What Is Your BATNA? (Best Alternative To Negotiated Agreement)

One of the most important talents of a successful real estate developer or investor is the ability to negotiate successfully. Whether it involves a purchase agreement, a lease, municipal and neighborhood approvals or other matters, a successful negotiation can make or break a project. Many people believe that negotiators are born with the talent and that learning to negotiate is a futile effort. Undeniably, certain people are better negotiators than others. Even those who are not born with the talent, however, can learn to improve their negotiating skills. Particularly in today's environment, where many real estate investors are called upon to negotiate with their lender, taking advantage of whatever negotiating tools are available is critically important.

An important question in all negotiations is how hard to push the other side. One way to evaluate that question is to ask the following two questions. First, what is your best alternative to a negotiated agreement. Second, what is the other party's best alternative to a negotiated agreement? In other words, what is each party's BATNA?

In some situations, determining your BATNA (Best Alternative To Negotiated Agreement) can be relatively easy. For example, if you are a tenant negotiating a lease and you have the choice of two very similarly situated buildings with similar amenities, and if each landlord is equally reputable, your alternatives are strong.

However, before deciding how aggressive an approach to take, you need to also consider the landlord's BATNA. For example, if you know that each landlord is seriously negotiating with other parties, their BATNA may also be strong. Of course, throughout a negotiation, BATNAs can change. If one of the landlords leases its available space while you are negotiating with the other landlord, your BATNA has likely changed. You must always continue to analyze the strength of both of your position and that of the other party.

In today's environment, one of the most important negotiations (and one in which we are frequently engaged) is that between a borrower whose loan is soon coming due and its lender. For example, assume that the borrower has a loan that currently has a principal balance equal to 80% of the property's value. In preparing for your negotiations with the lender, determining a BATNA for both you and the lender may help you analyze the strength of your position.

To determine your BATNA, you may ask yourself the following:

Could you...