Transform Your Commercial Lease Strategy | Jonathan Keyser, CEO Keyser International (Podcast)

Kind of a cocky guy. And he grabbed the existing lease and slid it down his long board table at me and said, so they say you're pretty good. Can you improve this? And I said, I took a look at it and I said, yeah, I think we do better. In 30 days, same building, same lease, same owner, renegotiated the entire thing, saved $1 million. So that was, that was in an almost impossible situation with a, with a cocky client and got it done.

All right, we've got a super fascinating discussion coming up. We have Jonathan Kaiser, who is the CEO and founder of Kaiser International. They're a big commerc real estate firm that only work on behalf of the tenant, the person leasing and renting space. You're going to want to listen to this episode. It is packed with ideas, packed with huge money saving ideas. Jonathan is also a partner of the CEO alliance and a long term friend. So really happy to learn from him today and to be able to share his wisdom with you. You can also watch these episodes on our podcast channels and our YouTube channels. Jonathan, thanks very much for doing this. I appreciate it.

It's my pleasure. Thanks for having me on.

Yeah, man. I mean, you're not only are you a friend now, but you've also been a partner of the CEO alliance for a long time. You have spoken at our CEO alliance events via Zoom and in person. You've also worked with a bunch of our clients over the years and helped them with a bunch of areas related to commercial real estate. So rather than me even kind of asking you a bunch of questions to get started, I want you to explain what you do because it's very unique as a company and the scale and the size of your company it is, and the kinds of businesses that you help. So can you kind of give us the, the very short helicopter tour of the business and the types of businesses that you work with?

Absolutely. So we are one of the Kaiser International is one of the largest independent commercial real estate firms in the world. We only represent the business owner or the business executive. If you think about traditional commercial real estate brokerage firms, they primarily represent landlords, developers and real estate investors. We're on the other side. We're helping the occupier. We're helping the company that needs space for their business but is not in the business of commercial real estate. And if you include our international partners, we have about 600 people around the world and we do everything from site selection and incentives, helping you figure out which geographies you should put your facilities in and what kind of municipal and economic incentives you can get for that to site selection of facilities. So identifying office, industrial, health care type facilities to either buy, lease, build. If you have existing ones, we help you sell, help with sell leasebacks, help with subleasing up, renegotiation of leases, everything related to what a company may need from a commercial real estate standpoint. And we also have a full scale project management and owner's rep practice where we help organizations develop properties for their own use. So full service from a corporate user standpoint.

Yeah, and I think that's the real key that when I met you and you explained it to me, I'm like, oh my God, finally. Because it always feels like when you're the business owner, when you're the CEO or the coo, small, medium, even enterprise client, you're not out there leasing office space all the time.

Right.

You're not out there negotiating with these big landlords things. Big landlords do it all the time and they're kind of like the wolf in sheep's clothing. I mean, maybe not all of them, but they're doing this all the time. And they know how to bend you, they know how to take advantage, they know how to really negotiate. And you don't even have an idea as to where you can do well. Is that, was that kind of the impetus for starting as you just saw the need for the small guy or for the, the other side that really was either underrepresented or under skilled?

Yeah, I think that's very, very well said. I mean, what, what did it for me is seeing how pervasive the conflict of interest was throughout. You had all these companies that, that were trusting these big firms, these big commercial real estate brokerage firms with their negotiations. And I saw time and time again how compromised the negotiations were. I mean, if you think about it, you know, follow the money. The big firms, 80 to 90% of the revenue comes from representing the landlord. Represent the developer. Right. Percent of our revenue comes from representing the tenant. So we just decided that tenants were dramatically underserved, needed better representation, and decided to start a firm around that. And it's been extraordinarily well received and it's been amazing to watch how we've been able to grow and tap into a sentiment of frustration that I think people around the world have had for many, many years around, you know, real estate representation. When I do, when I speak, I like to start with a question where I'll say, okay, everybody, imagine the person you trust most in your world. Got it? Okay, good now raise your hand if that's your commercial real estate broker. It just cracks up because it's a joke. So we try to bring that spirit of trust and advocacy to the market.

