The do-it-yourself attitude can save money in many business situations. Brokering your next commercial office lease is not one of them, says Grant Pruitt, co-founder, president and managing director for Whitebox Real Estate.
Working with a tenant representative can help you save time and money on any commercial lease negotiation, whether that involves moving to a new space or renewing in your current space.
Here are five reasons you need a tenant representative for your next lease:
1. Just finding a suitable, available space could be a full-time job
The “Google of Commercial Real Estate” is Loopnet.com. And while the site can provide some useful information about price ranges and some available properties in a region, its database lacks many of the spaces that are actually available, Pruitt says.
“Loopnet is incredibly inaccurate, and they fee you to death to get your listings promoted,” he says. “You’re not going to find subleases, or shadow space — any off-market availabilities.”
Loopnet can provide sophisticated search tools, but the site can’t search for some of the intangibles that can make a space incompatible with your needs. A small business looking for only 5,000 square feet of office space might be inundated with options in a particular market.
“If somebody needs 5,000 feet of office space in north Dallas, that will bring up 350 different options,” Pruitt says. “You don’t have time to call 350 different buildings just to make sure if they’re available, not to mention if the configuration works. You tell us the parameters, we know how to ask the questions, and we can bring you the 20 options that work.”
Narrowing down the options to truly workable solutions could become a huge time-suck for a management team, and finding a space is only 5 percent of the process, Pruitt says.
“The other 95 percent is not found on Google,” he says. “You need someone who knows what they’re doing to guide you through.”
2. A tenant rep will take the emotion out of the transaction
Commercial real estate transactions can bring up strong emotional reactions from both the tenant and the landlord. As with any legal proceeding, the best outcome usually results when negotiators can keep their cool.
“As a business owner, negotiating my own lease gets really emotional,” Pruitt says. “If you get emotional, that gives them an edge. We take emotion out of the transaction.”
3. A tenant rep will get you a better deal than you can get on your own
Some tenants will choose not to work with a tenant representative because they have a good relationship with the landlord or with the landlord’s leasing agent. And while honoring personal and business relationships is important in business, it’s equally important to be mindful of potential conflicts of interest. A landlord’s agent’s ultimate duty is to get the most favorable terms for the landlord.
“We have fiduciary responsibility to show clients all properties in the marketplace,” Pruitt says. “Since we only rep tenants, we don’t have that same conflict of interest.”
Pruitt says many tenants make the mistake of assuming that a tenant representative can’t do anything for them during a lease renewal negotiation, or that they don’t need to hire one if they know their landlord.
“Seventy percent of our business is renewal transactions,” Pruitt says. “People assume that if they know their landlord, it’s easy. That’s where you get the worst deals. You have to get creative to create that competitive environment. You have to make sure the landlord has the threat of losing you, and then come back to them to drive that best possible deal.”
4. Maintaining a relationship with a tenant rep throughout your lease can save you money
Tenant representatives are best known for helping tenants negotiate their leases or lease renewals, but they can also help tenants deal with situations that arise during the lease, like operating expense reconciliations that are sent out at the end of a fiscal year. Sometimes landlords calculate costs in a way that violates the lease, but a tenant might not catch the mistake on their own.
“Any time someone gets a document from their landlord, we would love it if they called us to say what do you think?” Pruitt says. Another example he shared was receiving an estoppel letter, which a landlord will send to tenants in the event of a sale or refinancing of the property. The letter will request the tenant to certify that neither the landlord nor tenant is in default on any of the terms of the lease.
“I get someone who signs that letter, then six months later says, ‘We’ve had a problem with XYZ for the last 18 months,’” Pruitt says. “I ask, ‘So why did you sign that letter? The new landlord would have wanted to know what was wrong.’”
5. If you don’t use a tenant representative, you pay for a service you don’ t use
Tenants don’t pay representatives directly for their services. Typically the landlord’s leasing agent and a tenant representative split an amount that has already been decided as the commission on the transaction, which has also already been underwritten on the deal, often times on a much larger portfolio of multiple buildings before the deal at hand was even under consideration. “A good tenant rep broker will save more money than they ever make, and if you don’t use somebody, you’re paying for a service that you didn’t use,” Pruitt says.
Although in residential real estate it’s common to ask the buyer to subtract the amount of a typical buyer’s broker commission from the price of the house, that arrangement is almost never available in a commercial lease negotiation.
“In a commercial lease environment, typically there’s a master agreement that the leasing agent has signed with the owner,” Pruitt says. “It’s already spelled out that he’s going to get paid whatever that fee is while he tries to get the highest rate possible for his client, the landlord.”
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Whitebox Real Estate is a tenant-focused real estate advisory and development firm. It specializes in offering clients a custom-tailored approach to real estate in order meet their unique needs. Whitebox guides clients through the entire real estate process including strategic evaluation, lease negotiation, and construction.
Olivia Barrow is a contributor to The Business Journals. She is a Madison, Wisconsin-based freelance writer, content marketer and lifestyle blogger. She spent four years as a business reporter after graduating from the journalism program at the University of North Carolina-Chapel Hill. Connect with her on LinkedIn.