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Here are some of the questions we've been asked about tenant representation. If you have a question you don't see here, let us know. You can contact us at contact@blackacreadvisors.com
How are you paid?
With a portion of commission paid by the landlord to his leasing agent.
Where does the money come from to pay the commission? Are we paying for this commission?
Yes, through your rent payments.
What if we don't have a tenant representative?
You'll still be paying for a commission, the leasing agent's commission.
How is it that we are paying for the commission even when we don't have a tenant representative?
Whether or not you have a representative doesn't determine whether the leasing agent gets paid. The contract between the landlord and the leasing agent does.
Why does the landlord need a broker?
The landlord hires a leasing agent to find tenants that will move into the landlord's building at terms most favorable to the landlord, as well as to retain existing tenants.
Can't we just use the landlord's broker?
Sure, but just keep in mind where her loyalties lie. Her job and fiduciary obligation is to get the best possible terms for her principal, the landlord - not for you. A tenant representative's job and fiduciary obligation is to get the best possible terms for you.
Okay, so it sounds as if we're going to be funding the commission paid to the leasing agent; however, won't the overall commission that we're funding through our rent be smaller if we don't have someone representing us?
Probably not, but it depends in part upon the terms of the listing agreement between the landlord and his leasing agent. Usually the listing agreement provides that the leasing agent will hand over a portion of her commission to the tenant's agent if the tenant is represented. It also depends upon whether the landlord is retaining a piece of the leasing commissions budgeted in the pro forma to fund any in-house leasing operation. The only certainty is that the landlord's broker isn't keeping the entire commission when you have a tenant representative.
Aren't there savings somewhere if we don't have a tenant representative?
Not usually. Landlords know that in almost all significant transactions there is a real estate firm representing the tenant and landlords factor that into their commission policies and the building pro forma. For the occasional transaction where a tenant is without a tenant representative, landlords view that unclaimed portion of the budgeted commission as an opportunity to pluck low-hanging fruit. It isn't viewed as an obligation to rebate some "commission-equivalent" portion of the rent to the prospective tenant.
Then why is our current landlord so keen on us not bringing in a tenant representative if the commissions aren't his real concern?
Your current landlord knows that your representative will have you looking at other buildings and that he'll have to compete with these other landlords, offering you concessions that he would not have otherwise offered.
Won't the landlord lower the rent if we represent ourselves?
Usually the landlord wants to keep the nominal rental rates high to enhance the future sale value of the building and to lock-in higher rental rates for lease renewals. Lease renewals are a landlord's most profitable transaction if the tenant can be renewed at a higher rental rate. The landlord's out-of-pocket costs for new carpeting and minor re-construction to accommodate a renewing tenant are much lower than when the landlord has to demolish and build out space for a new tenant.
Yes, but if we argue that we can reduce the landlord's commission burden, won't the landlord be willing to offer us a concession to keep a tenant representative out of the picture?
Possibly, but the landlord's reason for any such "concession" to an un-represented tenant would not be to reduce the commission but rather to reap an "above-market" return on your transaction by keeping you un-represented. So long as your landlord doesn't have to seriously compete with other landlords, you will be "above-market."
We're confident in our own ability to negotiate effectively with a landlord, won't we be able to achieve our goals on our own?
It depends on what your goals are. Landlords negotiate from a bottom-line perspective and will meet or beat the market only to the extent that they are forced to do so. The only way to reach a landlord's bottom-line is to convince the landlord that you are ready, willing, and able to go to another building.
We don't want to move, why would we want to involve a tenant representative in negotiations with our landlord to stay in our current building?
If you are not represented by a skilled tenant representative, your current landlord will only offer you token concessions, if that, to keep you in his building. You certainly won't receive the same level of concessions that the landlord is offering to new tenants to move into the building. Landlords perceive that if you have a tenant representative then you must be considering other buildings. Your landlord won't truly believe you're ready, willing, and able to relocate to another building unless you are represented.
Won't the internet give us all the market information we need for determining whether or not the landlord is giving a fair deal, a market deal?
What may be available on the internet or from a phone call to a leasing agent is an asking rate or sticker price, not the strike-point arrived at in an arms-length transaction between two fully informed parties. The asking rate won't allow you to effectively compare and evaluate construction allowances, installed unit costs, base-building conditions, pass-through of operating expenses and real estate taxes, cost of services not included in the rent, etc. If a landlord is willing to do a deal with you at a rate that seems in line with rates you've found on the internet, all you really know is that the landlord is willing to do a deal with you that is at the advertised "sticker price" for other buildings.
What about the right we have to renew our lease "at market"?
Renewals "at market" are usually a windfall for the landlord. A market renewal rate means the landlord gets a rental rate that is intended to cover the costs of constructing new space. However, landlords incur little or no construction expense for most renewals. A landlord may spend $30, $50, or more per square foot to build out space for a new tenant. However, the same landlord may look to spend as little as $5 per square foot in rehabbing an existing tenant's space but still charge the current tenant the market rate that would fund $30, $50, or more in new build out.
During negotiations with our current landlord, do we have to use the broker that moved us into the building?
No. The landlord will negotiate with the individual you designate as your representative during the current negotiations. Any commission agreement that the landlord may have with the original broker will require that she be involved in the negotiations. It will also often contain a provision that she will be paid a commission only if you have not designated someone else to represent you during renewal negotiations.
There is still some time left on our lease, when should I bring in a tenant representative?
Market conditions, the size and complexity of the transaction, and option notice due dates should guide you as to when to begin the process of evaluating your office lease. Time should be your ally, not your enemy during negotiations with any landlord. If you would like us to discuss with you the best time to start in light of your particular circumstances, you can let us know at contact@blackacreadvisors.com.
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