So I remember back in the day when, when I was the CEO for 1-800-got junk and we were looking at leasing some commercial office space in Vancouver, and we were looking for 60,000 square feet. We had 250 employees at our head office. And it was a big complicated. It was a scary deal for us. A really, really scary deal. Even, even five years before, when we were leasing 16,000 square feet was a pretty scary deal, or actually it was 8,000. Then we took an option the next year on another eight. That was a really scary deal. The only reason why we weren't scared to death and why I don't think we really screwed up is Brian, the CEO, had a very close childhood personal friend who was kind of there to make sure the deal happened for us. And he was going to make a commission, but we knew he wasn't going to take advantage of us because their friendship was like 35 years old at the time. You know, it was. But that doesn't happen very often. So why do I always feel like my broker is trying to get a deal done rather than negotiate the best deal possible?

Well, I mean, if you think about the incentives, right, the incentives are if the broker doesn't get a deal done, he doesn't get paid. And then you think about, you know what the last thing that the brokers, traditional brokers want to do is they don't want to offend or push too hard on their traditional landlords or clients, because that's who they have to go back to time and time again and ask for the next listing, ask for another development agreement, right? And so they're very, they're, they're, they're treading very gently. So if it feels like you're not getting aggressive representation, it's, you're probably as a CEO or as a business leader, you're probably right on. It's probably exactly what you're not getting.

So what about when you're, you're, you know, you're, you're in a space right now, and maybe you've decided now that you're going to go with more of a hybrid. You know, post Covid, a lot of your employees want to work from home. So it's not like your company isn't growing. You could be doubling the size of your company, but you're offshoring more, you're hiring More people globally. You're letting people work fractional or work from home. What do you do in that case? You know, maybe you got three or four years left on your, on your lease, or maybe you've Even only got 18 months left on your lease. What do you do if you've got too much office space?

This is a common thing right now as companies. Not only is it too much office space. Right. But it's now no longer the right kind of space. It's companies that saying, how do we reorient our space to adapt to the new environment? And, you know, there's a lot of PTSD that companies have from space that they've been in for many years. Pre Covid a lot of companies, as they're starting to think about, what we're seeing a lot more of today is companies asking their employees to come back a few days a week at a minimum. They want to give them an environment that is representative of kind of the new way of working. So we're seeing a combination of companies looking at upgrading their space to be around more amenitized areas, wanting to make sure that the work space itself is supportive of a more, you know, a more optimized environment for, for people collaborating and for people working together. But I think the biggest thing that we're seeing at the end of the day is, you know, it often makes sense for companies to stay in their current facility and renegotiate their leases. But if the landlord believes that your intent is to stay, you're a sitting duck. And so what we spend a lot of our time doing is working on renewals and renegotiations where we create some competition in the marketplace, look at alternatives, and create some negotiating levers to make sure that the tenants aren't taken advantage of.

Is that the same kind of thing if you've outgrown it? I remember when, you know, we doubled the size of our company six consecutive years in a row, and we grew through our lease about three years faster than we anticipated. And that was another one that we just didn't know how to deal with our landlord. Do you help companies with that kind of a situation too?

All the time. And you know, typically that's that. That's first world problems, right? You need more space and you have, you know, more budget to do. So, you know, there are a lot of very creative strategies for getting new landlords to help with termination or buyouts or absorb some of the. The liability from the old space to get you into a bigger space as well as just really looking at what your existing landlord can do. But again, it all needs to be done in a competitive environment. The biggest mistake that we see tenants make day in and day out is they tell too much to the market of what their intentions are. They'll pick up the phone and they'll call their existing landlord and say, hey, I've been a good tenant. You know, I've been here for a long time. I've always paid rent on time. I need to blank whatever it is. Expand, contract, extend, give us a good deal. Instead of realizing that, you know that that can and will be used against you. It's like, you know, it's like playing poker with your cards up. You know, Real estate is the second or third largest expense for most companies. It's the least flexible, right, because you can lay off people, but you aren't laying off a lease. And over half of corporate bankruptcies involve breaking some sort of lease arrangement. So for us, we were a big, big proponent of take a breath, look at all your options. Make sure you have an advocate like Kaiser helping you in an uncompromised fashion to evaluate all your options and create the maximum negotiating leverage. Because at the end of the day, without the tenant, there is no commercial real estate. But everybody's on the other side.

