Re-Opening the Black Box
July 5, 2022 UPDATE • Given the significant challenges that the Covid-19 pandemic has imposed on real estate, effectively managing the legal leasing process is more important now than ever. Please enjoy this re-posting and stay tuned for our follow-up strategies for Covid-proofing the Black Box.
The Black Box Solution for high-performance leasing.
Last week I spent two amazing days with over nine thousand commercial landlords, tenants, brokers, and lenders at the International Council of Shopping Centers (ICSC) New York Deal Making Conference here in New York City. There are not many other gatherings of this size (or any size really) where practically everyone’s financial well-being is inextricably linked to the occasionally welcomed, but most often dreaded, legal process of negotiating a commercial lease.
The Legal Lease Negotiation Process
At the conference, elements of this process were discussed repeatedly and those conversations confirmed my suspicion that for many professionals in the real estate industry, the legal leasing process is a black box. Once the brokers and principals agree to a few salient business terms, the lease disappears into that black box and there is little understanding of exactly what the process is, let alone how to successfully manage it.
So in this post, I am going to open up that black box — the legal process of commercial leasing — and in the next two posts, I am going to share my secret sauce for managing it.
Opening the Black Box
The legal process of commercial leasing can, at its most basic level, be summed up by imagining two intersecting axes of conflict that the attorneys need to traverse as they move toward the finish line (see illustration above).
The first axis represents the conflict between precision and urgency. The need for precision can be likened to the need for adequate insurance. The hope is that you'll never need to depend on it, but boy if you do, having it is essential.
The conflicting tension at the other end of this axis is the urgency to get the lease signed. This stems from the reality that time kills deals and the longer your lease lingers in the black box, the more likely it is that the other party will be distracted by a cute new puppy or the shiny penny over there that will trump the lease in the box.
The second axis represents the conflict between the desire to get it all or go for the jugular, and the need to accommodate the other side and pursue win-win solutions.
At a certain point in every transaction, urgency trumps precision and the need to accommodate trumps the desire to get it all. But there are an infinite number of paths to that all-important point and figuring out the most direct one is often tricky. In addition, knowing you’ve arrived at that point can be elusive and requires an intuitive sixth sense that even the most experienced attorneys don’t always have. The result is often a process that takes too long, costs too much, and jeopardizes the outcome.
View our white papers for a deeper dig into the black box and how we traverse those axes of conflict to create value for our clients.