With Golf and Real Estate, Managing Expectations is Key

Golf is a pretty simple game when you think about it:  You have to hit a ball into a cup,  the ball isn’t moving, no one is trying to take it away from you or prevent you from hitting it, and you have as much time as you need.  90% of the playing area is perfectly manicured to assure a perfect hitting surface and the equipment has been designed by computers to be so precise that even a novice can hit the ball 200 yards (at least on the range). So why is the game so hard and frustrating?

It’s because every player begins each round with unrealistic expectations, and they are rarely met.  Every player expects to play up to or better than their handicap in every round.  Further, once you’ve hit that perfect 170 yard six iron within 5 feet of the hole, or that perfectly curving 240 yard draw around a tree off the tee, you start to expect it every time and nothing less will satisfy.  In sum, by expecting perfection, we set ourselves up to be disappointed.

Leasing space can also be frustrating for similar reasons. Leases often involve commitments of between 5 and 10 years, which means companies need to make predictions about the future.  Companies typically lease space for between 5 and 10 years which, in terms of corporate life cycles, can be a long time. Many companies struggle to gain confidence in their financial projections for next year, nevertheless projections for 5 to 10 years out.  Think how much the world changed between the fall of 2006 and the fall of 2011.

When tenants make decisions about how much space they need, what a good location for their business is or how much they can afford to pay, they do so based on the facts and circumstances as they exist at a certain point in time along with their projections as to what they think the world will look like down the road.  Rarely do their future projections perfectly match reality and, as a result, a tenant’s space may not end up being exactly what it thought it needed five years ago. As in golf, this often leads to frustration.

Landlords face similar problems.  Every day, they make investment decisions based on, among other things, prevailing interest rates, vacancy rates and “market” rental rates.  They look at demographics, labor statistics and supply and demand as they exist currently, then make their best guess as to how those factors may change over time.  Based on the information they have, they envision the world over the next 10 to 20 years (depending on investment strategies and projected holding periods) and decide if the investment makes sense.  Crystal balling the economic future is extremely difficult and, if people could do it with any accuracy at all, we’d probably all be sitting on yachts in the Caribbean celebrating retirement on our 28th birthdays.

Landlords and tenants need to predict the relatively long term future when entering into leases.  They each must make their best guess as to what the next five to 10 years will hold.  That can be frustrating; like shanking a seven iron from 150 yards out after a perfect 240 yard drive down the middle. How can tenants make the experience less frustrating?  Tenants can build flexibility into their leases to enable them to adapt to unexpected changes in their business or the economy. Flexible expansion, contraction and early termination rights, generous assignment and sublet rights, and properly managed lease terms all can be helpful.  Further, parties need to manage their expectations going into the process by understanding that predicting the future with 100% accuracy, like hitting that perfect golf shot, is a rare thing.  We’d all like to birdie or par every hole but we all know that to achieve a great round, sometimes you just need to avoid that blow-up hole.

For more information contact Glenn Blumenfeld http://www.tactix.com/team.php#Glenn

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