The Value of Tenant Representation

a tenant representative walking across the street

Almost all Landlords and Sellers of commercial buildings will retain the services of a Commercial Real Estate (CRE) specialist to deliver the best possible results.  Alternatively, too many buyers and especially commercial tenants do not engage the services of a broker.  Why not?

The Landlord will have a broker, why shouldn’t you?

The Landlord and Seller of those buildings, regardless of their commercial real estate acumen, will engage the broker to not only help them to more effectively position and market their property, but most especially to tap into their local knowledge of what similar properties have sold, to whom, when and for how much. Once negotiations for the property begin, a qualified broker can then parlay that experience and knowledge to more effectively negotiate both the economic terms of the deal as well as the finer points, limiting the liabilities and obligations of the property owner. Certainly the services of a good broker will save the owner time but more importantly will help to increase the owner’s income, decrease their expenses and time on market and protect their overall interests.

Most buyers and tenants of commercial property, only engage in the process of acquiring property every few years, or in many cases, less frequently than that. Selecting the right property for your needs, then negotiating the best overall deal while not being armed with the best tools and information puts that buyer at a distinct disadvantage. A business’s location is often either the largest or second largest annual expenditure with multi-year commitments accounting for hundreds of thousands or even millions of dollars worth of liability.

What Good Tenant Representation Can Do For You

The goal of a good tenant representative is to reduce your real estate costs and risks while maximizing the flexibility and productivity of your workplace.  They should help to balance your business and financial objectives with your real estate requirements inside of the market.  Once they have identified and properly assessed your needs, goals and abilities, they design a strategy that accomplishes those goals according to prescribed timelines and budgets.

Some tenants and buyers would assume (incorrectly) that the primary function of a broker representing a tenant or buyer is to actually find the property for them. More often than not, a client has been thinking about a potential acquisition or relocation for months.  During that time, as they are driving through town or perusing the Internet, they are scouting out options.  Often times a client knows where they want to go before officially beginning the process.

Therefore, the broker adds value to the transaction first by knowing what is happening in the market, especially as it pertains to a particular property or type of property.  They will know or be able to find out what the market prices are for the property and what concessions (rent abatement, tenant improvement allowances, etc) a tenant or buyer should expect to receive as an inducement. They can also negotiate the other terms of a potential transaction that are somewhat less traditional such as rights of first opportunity or refusal to purchase, expansion and contraction options, exclusive use provisions, sub-lease/assignment rights, renewal and termination options.

Further, a good broker should be adept at financial analysis and be able to compare the true costs of occupancy for different spaces under consideration accounting for variances in size including the differences between rentable square footage vs usable square footage, rental amounts and terms, rent abatement periods, additional expenses such as repairs, utilities, janitorial, and common area expenses. Often times, the face rental rate is only a portion of the actual annual occupancy expenses.

Once the lease/purchase offer is agreed to, while a great broker can not replace a good attorney, they can certainly assist in negotiating and explaining the “fine print” of the contracts such as insurance requirements, default provisions, subordination clauses, etc.

And while the fee a good broker receives in a successful transaction is typically repaid many times over through the decrease in expenses and risks to the Tenant, the Owner of the property almost always pays their fee.  More often than not, if a tenant or buyer is unrepresented, the Owner’s representative might receive a slight increase in their fee, but typically, the commission savings are retained by the Owner, and not passed along as a savings to the Tenant or Buyer.

Likely, you wouldn’t defend yourself in court in any type of litigation. You would hire an attorney that specializes in that particular aspect of the Law and pay them by the hour, win or lose, to best represent your interests.  So as a customer with infrequent experience and exposure to an ever-changing marketplace, why would you not engage the services of an experienced commercial real estate broker to look out for your interests who only gets compensated if you get what you want?

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