Adapted from “Set off a Chain Reaction,” by Michael Wheeler (professor, Harvard Business School), first published in the Negotiation newsletter.
Artful sequencing in negotiation means lining up deals so that each agreement increases the odds of nailing down the next one. A hedge fund manager might find that certain investors will decline to put their money in a new fund if approached early on, for example, yet gladly jump on board once others sign up. When embarking on a linked negotiation, start by probing the changing state of the market, the interests of key parties, the nature of important relationships, and the presence of potential spoilers.
Consider how this principle played out in the site acquisition of the Citicorp Center in midtown Manhattan. The sharply angled tower is now a feature of the New York skyline, but, for many years, the block on Lexington Avenue between 53rd and 54th streets was occupied by much smaller residential and commercial buildings, as well as an old Gothic church. More than a dozen different organizations, trusts, and individuals owned the various properties. How these separate parcels were acquired and assembled was recounted in instructive and entertaining detail by Peter Hellman in a 1974 article for New York magazine.
In 1968, Don Schnabel, a real estate broker, was hired by St. Peter’s Lutheran Church to appraise what its 15,000-square-foot plot might fetch in what was then a hot real estate market. Disappointed by Schnabel’s estimate, the church’s governing board decided not to sell. That would have been the end of it, but Schnabel’s research convinced him that, even if there couldn’t be a satisfactory sale of the church property in its own right, a handsome deal might be made if all of the Lexington Avenue parcels could be acquired. In a win-win-win outcome, the current owners would get a premium over market value, a major corporation could erect a landmark building, and-oh, yes-whoever brokered the deal would make a very handsome commission.
Schnabel began by probing his options. First, he quietly elicited from First National City Corp. (as Citicorp was then called) what its interest would be in buying the entire block, if he could assemble it. Next, he tested the market. Rather than pounce on key corner parcels, Schnabel researched three properties on a cross street. He was shocked to discover that another real estate operator had snapped them up just days earlier. With the bank’s encouragement, Schnabel paid a premium to buy out the new owner. He also wangled security to keep the competitor from popping up elsewhere on the block.
Schnabel learned what it would take for longtime owners to sell their properties. For a restaurant owner, it was assurances that employees would be retained for at least a year. Elderly apartment dwellers needed help in moving to California. Doctors who owned a medical arts building weren’t interested in selling until Schnabel crafted a stock-swap deal that minimized taxes.
Schnabel couldn’t have foreseen the specifics of these transactions; he had to get into the trenches to learn what was important to different people. Getting all the parcels took creativity, patience, and hard bargaining. The total cost of the 1973 land acquisition was $40 million-then the highest real-estate sale in New York’s history. The process wasn’t easy, but each puzzle piece taught the developer more about how they all could fit together.
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