It's interesting. And that's one of the reasons why we tell all of our CEO alliance members and our coaching clients to talk to Kaiser International is you guys actually do know how to negotiate this stuff. You know how to approach the landlords, how to work fairly between them. How about if your lease is coming up for renewal? That's something that I think people are coming up to. And we're kind of in that post five year Covid thing now where a lot of these leases are coming up for renewal. The end of these terms. What are a couple of giveaways that you can give people that they can be thinking of, maybe even before they contact you to really help them? What are some things that they should be looking at?

Great question. So the first is you can never start too early. Most people say, oh, I set a reminder and it's six months out and then I, then I start the process. Six months is already a year too late. We recommend 18 months at a minimum, if not two years before you start evaluating your options. One, so that you have time to actually relocate, and two, even if you don't want to relocate, it gives you a credible threat of relocation. Because every landlord knows that the likelihood of a reading of a relocation within six months is, is, is Unlikely at best. And so that's the first thing. The second thing is make sure you look at what your holdover rate is. It's one of those things that a lease that's tucked in like the 87th page, most companies have no idea what it is. It basically means if you stay a month past your existing lease, that you typically have to pay 150 or 200 or 300. I've seen even 400%. And it's a way for a landlord to have leverage over you so that you have to kind of fold to their, to their wishes. So the most important thing, of course, start early. Make sure that you have somebody like Kaiser helping you evaluate all your options so you're not a sitting duck. And make sure that you're being thoughtful about, you know, what, what happens if you stay past your existing lease state.

I remember I took contract law a couple of times in university. There's a long story there as to how I was able to take the same course twice and get credit for it. And I got credit for it twice independently because it had a different course number. But there's a long story behind that. So everything's negotiable is what I learned in contract law. Is everything negotiable or are there terms in the contracts? You know, when your landlord says these are all standard, are they standard or is everything negotiable?

Yeah, probably the biggest way that you can tell if your broker is truly on your side or not is if they use the term this is market or this is standard. You know, beyond a shadow of a doubt that they are not on your side. Because I don't even believe in the term market or standard. It's the idea that somehow 10 other tenants did this. And so now you're supposed to do this too, to me, is asinine. It's a contract negotiated in an open market and a free market where as long as you create the appropriate, again, leverage and you make sure that you're not giving away all your negotiating power, you can negotiate nearly everything in a lease. And, you know, a lot of times we have to sign confidentiality agreements and NDAs when we finalize these deals. And because we're so used to getting deals that are well below what others describe as market, that they don't want the word to get out on what we were able to achieve because then it could drive down the, what I believe is an overly inflated commercial real estate market. Just as another 15 second aside, I believe that because there's so much conflict in commercial Real estate around the country and around the world for that matter. I believe that real estate is artificially inflated from a leasing standpoint by about 15 to 20%. Which means that if there were a more normalized market, if, if the demand had as much negotiating power as the supply does, if the whole deck wasn't stacked against tenants and the landlords didn't control the brokers and the architects, architects and the contractors and the furniture people and carpet people and, you know, cabling folks. If that didn't exist, I believe tenants would pay an average of 15 to 20% less. So that's what we typically try to achieve on behalf of our clients, the savings in those, in those percentages and we're usually successful there.

How do you guys get paid?

