanks, Craig.
Craig: All right, thank you very much.
Dean: I'll talk to you soon.
Craig: All right, bye.
Dean: Bye, bye.
There we have it, another great episode. I always enjoy these conversations, especially when there's an opportunity for syndicating something, where you got something that works in a local market, you figure out exactly how to maximize what's going on right there in your own town, and then duplicate it in towns all over the country. This is the whole principle that the franchise prototype is built on. The whole franchising model is based on the fact that you can take a proven operating system and drop it in any geography in the country with enough people to support it and get the same results. The skill becomes how do you polish, package, and get the prototype ready to be able to duplicate it and syndicate it all over the country. I look at syndication as a way to get that model without going through the franchise process.
I had a really great time with that conversation. If you've got something that you think might be suitable for syndicating, I'd love to talk to you. Just send me an email, Dean@deanjackson.com, and just put Syndication in the subject line. Tell me a little bit about what you're working on, and we'll see if we can get together and help package that up for you. If you want to continue the conversation here, the best thing to do is go to morecheeselesswhiskers.com. You can download a copy of the More Cheese, Less Whiskers book. If you'd like to be a guest on the podcast, click on the Be A Guest link, and that will tell me a little bit about your business, and then we can get together and hatch some evil schemes for you.
In the meantime, if you're running your business and you want to see how the profit activators are either growing or slowing your business right now, go to profitactivatorscore.com, and go through our profit activator scorecard. It will be very insightful for you, tell you where the big opportunities are in your business, and it will give you a track to run on as to where the best return on your attention could be. That's it for this week. Have a great week, and I will talk to you next time.