By Tina Renee McCall, Gemini Rosemont
I love a good negotiation!
As an asset manager, I am constantly negotiating transactions on behalf of my organization. Starting a negotiation can be intimidating, but preparation is key to a successful discussion.
I had the pleasure of participating in CREW Network’s Certificate of Leadership Class that was held in conjunction with the Spring Leadership Summit in June in Detroit. The topic for the day was negotiations, led by Guhan Subramanian, a professor at Harvard Business School and author of the book, Dealmaking: The New Strategy of Neogotiautions.
Professor Subramanian outlined some basic pre-negotiation techniques that can help eliminate the fear of negotiation and provide for a more profitable outcome:
- Know your BATNA
- Identify your ZOPA
- Prepare your MESOs
BATNA — Best Alternative to a Negotiated Agreement — Any time you begin a negotiation, understanding the consequences if you are unable to reach an agreement is critical.
In commercial real estate, this could mean that a landlord will not lease space in its building to a prospective tenant looking for a below-market deal. Instead, the landlord will need to spend additional downtime looking for a new prospect that is willing to pay a market rate.
Or, it could mean that instead of purchasing a property at an over-valued price today, the prospective buyer will hold the funds and purchase a different building later. Whatever your BATNA is, it is very important to identify it and fully understand the alternatives. Obviously, the goal is to negotiate a transaction that is better than your pre-determined BATNA.
ZOPA — Zone Of Possible Agreements — Depending on the transaction, the ZOPA could be very wide or particularly narrow. Knowing not only your range of possible outcomes for a negotiation, but also your counterparty’s range is useful to ensure a successful negotiation.
Understanding your counterparty’s ZOPA will help you offer a possible solution toward the higher end of the overlapping ZOPA range to anchor the discussion. For example, if you are negotiating the sale of a building ranging between $250 and $260 per square foot and you believe the counterparty is probably willing to purchase at a price between $245 and $255 per square foot, you might want to anchor the negotiation at or above the high of $255 per square foot price. If there is no overlap between your and your counterparty’s ZOPA, then the negotiation will end without an agreement.
MESO – Multiple Equivalent Simultaneous Offers — Most negotiations are not a simple one-point negotiation, but rather may include many components. Professor Subramanian explained that offering MESOs that are financially equal can be beneficial to determine exactly what is most important to your counterparty.
For example, you may be negotiating a lease transaction with a tenant that has asked for both free rent and a tenant improvement allowance. Consider offering $5 per square foot of free rent and $25 per square foot for a tenant improvement allowance along with a separate offer of $20 per square foot of free rental and $10 per square foot for a tenant improvement allowance. This approach will help you determine which is more important to the tenant: free rental or a tenant improvement allowance. Both offers equal $30 per square foot concessions, but are presented differently.
Preparation is the key to any successful negotiation. Once you’ve outlined your BATNA, identified the overlapping ZOPA for you and your counterparty, and put together potential MESOs, you are ready to start your negotiation.
For other useful tips on negotiation, such as body language, managing the physical environment during the negotiation, how to be an active listener, and other best practices, please check out Professor Subramanian’s book, Dealmaking: The New Strategy of Neogotiautions.
Tina Renee McCall, CCIM, is Senior Vice President of Asset Management for Gemini Rosemont Commercial Real Estate’s Eastern Region and is based in Atlanta, Georgia. She is currently serving as CREW Atlanta’s 2015/2016 Secretary/Treasurer.
Subscribe today and get future blog posts your email.