We're paid a percentage of the overall deal. So if you think about a traditional firm that has a listing or a sign out on a property, they'll have, you know, negotiated a commission that's paid one way or another. So what I like to tell tenants is whether or not you have representation, it's typically the same fee being paid. So make sure that you have a representative where, if Kaiser is representing you, we share in that existing commission. So it's not additional layer of cost typically, but you get to make sure that you're getting advocacy for the fee that's already built into the deal.

How about like Countrywide? Do you guys have, you know, representation or expertise? Countrywide. And can you help companies that have got, you know, real estate spread over the country, maybe they've got five locations, ten locations, et cetera?

Yeah, absolutely. In fact, we got a global presence and we have about 600 people around the world. And everything that we do, our favorite way of working with a client is a mid market company that has facilities around the country, around the world. And we help them come up with a better real estate strategy, come up with a way to optimize their negotiating leverage, create leverage across all their facilities, make sure that they're well ahead of all the lease expirations, making sure that they're anticipating what their needs are going to be, whether, whether they need capital to be freed up by selling a facility or doing a sale lease back in the facility, or just making sure that as the business, I mean business needs change, as you know, Cameron, every single day real estate tends to be very long term and fixed. So what we're always trying to do for our clients is help to align those very disparate things and help companies to really have a better real estate strategy. I believe that we can help companies become more competitive in their respective marketplaces, improve their margins by really helping to improve the real estate negotiations across their portfolios.

Yeah, you know your stuff. Can you give me an example of a company that you've helped and some specific kind of dollar figures like that they were going to miss and that you found maybe one or two just quick, easy examples.

A really quick one is we, we got introduced into a company that was about to sign a lease and the CEO was sort of a cocky, I really like him, but kind of a cocky guy. And he grabbed the existing lease and slid it down his long board table at me and said, so they say you're pretty good. Can you improve this? And I said, I took a look at it and I said, yeah, I think we do better. In 30 days, same building, same lease, same owner. We renegotiated the entire thing, saved a million dollars. So that was in an almost impossible situation with a cocky client and got it done. Another one is we're always looking for. Sometimes I say it's not about the money, it's about the flexibility. Right. I would rather my clients have maximum flexibility. So building in options to terminate shorter term leases, rights to expand, and rights to contract. We saved a client $2 million to, by building in a right to contract. The landlord claimed he'd never even heard of such a thing. And I said, I said, if we decide that we need to contract, I want to have the ability to do so. Saved our client $2 million. So it's really about being creative and thoughtful about how do you create the right negotiating leverage not just to get better economic terms, but to make sure that the structural terms are as, are as beneficial as possible, knowing that the world's going to change around us.

Well, it's interesting, a friend of mine and author Ryan Holiday said that ego is the enemy. And I think for so many entrepreneurs, even if they're not cocky, sometimes it's the confidence that they know how to negotiate they're missing. The point is that you might be good at negotiations, but real estate and negotiating leases is not something you do every single day. No, it's like, it's like you wouldn't go in and do your own heart surgery. Why the hell are you doing like a lease like this? It doesn't make any sense. So, John, we've got to wrap it up. Are there any final thoughts that you have for people who are, you know, looking to engage you or would be thinking about engaging you and why they'd be silly not to and we can certainly make intros or they can reach out to Kaiser and National John Kaiser on their own.

Yeah. I would just say that your existing lease is your worst case scenario. Right. Like whatever you're doing today, let us take a quick look at it. I almost guarantee you we'll improve it and at a minimum, you'll walk away with some cool ideas. So whether or not you think you'd need to do anything right now, if you're in the middle of an existing lease or, or if you're thinking about, you know, expansion or, or whatever the case may be, always happy to have a free, quick strategy chat. Talk through what you're looking to do. And I'm almost positive that we'll be able to add some value to your process.

I love that. That should be your company tagline. Your current lease is your worst case. What is it? Would you say your current.

Yeah. Your existing lease is your worst case scenario? Yeah.

Brought to you by Kaiser International. John Kaiser, CEO of Kaiser International, a partner, the CEO Alliance. Thanks very much for sharing with us. Appreciate it.