Landlords Don’t Need Tenant Representatives!

“Boil them in oil!” “Bring me their heads!” “Hang them from the gallows!” “Don’t pay ’em a dime!”

Given the often fiery relationships that exist between landlords and tenant real estate advisors, one can envision high-powered landlords sitting behind large desks waiving their cigars and pounding fists in the air, decrying the fate of their arch enemies, those lowly tenant representatives.  While some landlords wish for all tenant representatives to sink to the bottom of the ocean on that same ship where many suggest we should put all the lawyers, the best landlords recognize the value a good tenant representative brings to a lease transaction.  Of course, some landlords, not the best-in-class, prefer to have no one between them and their prey, so they can feast on their opponents and extract maximum benefit on their own behalf.

However, the most successful landlords recognize that they actually need tenant representatives in order to achieve their own objectives.  They know that many companies are now operating with smaller management teams and the need to remain transparent.  For most tenants, it would be unacceptable to negotiate a real estate transaction directly with a landlord, their transactional opponent, without the benefit of objective third-party advice.  This is especially true, given that most companies, whether public, private, or owned as part of a portfolio, are operated for the benefit of others…owners, investors, stakeholders, beneficiaries, charities, and so on.  As such, given the fiduciary responsibilities most management teams must bear, being objectively advised before they negotiate, what are most often, multi-million dollar real estate transactions, is the only way they will proceed.  And, seasoned, quality landlords get that.

Professional landlords recognize that a great tenant representative will guide its client through the thinking and planning stages prior to engaging in discussions or negotiations with the landlord.  The result is most often a significant savings of the landlord’s time and resources in having to educate the tenant as to market conditions, transaction structure, how to distill operating needs into real estate transactions, and more.  The approach taken by professional tenant representatives actually increases the likelihood that landlord will make quicker deals. 

By the time a tenant who is advised by a tenant representative engages the market, the tenant can be expected to have completed its planning, will better understand its objectives, and will be better able to make internal decisions.  Accordingly, as a result of the information gathered under the typical tenant represent process, landlords are most often better able to satisfy the needs of prospective tenants and can better arm themselves to negotiate terms and successfully complete transactions.

While many landlords blame tenant representatives for lost transactions, increased cost, decreased revenue, and more, the most successful landlords realize that they benefit when tenant’s engage their own representatives.  They also know that, while engaged to protect the interests of tenants, tenant representatives indirectly create value for landlords, as well.

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14 Responses to “Landlords Don’t Need Tenant Representatives!”

  1. 1 Weed Removal February 10, 2010 at 2:49 pm

    As a heavy user of tenant reps, I am constantly fighting off landlord dismissal of my “business partners.” You see, I also utilize my broker team for other non-sale activity, such as comp gathering for renewals, lease interpretation advise, reputation fact-checking, market analysis, etc. I also position them to my franchisee-prospects as trusted advisors, which they simply are. Franchisees need tenant reps to avoid the impression of an Earnings Claim (i.e. “…this property will make you a boatload of $ more than the other one…”) They supply a neccessary buffer and to your point – an independent perspective. If my prospect doesn’t trust mine (rarely), I will recommend a few others, but always a tenant rep. Smart landlords will find ways to work with our folks that don’t end up in inflated rates – which will disqualify their location – and in return – tenant reps will supply a better informed, higher-quality and longer term tenant.

  2. 3 officeguy February 10, 2010 at 8:23 pm

    I agree that Tenant Reps are necessary. My experience has been good over the last 10 years in this business, except in cases where the rep requests an unequal amount of commission in exchange for their “credit” tenant. From the get go, they are putting-off the owner and placing the listing side in a precarious position by asking the owner to pay more for someone to essentially negotiate against them.

    In most cases the owner sees the benefit of getting a deal done as more important than quibbling over fees. But, I have lost some deals over it.

    • 4 realstrat February 13, 2010 at 11:29 pm

      Yours is an interesting reply. Some landlords view it as reasonable to pay a lesser commission, to pay commissions over time, and / or to place commissions at risk of non-payment, when they perceive certain tenants to be financially weak. While I will withhold my opinion on that one (see earlier posts), if you believe that such a position is reasonable on the part of landlords, then shouldn’t tenant reps also be entitled to receive higher compensation, or maybe even bonuses, when their tenants are financially rock solid? Frankly, as I have written here in numerous posts, I do not believe that a tenant rep’s compensation should at all be based on a tenant’s creditworthiness.

      I do find it self serving of some landlords who suggest that the issue of broker compensation is one of fairness, and that commissions should only travel in one direction…DOWN, when in most cases, such claims are more often greed based. Commissions, as you know, are set by a combination of things. In a free market society, commissions, like other payments, are based on what one party will pay and what another will accept.

      The best and most successful landlords understand that tenant reps are not responsible for the creditworthiness of their tenants any more than landlord reps are responsible for a landlord’s failure to perform its obligations, manage its building well, or if a landlord’s building is foreclosed on by its lender.

      Thanks for writing in. I hope to hear more from you.

  3. 5 pikerbro February 10, 2010 at 8:23 pm

    If the tenant rep. is so valuable to the tenant as a consultant, why doesn’t the tenant compenate them directly rather than the landlord?

