Do Tenants Really Need Brokers When Negotiating Lease Renewals?

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.

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.

Acquire new ideas about commercial real estate at RealStrat’s blog at www.CorporateAdvisor.wordpress.com.   Follow RealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat.

Check out The Executive’s Guide to Understanding Corporate Real Estate Transactions.

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Copyright Real Estate Strategies Corporation 2010.  All Rights Reserved. 

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5 Responses to “Do Tenants Really Need Brokers When Negotiating Lease Renewals?”


  1. 1 Marat Safir August 31, 2010 at 5:07 pm

    Agreed…almost all of my tenant renewals require initiating the same steps as in a new lease project. Internally, organizations need to justify any important decisions in today’s tough economic climate and renewing a lease is no exception. Additionally, landlords appreciate the involvement of a tenant broker in order to make the tenant informed of realistic expectations. Today, many firms believe they can just take advantage of any situation…and that’s simply not true. There is a lot of money to be saved today in most instances, but the tenant broker is there to manage these expectations in order to facilitate the deal and avoiding disaster during the negotiation phase.

    • 2 RealStrat September 1, 2010 at 8:21 pm

      Hey, thanks for your reply! I couldn’t agree more. We asked this same question in a number of LinkedIn Real Estate Groups and received an overwhelming “Yes” as a response from over 100 readers. In fact, I’m not sure anyone really answered “no”, even though we received opinions from tenants, tenant and landlord brokers, landlords, attorneys, domestic brokers and those from other countries.

  2. 3 markdownham06 October 8, 2010 at 7:13 am

    “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?”

    The answer to the riddle is this. Create a ‘Landlord Customer Service Centre’ with a controlled access ‘extranet’ for the tenant occupiers and annouce you are now participating in Participatory ‘Occupancy Management’ (rather than traditional ‘Adversarial’ Property Management) and at lease renewal have a transparent approach to Servcie Charges and Rents and the Terms of all Commercial Leases governing all the occupancies in the buildinga nd at renewal – you will not need to use me, infact I will become completely redundant as a Professional Property Adviser and a Chartered Surveyor in this regard – but that is great, I will simply evolve and change myself into something utterly new and different in the way I Advise and work in the Advisory and Transaction Real Estate Sector.

    • 4 RealStrat October 11, 2010 at 4:09 pm

      A Landlord Customer Service Centre is a very creative idea. I believe that it could only work on the basis that all landlords in a particular geography signed on and agreed to be part of the solution. That will be the hard part! Keep the creativity coming. Thanks for writing in!

      Wishing you continued success and profits!

      Andy

  3. 5 George P Wilson August 14, 2011 at 4:31 pm

    As a landlord representative, I think all parties in a lease renewal episode should be represented by an experienced and knowledgeable advocate. Issues arise in deals when the “advocate” on either side tries to steer
    the deal in the wrong direction for motives other than purley dollars and cents. Also, whithout the full disclsoure by both parties at the start of a negotiation of its deal priorities/end game goals, the best conclsuion of a renewal negotiation for both parties will be elusive. Tenant reps should not assume that landlord’s do not know how many alternative locations are available for their exiting tenants. Landlord reps should not assume that tenants have not calculated the costs to move to another location that is just as affordable (if not more affordable) AFTER it incurs the moving costs. Each party needs to be forhtright about its goals at the beginning of the transaction for it to be mutually successful at deal’s end.


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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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