November 1, 2019
In the early 2000s when the Oakland Athletics were among the worst-performing teams in Major League Baseball, the team’s general manager made a radical pivot.
He began using evidence-based analytics of player statistics that are often overlooked and undervalued, such as on-base percentage and slugging percentage, to find players whose actual talents outstripped their salaries or reputations that often lagged others in the league.
It was a major departure in a league overly obsessed with flashier skills such as speed and power hitting, which usually result in more expensive salaries for those players.
This sabermetric approach took rationality, bias and anchoring out of the picture and boiled the statistics down to their essence: did a player have valuable offensive skills that were more likely to help the team score points?
After adopting this new strategy, the Oakland A’s soared to the playoffs in 2002 and again in 2003. The team’s collective salary in 2002 was $44 million, which was a drop in the bucket compared to the $125 million the New York Yankees spent.
In his groundbreaking book “Moneyball” that documents the spectacular turnaround by the Oakland A’s, Wall Street trader turned author Michael Lewis spoke with General Manager Billy Beane about how he came up with the idea. As was the case with many entrepreneurs before him, desperation was the mother of invention.
“There can never be a status quo. When you have no money, you can’t afford long-term solutions, only short-term ones. You have to always be upgrading,” said Beane said, who was played by the actor Brad Pitt in the movie adaptation of the book.
We use a similar strategy when we negotiate and structure office leases with landlords. We gather dozens of fresh data points on every single deal we handle, and we track improvements on numerous terms over the course of the negotiation. That gives us powerful insight on whether we can expect a certain landlord to improve the overall economic value of a lease by 3% or 10% or more as we consider the best option for our client.
Not only does that tell us whether we’re getting a “good deal” for our client, but when a landlord suddenly deviates from past patterns it can be an indicator of the overall strength or weakness of a particular building or submarket. It might also foreshadow a change in strategy, such as being a leading indicator that a landlord is about to sell an asset.
Our Moneyball approach extends beyond the signing of the lease. We also gather and analyze data on how a building performs over time, and whether it met, exceeded or missed our expectations. Did operating expenses rise more than we anticipated, and if so, why? Did parking costs change? Was there a special assessment for taxes? These and dozens of other factors can greatly influence the overall cost of occupancy. For example, we’ve seen large swings in operating expenses at some buildings but modest ones at others. Knowing that helps us guide our clients in making better informed decisions that will help their businesses grow.
Find out more about how our Moneyball approach can impact the overall economic value of your real estate. You can reach us here.