Transparency has become a hot button in corporate office settings. Managers like to “walk the floor” and feel like they can see and interact with all of a firm’s employees. It’s no wonder that the standard for prebuilt office installations has become the glass-walled office and conference room. In today’s corporate office environment, collaboration is critical. “Closed-door” meetings have given way to open landscapes. Business has become more open, transparent, collaborative, “above-board” and politically correct.
In a similar fashion, tenants should insist on transparency in working with real estate professionals. It is important that one understands how brokers are compensated and which interests a broker represents in order to avoid potential conflicts of interest or misrepresentations. Did you know, for example, that there are brokers who primarily represent landlord clients and others that exclusively represent tenant clients (like OLC)? Additionally, many landlord brokers will represent both sides (landlord and tenant) of a transaction without making that representation. (If a broker is representing both you as tenant and a major landlord, which party do you think will have greater influence over that broker’s actions?)
In residential real estate brokers are legally mandated to make written disclosures which buyers and sellers acknowledge with a signature. Unfortunately, commercial leasing has no such counterpart!! So how does a savvy tenant protect his interests when dealing with commercial real estate professionals? Ask your advisors these five (5) questions:
1) Are you aware of and can/will you disclose any potential conflict of interests? i.e., “yes, I also happen to represent the owner of this property we’re looking at”;
2) How are you compensated as my representative and who is paying your fee(s)? i.e., “my fee is based on the aggregate cost of your lease and is paid by the landlord”;
3) How is your fee calculated?, i.e. the brokerage fee increases as the lease term, rental rate and square footage all increase, but did you know that if your broker also represents the landlord, the broker’s compensation can increase by as much as 2X?;
4) Who shares your fee? In many large firms, the brokerage fees are so diluted by overhead, senior team members, landlord agreements, consulting services and even client sharing that your broker point-of-contact may be disincentivized by working on what he/she perceives as too small or unprofitable a project;
5) What guarantees can you provide against my satisfaction with your performance? Only one firm ever really offered a true performance guarantee and that firm no longer exists, still it’s a worthwhile question to ask;
Many tenants mistakenly believe that a better deal can be negotiated when dealing directly with a landlord or their representatives. The reality, however, is that a landlord’s agent and his client both profit by discouraging a tenant from having true representation. A savvy tenants’ broker will improve the lease terms by creating leverage and identifying and eliminating hidden landlord profit centers while garnering his compensation from a pool of fees that would otherwise go solely to the landlord’s agent(s). Additionally, having a reputable tenant advisor represent you in the marketplace sends a message to the landlord community regarding the credit-worthiness and sophistication of your tenancy!
Like the corporate office interior, the commercial office leasing process needs to make way for a much higher level of transparency and efficiency to successfully satisfy the needs of the next generation of tenants.