Archive for the 'Commission' Category

Using Non-Disturbance Agreements to Protect Broker Commissions

Commercial Real Estate Professional Calls for Change to Industry Practices

Non-disturbance agreements have been around for a long time. They have become a crucial component in protecting corporate tenants from being removed from their space by lenders who may foreclose on the buildings occupied by those tenants.

Should commercial real estate brokers be entitled to the same protections…that, if a lender were to foreclose, the broker’s rights to receive future commissions would also carry forward and become the obligation of the lender?

Currently, in most states, broker commission agreements are personal service contracts between landlord and broker, and don’t run with the land. Basically, if a lender were to foreclose on a building where a broker placed a tenant, the broker would likely have no standing. If the commission agreement provided the broker with the opportunity to receive commission payments for future events, such as if the tenant were to expand, extend its lease, purchase the building, or otherwise, in most cases, the lender would have no obligation to honor the commission agreement. And, the broker would likely receive no compensation under the commission agreement.

Since commercial real estate brokers are often one of the primary reasons a tenant and a landlord are brought together, shouldn’t brokers be entitled to the same protections often afforded tenants?  Like the tenant not being removed in the case of lender foreclosure, and like other protections afforded landlords, shouldn’t the broker’s rights also not be removed?

This approach has been applied from time to time, but only in extreme instances, and with a lot of effort. An industry wide standardized “broker non-disturbance agreement” is an idea whose time has come, especially at a time when so many commercial landlords are losing their buildings and while others are simply not capable of paying their bills, including commissions.  Like a non-disturbance agreement between a tenant and lender, a broker non-disturbance agreement would be a separate document between broker and lender.  In a broker non-disturbance agreement, the lender would agree, in the event it foreclosed on the landlord, to take-on the responsibilities to which the landlord agreed in the commission agreement.  In this manner, the broker’s future interests would be protected through the agreement with the lender.

Some landlords may misunderstand the true positive value associated with offering broker non-disturbance agreements.  Consider the office building that is rumored to have financial challenges. Some brokers might be less eager to aggressively pursue transactions there for fear of not being paid. By offering a broker non-disturbance agreement, financially challenges landlords may be able to attract more brokers to their buildings, and ultimately, increase leasing activity and close more deals.

Of course, other opportunities exist to protect brokers, including the inclusion in the lease document the right by the tenant to pay the broker its compensation, while deducting that cost from its rental obligations

Either way, commercial real estate brokers certainly provide valuable services to tenants and landlords. And, with the extreme challenges and very real risks that exist in today’s business climate, like others, brokers are entitled to reasonable protections and the expectation that they will receive the compensation to which they are rightfully entitled, especially those to which others have contractually committed to pay.

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 finance 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 Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, 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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

Commercial Real Estate Brokers: Shhh! Don’t Tell Your Tenants How Much Commission You’ll Make!

An Open Letter to Commercial Real Estate Brokers

Hey, commercial real estate brokers?  Keep your compensation a secret, even from your own clients. They don’t know how much you make, they’re too dumb to figure it out, and if you don’t bring it up they won’t think about it.  NOW, REALLY!

In most commercial real estate leasing transactions, commercial brokers representing tenants receive their compensation in the form of commissions paid by landlords.  Yep, that sure sounds like a conflict-of-interest to me!  But, unfortunately, that’s the way the industry works.

Guess what?

  • Your clients can figure out your compensation…and, they will!
  • Why withhold information from you own client?
  • When your role is to protect your client’s interests, withholding information that they can easily figure out on their own makes you look stupid and dishonest
  • Are you obligated to disclose your compensation to your clients? While you may not have any legal obligation to do so, from a moral and ethical perspective, I’m pretty sure the answer is “Yes!”

Whether or not you should disclose your compensation to your clients also begs other questions:

  • Why would you want to be transparent?
  • Are you concerned that someone might view your situation as your being over compensated somehow?
  • Did compensation discussions take place that may have negatively affected your client?
  • Is something negative going on?
  • Did you have to do any favors or compromise your position (or that of your client) to secure your compensation?
  • Were those favors at the expense of your client?  Did you disclose them to your client?
  • What might your client have lost in exchange for the compensation you secured?
  • Have you compromised your client in any way?
  • Do any conflicts-of-interest now exist or did they previously exist?

