Tips

Should I Hire a Real Estate Advisor When Renewing My Lease?

The easiest answer to this question is, “Why WOULDN’T you?”.  Yes, self-serving, I know, but most of the messes I’m hired to untangle are usually the result of an unrepresented tenant.

A lawyer who represents himself has a fool for a client.

Conventional wisdom would lead one to think, “well if my landlord doesn’t pay a commission to a broker, I’ll get a better deal,” however this simply isn’t true.  Any professionally owned and operated commercial building has already underwritten leasing commissions into their pro forma projections, and in fact, most lenders won’t even facilitate debt on a building if the borrower hasn’t already accounted for leasing commissions within their financial assumptions.  Lenders and owners know that commercial spaces do not lease themselves, and brokerage commissions, like tenant improvements, are simply part of the transaction’s leasing costs.

In commercial leasing transactions there are two parts to the commission, and the landlord is typically responsible for paying it:  the landlord’s representative gets one side, and the tenant’s broker is paid the other.  So what happens if the tenant decides not to access their side of the commission and forgo professional representation?  The tenant gets a lower rental rate, right?  Absolutely not.  Typically, the landlord’s broker will just take both sides of the commission.  And when the broker doesn’t collect it personally, I know of at least one major landlord in San Francisco that puts all of the tenants’ unclaimed commissions into a pool, and then uses it to throw a holiday party each year.

But wait, my landlord said that if I don’t use a broker for my renewal, they’ll take $0.05 per square foot off my rent.

That’s the oldest trick in the book that most tenants fall victim to.  About 6 years ago I was working with a major Bay Area tenant on a renewal, and that’s exactly what happened.  Prior to my engagement the landlord delivered the message above to my client, and then quickly followed up with a lease amendment to finalize the renewal.  Fortunately, I was hired before it was too late, and after a careful review of their existing Master Lease and First Amendment, it was clear that the minor rental reduction was substantially eclipsed by the hundreds of thousands of dollars in added expenses my client would have been exposed to had they gone unrepresented (the Restoration Clause was the biggie, followed by increases in OpEx over their old Base Year).

I have a great relationship with my landlord and I don’t want to ruin it by bringing in a broker.

A good broker understands how important a healthy tenant-landlord relationship is, and will strive to help you preserve and maintain it.  It’s easier for your broker to ask the hard questions, and can potentially take a few “arrows to the chest” so as to preserve your relationship and act as a buffer.  Actually, many times the landlord is more receptive to a broker’s proposal, as opposed to a tenant’s, since they know the broker is coming from a better informed place.

Regardless of how friendly you are with your landlord, you still deserve professional representation and should be suspicious of anyone who persuades you from utilizing an advocate who will level the playing field.

We have no intention to move, so there’s really no reason to look at other spaces.

Having only one option is negotiation suicide.  Your broker takes your real estate requirement and makes it accessible to competing landlords, so that a renewal at your current location isn’t your ONLY option.  Without creating a competitive environment amongst landlords and providing viable, alternative options, you simply just won’t get as good of a deal.

Finally, it’s important that you view your broker as a friend, ally, and invaluable teammate who has your best interests at stake.  Your broker will level the playing field and ensure that you access the very best concessions, inducements, terms and rates the market currently has to offer. Your landlord is engaged in the business of commercial real estate every single day, and it’s only fair that you have someone in your corner that is equally as active and informed.  There’s a lot of work involved with this process, which means there are plenty of opportunities for costly mistakes and potential exposure to liabilities. Your broker will handle the bulk of the work efficiently and professionally on your behalf so that you can focus on operating your core business.

See also:  When is the best time to renew an office lease?

5 thoughts on “Should I Hire a Real Estate Advisor When Renewing My Lease?

  1. Benjamin, very well said. I can really appreciate your great insight into this topic and couldn’t agree more with your well thought out points and conclusions. Fantastic newsletter!

    Alexander Petalas
    CBRE, Inc. Tenant Advisory Practice (TAP) Group

  2. Pingback: When is the best time to renew an office lease? « The Tenant Advocate

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