Hire a broker to negotiate a relocation, but negotiate a renewal on your own? That’s like hiring a dentist to work on only some of your teeth! What benefit could you derive from that?
When a commercial tenant contemplates relocation or renewal, some landlords will suggest that the tenant engage a real estate advisor, but only to negotiate transactions outside of their current building. In these instances, the landlord will typically recommend that landlord and tenant negotiate directly on a renewal or other in-place transaction. This approach is designed to favor the landlord and removes from the tenant the benefit of expert advice and representation it would receive from an advisor on an in-place transaction. Such an approach also changes the role of the advisor from an objective representative of the tenant, one who has no preference or incentive to sway the tenant toward any particular property or transaction (other than the one that best meets the tenant’s objectives), to that of a salesman who would only be compensated in the event the tenant elected to relocate.
Landlords will suggest that to preserve the relationship, landlord and tenant should negotiate directly. That’s exactly why a tenant needs an advisor, so the tenant advisor can secure the terms to which the tenant is entitled and, at the same time, preserve the tenant’s relationship…that is, if a relationship with the landlord is important.
Other landlords will suggest that by negotiating directly, the landlord won’t have to compensate a tenant advisor, so the tenant’s occupancy costs will be reduced. Not quite! In fact, an advisor’s role is to drive down the tenant’s occupancy costs, despite the fact that a commission would be paid.
If the tenant agreed to deal with its existing landlord directly, such action would telegraph to the landlord that the tenant really planed on staying in the landlord’s building. It would stack the odds in favor of the current landlord and eliminate most, if not all, of the constraints and pressure placed on the landlord through a competitive bidding process. Moreover, the tenant would lose the objectivity it would otherwise derive by engaging an advisor to provide counsel and to protect its interests across all transactions.
In fact, the presence of a tenant advisor actually benefits the landlord while serving the tenant’s needs. A knowledgeable advisor, objectively evaluating the implications to the tenant of all alternative transactions, including those proposed by an existing landlord, could more appropriately guide the landlord as to how to make a deal with the tenant.
Do most tenants engage real estate advisors only to negotiate relocation transactions, while negotiating on their own with their current landlords? Not really. Frankly, if a commercial tenant has the know-how, time, resources, and inclination to negotiate a transaction without an advisor, then it should do that for all transactions, whether relocation or renewal. Otherwise, if the tenant elects to engage an advisor at all, it should give serious consideration to engaging that advisor across all transactions it may consider, to ensure continuity and objectivity, and to secure the optimal terms, wherever the tenant elects to land.
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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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