Do Tenants Really Need Brokers When Negotiating Lease Renewals? Short answer? OF COURSE THEY DO!
Less sophisticated landlords have difficulty with the concept that a tenant, a company who has occupied space in a landlord’s building for 3, 5, or maybe even 10 years, would wish to engage a commercial real estate broker when it comes time to renew their lease, expand, or engage in some other transaction.
So, riddle me this: How is a renewal transaction so different from an initial transaction, such that in a renewal the tenant would not require the same intelligence, market and transaction knowledge, experience and expertise that can be provided by a tenant advisor? Especially, nowadays, when corporate executives are held to very high standards of ethics, transparency, and disclosure, when boards of directors and other stakeholders demand that companies seek the best alternative transactions and select only those that are most beneficial, how could any company agree to renew a real estate lease without being properly advised by a qualified third-party professional?
Don’t lease renewal transactions contain the same components as initial leases? Don’t decisions have to be made about important questions like:
- How much square feet does the tenant really need?
- What kind or configuration of space in what location would best serve the tenant’s business needs?
- Will the tenant’s space need to be modified to support changing business criteria?
- How much will interior improvements cost and who should pay for them?
- Should the tenant secure expansion or consolidation rights?
- Are other rights or options required?
- How will operating expenses and real estate taxes be addressed?
- What length of term would provide the tenant with the right balance of cost, flexibility, and overall value?
- What is the optimal rental structure that would support the tenant’s needs?
- How might free rent play into renewal negotiations?
- What other concessions and incentives should the tenant seek?
- How will competitive market conditions affect negotiations and the terms the tenant could ultimately achieve?
- What is the building’s real occupancy and vacancy ratio? How does that stack-up against other comparable buildings?
- How has the building’s tenant mix evolved during the initial term, and how might that affect the tenant if it renews?
- What is the financial condition of the building and its landlord?
- How seriously should the tenant consider relocating to other buildings?
….and, that’s just the beginning!
So, do tenants require the same expertise and insight when contemplating lease renewal vs. relocation? You bet? Is it in the landlord’s best interest to circumvent the tenant’s real estate representative and attempt to deal directly with the tenant? Not really. Most corporations prefer to be objectively advised by a service provider whose role is to protect the interests of the corporation. And, frankly, a landlord who will profit from a transaction with a tenant just can’t do that. Moreover, when a landlord attempts to by-pass tenant’s real estate advisor, tenants don’t appreciate it and often view that landlord negatively.
What do you think?
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations. Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.
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