If all you’re doing is getting paid, fairly and adequately, why wouldn’t you disclose your compensation to your client…the one who is the very reason for which you’re able to generate compensation?

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 finance 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 Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, 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.

LINKS:

RealStrat News

Biographies

Articles

Properties

What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

Exactly, How Transparent Are You?

As a commercial real estate broker, you probably consider yourself to be professional, fair, open, and honest.  Are you also transparent? Completely?  Follow these questions and comments and decide for yourself just how transparent you are and whether your clients view you the same way.

  • Can you describe the basic principles behind Sarbanes-Oxley?
  • Do you tell clients and prospects that you will be transparent in your dealings with them and on their behalf?
  • Are you really transparent in your dealings, or is that just marketing hype?
  • Do you keep your tenants and buyers informed about your dealings on their behalf and about the compensation to which you may be entitled when they complete their transaction?
  • Do you only mention compensation to your tenant clients when a landlord offers you a discount, an unacceptable rate, or payment schedule that takes too long or puts you at risk?
  • Do you also inform your clients when landlords offer you compensation bonuses or incentives?
  • Do you disclose relationships to your clients that THEY may see as being in conflict with your ability to properly serve their interests, even if you don’t see the same conflicts?
  • Are you really completely transparent?
  • Are your company’s relationships so vast and geographically dispersed that it is often difficult to understand the many possible conflicts-of-interest that may exist, let alone identify and report them to your clients?
  • Are you transparent with your transactional opponents and competitors?  Should you be?

Being transparent is not a buzz word, it’s an absolute, a must in business. You cannot be transparent on some issues, and not on others, and then claim to be transparent.  That’s being partially transparent, which means you’re not really transparent.  Either you’re transparent or you’re not!

Being transparent in your dealings is not that tough.  What are you afraid of?  Do you think your clients will figure out that maybe you’re not as good as you said you were?  Are you afraid that if you are transparent about your compensation that your clients may want some of it?  If you are truly concerned about this, then perhaps you should ask yourself if you really are worth what you expect to receive in compensation…if you deliver sufficient value to your clients, so that they will recognize your worth and entitlement to fair compensation.

Are you afraid to disclose that a landlord offered you a compensation bonus? Why? Do you deserve it?  Will accepting it have a negative impact on your client?  Would your client think so? Would your client be concerned that you didn’t disclose it?  If, for some silly reason, you chose not to disclose an offer of a bonus, what a tremendous opportunity you missed to build a stronger relationship with your client

If you don’t create a lot of value for your clients, if you’re merely an old-fashioned real estate space jockey, doing little more than driving your clients around the market, dropping them on a landlord’s doorstep and expecting to pick-up a check when the landlord completes your client’s deal, then you SHOULD be nervous!  While you’re still providing a service and are entitled to be paid, you’re probably not entitled to the same compensation as a true professional real estate broker or advisor who helps his/her clients plan and negotiate complex transactions and provides superior service to them.  Like in any other business, if you’re in it for a quick hit and provide minimal service and value, you should expect to be compensated in a similar fashion, and frankly, in a lesser amount than your competitors who really deliver!

Wouldn’t it be great if your clients backed you up when it came time for you to be paid?  Yours won’t?  Why not?  Could it be that you haven’t been transparent, that they don’t trust you or don’t believe that you are worth the amount of compensation you seek?  Your relationship with your clients, and how your compensation is treated, can’t be one way.  If you choose not to accept discounts, then don’t accept bonuses.  State your compensation requirements to your clients at the outset of your engagement. Inform them that you don’t accept bonuses, and neither will you accept discounts. When a landlord or seller offers you a bonus, tell them you must inform your client (that tells the opposition you can’t be bought), then tell your client!  $10 bucks says that, so long as you provide your clients with stellar service, every once in a while, your clients will let you keep those bonuses. If not, then by your transparent disclosure, it will be the best investment in your relationship with that client that you could ever make! You’ll also likely find that your clients will support you when a transactional opponent attempts to under-pay you or tries to put your compensation at an unfair risk.

