Real estate history is of little use to the nonprofessional. Unless your offices are in the Flatiron Building, do you really care that in 1902 it was NYC's tallest building? Do you care who the previous owners of the property were? Probably not!
Similarly, lease transaction comps are historical data points with little use to nonprofessionals for benchmarking lease transactions. Here's why:
Lease transaction comps are tracked primarily to assist property owners in estimating property valuations for financing, sales or insurance purposes. There are multiple ways to value a property, including construction cost and replacement cost, but the preferred method is to use an income approach using.. you guessed it, lease comps! So, yes, comps are useful to real estate owners to estimate valuation. Comps, however, are of little use to tenants for benchmarking lease transactions.
The current value of a piece of space is determined by supply and demand. Comps merely provide an estimate based on historical data. Unfortunately, the value of a piece of space is not what the last five people paid for similar space. The value of a piece of space is what someone is willing to pay for it. Real estate markets are cyclical and when a market shifts (as is happening now), the differential between asking and taking rents increases. We have recently been able to negotiate 20-30% discounts on sublease rents by taking advantage of this discrepancy.
Many Brokers of Real Estate ("B.O.R.E.'s") love to track and exchange lease comps. But do you want to work with the B.O.R.E. with the most data or the most experience. When you're in a two-minute drill and you need a touchdown to win, who do you want as quarterback, the savvy veteran or the backup quarterback charting plays on his clipboard?
Additionally, if a B.O.R.E. claims to have access to all of the lease comps for a property/neighborhood/industry, it's usually because he/she is aligned with the ownership community. As we have stated repeatedly, never hire a landlord's agent, it's the real estate equivalent of hiring your spouse's divorce attorney!
Thanks for reading, you've made it to the end of this post! As your reward, you've earned a comp (-limentary) beverage of your choice! Ping us back to redeem!