Prominent Los Angeles landlords speak out on doing deals and influencing lease transactions.

While it may be a tenant's market, the landlords still have something to say about doing deals and influencing lease transactions. Surprisingly, while they may not be getting the effective rental rates they would like, some major Los Angeles area landlords still have a positive attitude about the business of real estate transactions.

In fact, an informal survey of real estate executives reveals some interesting insights on doing deals and influencing lease transactions. One landlord, Charlie McPhee, vice-president of commercial marketing for the Commercial and Industrial Division of Summa Corporation, developers of Howard Hughes Center, states, "The relationship between the broker and the landlord is important. In the past, the two parties were always viewed to have opposing interests. Today, the landlord/broker relationship more resembles a partnership." This sentiment is echoed by Michael Branigan, vice-president, The Voit Companies, developers of the 2.1-million-square-foot Warner Center Plaza in Woodland Hills. "Each transaction is different, but it's important for a landlord to be tough, yet fair, because we'll see the same people on the way up as on the way down."

Peter Johnston, senior vice-president of Maguire Thomas Partners views the landlord/broker relationship to be one of, "...A team effort. In fact, it is significant to note that during a tight office market some landlords see it as an opportunity to eliminate the brokers. Maguire Thomas Partners has been through soft markets as well as tight markets and will continue to be a significant owner in the future. Since we are in the business for the long-term, we probably treat the brokers more favorably than other landlords in the tight market -- knowing that the broker can bring a lot to us in a down market. We try to be consistent with the handling of brokers. Maguire Thomas has always been very progressive and aggressive with the brokers and we have maintained that attitude in the down market."

Likewise, McPhee says, "The down market has not affected how we deal with brokers. We have always tried to communicate consistently with them." This manner of conducting business has had some positive results, including the recent signing of a 65,000-square-foot lease at Howard Hughes Center's 6701 Tower by the Healthcare Services Division of Keane, Inc.

Similarly, landlords, as in any market, are still looking for good, credit-worthy tenants. This is true in any market, but especially now. At Howard Hughes Center on Los Angeles' Westside, McPhee looks for, "the basic financial side, but we additionally take into consideration the quality of the tenant, including its credit, its reputation and corporate history." Adds, Johnston, "We also look for tenants that offer the opportunity for us to provide expansion space as they grow, providing them with a long-term home." Likewise, Branigan looks for "credit-worthy tenants, viable economics and growth potential." In the Woodland Hills market, Warner Center Plaza has had no lack of these tenants, as some of the current deals at the project include Freddie Mac and Silgan Containers Corp.

Landlords also shared similar views about working with brokers and influencing lease transactions. They all agree that it is important to listen to a tenant's needs. States Johnston, "It is important for the tenant that the landlord and the broker make a transaction as easily and quickly as possible. If we're responsive to the broker and the broker is responsive to the tenant, then we have a good working relationship which will ultimately benefit the tenant." Efficiency is the key buzz word at Summa Corporation, where McPhee offers, "When there are lease issues which aren't agreed upon, it's important that the landlord and the broker have an efficient working relationship."

However, when a tenant is making unreasonable concession demands during a lease transaction, landlords differ in their tactics. Summa Corporation tries to avoid these issues by "...being up-front and honest from the beginning. We don't represent what can't be delivered. We identify problem areas from the start and communicate these to the broker. We are consistent in our approach," offers McPhee.

Branigan believes that unreasonable concession demands can be counteracted by "listening to a tenant's needs and giving them what they need versus what the market can command. Many tenants hear about getting $60-$80 per square-foot TI allowances, but they ultimately pay for this allowance in their lease rate. We try to meet the tenants' objectives at economics that make sense for both parties. At Warner Center Plaza, we are finding that this approach is quite successful and is meeting the needs of the tenant as well as the landlord."

The landlords had some advice to brokers as to how to better work together. "Have control of the tenant and effectively communicate the needs of the tenant," states Branigan. "Keeping the landlord current and up-to-date on the progress of a transaction ensures that the landlord can efficiently expedite the process. It helps to facilitate the deal," he concludes.

McPhee offers, "The more informed a broker is about the entire lease transaction process, including identifying what the issues are and how they'll impact the transaction, the more efficient is the lease transaction process."

Landlords, likewise, have some advice for themselves. "Landlords need to be responsive and flexible. Time kills a lot of deals. Slowness to respond can be due to a multilevel approval process. To counteract this at Warner Center Plaza, we have created guidelines and established a pre-approval process in order to streamline lease transactions," says Branigan.

All this advice should not be taken lightly, as the broker/landlord relationship is one which is based on relationships and according to Branigan, "You never want to burn any bridges. In fact, integrity combined with professionalism and honesty is an integral part of our corporate philosophy."

"The past landlord/broker relationship does have an impact on future deals. If they have worked well together before, the process will most likely be a smoother one. However, if it was a negative experience, it can be detrimental to future deals," says McPhee.

What can landlords do to survive the down market? Branigan advises "Be creative in attracting new tenants and take care of your existing tenant base." According to McPhee, it is important to "Manage assets appropriately. Develop a strategy for each property and implement it aggressively."

From the down market, landlords have also learned a few things such as, "Quality tenants continue to do business in an effective way. In addition, it's extremely important to maintain a program which effectively retains existing tenants," says McPhee. This philosophy has worked well for Summa Corporation, where in addition to maintaining a steady level of leasing activity, the first building in Phase Two of the 2.7-million-square-foot, mixed-use, master-planned development was completed in October. In addition, construction continues on new freeway ramps which will bridge across the 405 freeway to tie into the northbound lanes, giving full freeway access to the Center in both directions. "It is the implementation of effective long-range planning that will allow developers to survive in the 1990s," McPhee concludes.

While the commercial market continues to steep in a tea of excess space, a large sublet market and lower effective rental rates, landlords have adjusted with the times and have adopted a pragmatic view for the short-term. The insights gained from these lean times may very well extend into long-term strategic planning for a number of prime Los Angeles properties.

Audrey Hodges is a senior account executive with Macy + Associates Inc. located in Venice, California.