If a rogue landlord attempts to force you to accept a compensation amount or structure that is less than you would ordinarily accept, advise the your client, and let the landlord know you intend to do jus that.. Many tenants won’t feel comfortable with a landlord who attempts to under-pay their real estate advisor, as they often see that as a sign that the landlord will be unfair to them, and will likely under-fund or under-deliver for them, too.  Ask your client to support your efforts to secure fair compensation.  If your client recognizes the value you’ve created for it, they’ll back you up almost every time!

Heck! Even if you don’t get to keep a landlord offered bonus, think of all the incredible goodwill you’ll create with your client, your ability to deflate the opposition’s intent on swaying your negotiating strength by “buying you off”, how much stronger you’ll be in negotiating on your client’s behalf, the additional concessions you’ll likely secure on your client’s behalf, the strengthening of your reputation, and the future credibility and additional business opportunities you’ll likely get from the client who knows he can trust you…even with cash!

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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

Always Cut Your Commission!

Yeah, that’s right!   “Always Cut Your Commission!”  And, why not?  If the only value you can offer your clients is your price, then you probably will have to cut your commissions to stay in business!

Actually, let’s clarify what is often referred to as “Commission Cutting.”  It simply means that one broker is willing to sell his or her services at a lower rate than he or she would for other projects, or perhaps in comparison to his or her competitors.  So what?  Does that mean every one in the local market must sell their services at the same price?  If you buy shoes from one store at a low price, does that mean that all of the other shoe stores will lose all of their customers and go out of business, just because you got a good deal?

Just like in other industries, there exist many common practices in commercial real estate, including those surrounding broker compensation.  But, no “standard” compensation or commission structure exists.  In fact, in most states, setting commission standards is considered price-fixing, and is illegal!

So, what’s all this noise about brokers who cut their commissions and how that supposedly affects the compensation of other brokers?  The response I often hear is that if one broker offers low-priced services then every landlord, tenant, buyer, and seller in that market will make the same demands.  Really?  Well, guess what?  They already want your services at the lowest possible price.  Shouldn’t they?  Don’t you want to buy those shoes as inexpensively as possible?  Don’t you negotiate for a lower price when you buy or lease a car?  Didn’t you negotiate when you bought your home?  Did everyone else get their home for the same price you did?  Of course not!  Seeking a lower price is the American way, and there isn’t a darned thing wrong with it.

Ask yourself these questions:

  • Are you a low-cost service provider?
  • Is low-cost always the winner?

NO!  If that were true, there would not exist high-priced hotels, restaurants, resorts, clothes, homes, cars, etc., etc., etc., or anything of better quality.  If low price always won, consumers and businesses would never buy the best quality or engage the best of any service provider.  Instead, they would only hire the cheapest.  And, in those instances, they’d get what they paid for.

Forget what other brokers do.  There is plenty of room in every industry for low-cost service providers, because some clients do make purchasing and hiring decisions purely on cost.  Low cost, almost always means low quality, and those who hire only on a low-cost basis typically receive services commensurate with what they pay.  And, if that’s their preference, so be it!

The answer here is very simple:  If you are a low-cost service provider, be the best one in your market.  If, on the other hand, you wish to be something other than low-cost, make sure that like Mercedes, BMW, Nobu, Gucci, and other fine products and service providers, you provide your clients with such incredibly valuable services, experiences, and outcomes, that your other-than-low-price will be warranted and you will be in demand!

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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

For additional profiles, pictures, and more click here or go to http://realstratnews.wordpress.com/media-information/.

Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.

###

Has Your Wife Inspected the Building Yet?

In a recent industrial lease transaction, how the deal came to a close was not only unusual, but very telling about the direction of the current economy.  A privately held company negotiated with a commercial landlord to occupy a full building in a prominent and well-located industrial park in central New Jersey.   The landlord had an excellent reputation for quality designed and solidly constructed buildings, for maintaining high service levels, and for sticking to his word.  However, the landlord’s buildings were also known to be priced higher than his competition.

