Q&A on Tenant Representation with a Commercial Landlord
Part One of a Three Part Post
Most commercial landlords understand the role of tenant representation brokers and welcome the benefits they derive when tenant representation brokers properly educate and advise their tenant clients. However, some landlords, mostly old-school diehards, continue to maintain very negative views of all things about the tenant representation process. Some actually get offended by the very idea of a tenant representation broker. Offended!? What’s that about?
In a recent Q&A conducted via email with a prominent commercial landlord, I had the opportunity to hold a completely frank and open discussion about his views about tenant representation brokers. And, while some of the conversation was challenging at times, both of us came away having learned from each other.
I invited the commercial landlord to provide me with his views on tenant representation, tenant representatives, and how he’d prefer to conduct the business of leasing his properties. The conversation got so good, that it took me three posts to include it all. Be sure to read all three posts over the next three weeks! Following is Part One that dialogue:
1. Landlord: I would prefer to deal directly with tenants and to apply my creative deal making abilities to solve their problems, without having to work through tenant representatives.
RealStrat’s Response: In a world where transparency, disclosure, conflict-of-interest, and Sarbanes-Oxley are commonplace, for all but a few companies, it would be next to impossible for them to rely on recommendations made by transactional opponents, without having the benefit of advice and representation from third-party advisors whose job would be to protect their interests.
Additionally, professional landlords recognize the benefits of dealing with tenants who have been educated as to market conditions and properly prepared by their advisers, especially when those tenants are organized, ready, and perhaps pre-approved to make a deal.
2. Landlord: I view tenant representatives as obstacles.
RealStrat’s Response: Guess what? That’s precisely why many tenants engage tenant representatives (also known as corporate advisors). To state the obvious, landlords benefit from higher rents, lower allowances and incentives provided to tenants, and more square feet leased for longer terms. Tenants benefit from lower rents, higher allowances and incentives provided by landlords, the right amount of square feet and a length of term that best supports their business objectives. Given the opposing position between landlords and tenants, tenants see one of the many important roles of their advisors is that of a knowledgeable gatekeeper, and at times, and somewhat of an obstacle to keep the landlord from going in the wrong direction.
3. Landlord: Tenant representatives make deals more complicated.
RealStrat’s Response: Many tenants have complex business requirements that demand creative solutions. When it comes to satisfying a tenant’s operational or financial objectives, keeping it simple…the right approach in many instances…may not always be possible.
4. Landlord: I don’t like paying commissions to brokers who don’t represent me and who negotiate against me.
RealStrat’s Response: That’s interesting, because actually, tenant representatives would prefer not to be paid by their clients’ opponents. Receiving payment from a landlord when representing a tenant makes things very complicated for tenant representative brokers. Few industries handle compensation in a manner similar to that of commercial real estate, where the tenant’s advisor is most often paid by the landlord, the tenant’s transactional opponent. By changing industry compensation practices, this challenge could be eliminated. Because it remains the norm, most tenants prefer that landlords bear this responsibility. So, until that change occurs, landlords and tenant representatives are stuck with each other as it relates to compensation.
Stop by next week to read Part Two of this three-part post.
About Real Estate Strategies Corporation
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.
In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate. The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery. Visit www.RealStrat.com. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com. Follow RealStrat at http://www.Twitter.com/RealStrat.
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