Chinese Walls in Commercial Real Estate Brokerage Companies….You’re Joking, Right? – (Part Two)

Full service real estate brokers will claim that tenant representatives have conflicts of interest, too, because they receive commissions from landlords, and because of that fact, landlords can pressure or influence tenant reps.  First of all, all brokers, whether they work for full service companies or tenant reps, typically receive commissions from landlords.  Some make arrangements to be compensated by their tenants.  If anyone cared about my opinion, landlords would only pay commissions to brokers who represent them and tenants would compensate their own representatives.  But, I don’t see the commercial real estate industry making such a major change any time soon.  Because tenant representatives don’t represent landlords and do not seek to do so, landlords can have little, if any, influence over them.  The best landlords get that, and don’t attempt to exercise undue pressure on tenant representatives. 

Corporate tenants sometimes wonder whether they should engage a full service real estate company versus one that strictly represents the interests of tenants. Most seasoned business executives see right through this issue.  Some work with full service real estate companies that make full disclosure as to their potential for conflicts and have appropriate mechanisms in-place to protect their clients and themselves.  Other executives, instead, choose to engage tenant representatives and minimize the potential for conflicts.  Yet, some remain oblivious and engage companies that pose serious threats of conflict, remaining completely unaware of the dangers that exist to their companies and the potentially serious impact such an approach may have on their transactions and their ability to obtain optimal terms. 

This writing is not intended to damn full service real estate companies, nor is it intended to suggest that high quality landlords unfairly influence brokers.  But, there exists a group of full service brokers at various full service brokerage companies who often mislead tenants into believing that because of some mystical and non-existent “Chinese Wall” that tenants’ interests will be safe.  Full service real estate companies have a lot to offer landlords, investors, developers, owners, and tenants, too.  My argument here is not against full service real estate companies because of their representation of tenants’ transactional opponents, but only those who claim that the potential for conflicts of interest does not exist and attempt to explain it away with blatant lies about Chinese Walls and other myths.  This dishonest approach only serves to maintain the negative stereotypes that exist about the commercial brokerage industry.

Like I wrote earlier, if a Chinese Wall truly exists in a commercial real estate brokerage company, one where everything on the tenant side is separated from all other service departments, including data, information, documents, strategy, client lists, target lists, closed transaction documentation, and the people who work there, and all of the above is safe-guarded with none of it being shared or available to other departments…I’d like to see it!  Tenant representative brokerage companies and corporate advisors, many of which are substantial companies in size, services, and reputation, make a few simple claims and can back them up.  They represent corporate tenants and buyers, negotiate on their behalf, offer very little potential for conflicts, and work to protect their clients’ interests…period!

Read Part One of this Post.  http://wp.me/py4BE-2p

Copyright Real Estate Strategies Corporation 2009.  All Rights Reserved.

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THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED AND REPRESENTS THE OPINION OF THE AUTHOR. HOWEVER, IT IS PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR IS NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR SPECIFICALLY AND EXPRESSLY DISCLAIMS ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.

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