The landlord, a very astute and respected business man, had recently gotten very aggressive in lowering rents in an effort to attract more tenants and fill his buildings’ vacancies.  Nonetheless, his rents were still higher than many of his competitors.

In this particular negotiation, the landlord offered extremely flexible terms and an annual rental rate that was one of the lowest he had offered in the last eight years.  After weeks of back and forth, the tenant’s CEO informed the landlord that the company would not accept his terms, and that the company decided to lease a building of similar quality located twenty minutes further south.  The CEO said that the building they had chosen was less expensive, and that given current economic challenges, the spread between rents for the two buildings was significant enough that he could not pass up the additional savings.  He told the landlord that his company made its decision a week earlier and that its lawyers were already deep into lease document negotiations.  The CEO was a candid guy, so the landlord took him at face value and correctly assumed this was not a negotiating ploy.

Disappointed for having worked so hard to land the tenant, the landlord knew he couldn’t win them all.  The landlord confirmed for the CEO that he had truly offered all he could, and wished the tenant well.  The CEO stated that even if the landlord had offered more, he did not expect the central New Jersey building to be able to match the lower rents at the selected building.  So, they parted, saying they each hoped to do business together again some.

That weekend, the CEO was driving through central New Jersey with his wife on his way to a social function.  Since his wife had heard so much from him about the intense building negotiations, the CEO decided to drive her past the two buildings, both the one to which the company planned to relocate and the central New Jersey building he’d decided not to lease.

After driving around the central New Jersey building and sitting in front for a few moments, the wife, who rarely involved herself in her husband’s business affairs, told her CEO husband that he was nuts for passing-up the central New Jersey building.  She told him that she thought he’d made a mistake, and that the building offered an image that was far more impressive than anything else she’d seen.  From what the CEO told her, the central New Jersey building offered a giant leap in functional design, in comparison to the company’s current facility and the one the CEO selected.  She said that the building he had chosen could not compare, that his company would have benefited considerably more by moving its employees and operations to the central New Jersey building, and that the company would likely have become more profitable and able to significantly elevate its own image had it chosen the central New Jersey building.  Wow!

The CEO’s wife was right, and he was convinced!  First thing Monday morning, the CEO called the central New Jersey landlord and agreed to close the deal, despite the additional rental cost for the central New Jersey building.  The CEO realized that given the terms offered by the landlord, he would basically get a BMW quality building for the price of a Chevy.  He knew that, despite the continued economic doom and gloom heralded by the media, a good deal would still be a good deal.  Moreover, the CEO, obviously an intelligent business man, recognized that the lowest cost deal, even if it is less than the cost of a Chevy, while often attractive, is not always the best deal.  He understood that value could be derived, and success could be achieved, in multiple ways, other than through mere cost reduction.

When companies begin to return to rational thought, as in the case above, a circumstance that has lately been repeated again and again, you can be assured that such activities are the true signs that the recovery is gaining traction.  And, when your wife tells you that your company would be better off by taking a particular action, you may want to listen closely.

What unusual circumstances have surrounded your projects?

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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say
AndrewZezas.com

For additional profiles, pictures, and more click here or go to http://realstratnews.wordpress.com/media-information/.

Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.

###

You Don’t Need a Commission Agreement…You’re Covered Under the Leasing Agent’s Agreement!

How many times have leasing agents told me that I didn’t need to negotiate a separate commission agreement at their building, because they’d already made provisions for the payment of my commissions in the representation agreement between them and their landlord?  I’ve heard comments from brokers suggesting that negotiating a separate commission agreement is a waste of time, when the leasing agent’s agreement provides for them. It has been suggested to me that the time spent on negotiating a separate agreement could be better spent on pursuing and closing another transaction.