    • 6 realstrat February 13, 2010 at 11:42 pm

      Many tenants do compensate their advisors directly. However, in direct response to your question, when the entire United States commercial real estate industry decides to change how it conducts business, and all tenants elect to pay their advisors directly, I will be the first one in line. However, if that unlikely event ever occurs, for those landlords that insist that tenants pay their own advisor’s compensation, should those landlords be entitled to retain additional profits as a result of avoiding that cost? Now, I am all for everyone generating as much profit as they reasonably and honestly can. However, if this is really a matter of fairness, not one of influence over tenant reps or profiteering by landlords, then in that event, shouldn’t landlords provide additional financial benefit to those tenants that do pay their own brokers? I await your reply?

      • 7 Owner & Broker for 20+ years February 14, 2010 at 5:18 am

        Saying that “you’ll be in line when the industry changes how they conduct business” is NOT a direct response to the question of why a representative of the tenant should be paid by the other party.

        Sorry to pour cold water over the patting yourselves on the backs party but a very large percentage of tenant reps steer their clients to properties that have larger commissions and/or bonuses or to their house listings at the expense of finding the most suitable deal for their client. Don’t believe me? Then why in this soft market do landlords (including myself) offer full commissions and bonuses to reps that bring in tenants? Because we KNOW they will steer their clients to properties that make them the most money at the expense of their clients.

        “Profiteering by landlords?” That is spoken like somebody who has never owned an investment property and have little to offer other than sour grapes.

      • 8 realstrat February 14, 2010 at 9:45 pm

        Dear Owner & Broker for 20+ Years:

        Before you make accusations, riddle me this: Why are you only offering a “full commission”? Does that mean that in hot markets you offer less than a full commission? Sure doesn’t sound like a bonus to me, or anything special, for that matter. That sounds more like a discounter looking for an excuse….not a perspective held by the most successful commercial landlords, I can assure you. And, as for my having invested in commercial real estate….please!

        The answer as to why tenant representatives are important is a long one. Feel free to read my earlier posts to enlighten yourself. But, simply put, tenant representatives are just as important to commercial real estate transactions as are landlord representatives. For those landlords who don’t have the resources to represent themselves, they engage landlord representatives to get the job done. No problem there, right? Well, the very same holds true for tenants…those that don’t have sufficient internal resources engage qualified advisors to determine how best to accomplish their objectives and then to execute on their behalf. It really isn’t more complicated than that.

        The one point you are correct about is the issue of brokers taking clients to their own listings. However, even in that one you missed the point entirely. Those real estate professionals who are true “Tenant Representatives” don’t have listings. That’s because true tenant representatives don’t represent landlords…ergo, the name “Tenant Representatives”. You must be confusing “tenant representatives” with the full service brokers with whom you deal, those who mascarade as tenant representatives. Of course, those brokers bring tenants to their listings…they’re really in the landlord representation business, silly! That’s a blatant conflict of interest that makes fair dealing difficult for everyone! That’s the whole point of this and many other posts about which I’ve written here at the CorporateAdvisor.

        So, in the year 2010, do you really need me to explain why any company, landlord or tenant, would need an advisor? Or, would you prefer that the entire commercial real estate industry revert back to the time when all real estate professionals were only agents of property owners, and buyers and tenants had to fend for themselves?

        I understand your issue of why tenants don’t pay their own advisors and brokers. So, here’s my invitation to you. Start a trend! Be bold! Show us how much you really believe in this issue! Be the first one on your block to tell all tenants who have interest in leasing or buying your buildings that you won’t pay their brokers’ commissions and that the only way you will do business with them is if they pay their own brokers! Do you have the guts? Don’t blame brokers alone for a system in which you actively participate! My comment wasn’t that landlords “should” pay tenant representatives, but only a statement of the obvious…that the system currently works that way, that changing an entire industry would be a mamouth undertaking that would take a very long time, and that if it were my choice, I would change it!

        I welcome your point of view, your energy, and your continued communications. Have a great day!

  4. 9 marcojelli February 12, 2010 at 4:29 am

    Hi Andrew,

    Thanks for the post.

    It helps to illuminate the value brokers bring to transactions and to their clients – creating the foundation for realistic expectations and successfully navigating a complex marketplace.

  5. 11 Weed Removal February 15, 2010 at 12:18 pm

    A couple of points to clarify:

    1. Asking a tenant to pay a commission for a location is a guarantee that the tenant WILL go somewhere else. It is currently “customary” for the commission to be paid by the landlord. I will point out here that the tenant is de facto “paying the broker” and the taxes and the CAM — through the metrics of the entire deal in the course of the lease. Finally, per custom, the broker (who originally brought that tenant) may NOT automatically be paid on future renewals. Mr. Landlord: Shouldn’t you provide tenants with a rent adjustment as a result of the reduction in commission costs on renewals?

    2. From my position (as a national site selector) any of my brokers who are “steering” for a higher commission (per above) run the risk of losing representation of our brand. We have already dismissed reps for conducting market tours exclusively with in-house sites. Rest assured that nobody on my committee is pencil whipping the site review compared to other opportunities. The best site is going to prevail, on metrics, not the highest commission.

    • 12 realstrat February 15, 2010 at 4:02 pm

      Dear Weed Removal:

      You’re my kind of broker! Integrity comes first. Do the job you were hired to do in the best interests of your clients! Fire anyone who doesn’t get that. We run our company the same way. It’s that simple. Continued success to you!

  6. 13 For Rent In Makati March 5, 2010 at 8:08 am

    I got to your blog from Facebook (a friend of mine posted it). After reading it, I liked it and forwarded it to others. More power to you.

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