  • Here are a few questions that I offer in response to the above:
  • Have you read the representation agreement between the landlord and the leasing agent or have you just relied on claims made by the agent?
  • Do you have a complete original copy of that agreement?
  • Is your company a party to that agreement?
  • Would the obligation to pay you be from the landlord or the leasing agent?
  • Are the commission rate, amount, pay schedule, and terms what you expected?
  • Does that agreement afford you the ability to change terms you find to be unsatisfactory?
  • What rights and protections does that agreement specifically afford you?
  • What future benefits does that agreement afford you?
  • If the agreement between the landlord and the leasing agent expires, do your future rights expire, too?
  • If the landlord sells the building, what happens to your future rights?
  • What would happen if the  leasing agent defaulted in its obligations to you?
  • What would happen if the landlord defaulted in paying your portion of the commission to its leasing agent?
  • Would you really want your compensation arrangement to be through the leasing agent, a third-party, or directly with the landlord, who has the true obligation to pay you? (In earlier articles I’ve written, I’ve suggested that brokers pass even the landlord and secure commission payment commitments from building lenders!)

…and, I’m just getting warmed up!

Some landlords and leasing agents have responded to these questions by saying that their state real estate commission affords them protections under many of the above circumstances.  That may be true.  However, do you really want to have to deal with, what are most certainly bureaucratic, rules under your state’s real estate commission and perhaps endure a legal battle to collect what is rightfully yours?  Or, do you really just want to be paid what is due you?

No leasing agent can bind another company, unless that company agrees to be bound.  That’s a fact!  Irrespective of what a landlord or a leasing agent tells you, just because they have agreed on commission terms between them, doesn’t mean that you must accept those terms.

Remember something very important here:  A broker bringing a tenant, or buyer, to a landlord, whether through the landlord’s agent or directly, is the customer of the landlord and its agent.  That’s right! The broker is the landlord’s customer.  The tenant or buyer, in turn, is that broker’s customer.  This is especially true when the broker is authorized in writing to represent the interests of the tenant or buyer.

So, as the customer, the tenant or buyer’s broker has the right to set its own terms of service and the compensation that it will receive. If a particular landlord elects not to buy what the tenant or buyer’s broker is delivering or chooses not to pay the broker’s price, then that is the landlord’s option. And, it is the option of the broker to take its business elsewhere. Or, in such an instance, the broker also may have the option of securing an alternative compensation arrangement with its tenant or buyer. But, no tenant or buyer broker is obligated to be bound by an agreement between landlord and leasing agent if that broker did not agree to the terms of that agreement.

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 finance 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 Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, 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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

All You Care About is Your Commission!

Do I care about commissions?  You’re darned right, I do!  So does my family.  They like to eat, you know!

Do I only care about commissions? Of course not!  Ask my clients. Their success is the only reason I’m able to generate commissions, or any compensation, for that matter.

So, do I care? Of course! But, not only about commissions. Not by far! I care about my clients, their concerns and objectives, my ability to deliver great service and to solve my clients’ challenges, and much more.  Wouldn’t you care if you worked for 24 months to build a relationship with a client, competed and won their business, and then worked another 9 months to complete their transaction, expecting to be paid at completion…and, then some self-interested landlord attempted to pay you over another 9 months, at risk, with no interest?  I bet you would care, plenty!

Have you ever seen how some commercial landlords react when their rent checks are late?  Talk about nuclear war!

Doesn’t everyone care that they get paid on-time?  Would your salaried employees…you know, those normal human beings that expect to receive a pay check every two weeks…be upset if you didn’t pay them on time?

Sure, ask them to be patient.  Tell them their check is conditioned upon your customers performing well, and see how long they work for you.

Do I care about commissions?  You bet!  Ask my clients, and they’ll tell you that I care about a heckuva lot more.  That’s why they keep hiring me.  Boy, I love those guys!

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 finance 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 Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, 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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

Sleeping with the Enemy Broker

For those companies who prefer not to formally engage real estate service providers because they choose not to sign representation agreements, answer me this:

“Do you enjoy sleeping with the enemy?”

That’s right! The commercial real estate broker with whom you are working, the one who presents properties to you, the one to whom you have disclosed important information about your company, the one who says he’ll keep your information confidential, the guy who said he’d get you the best deal…is the enemy!  He has a legal, binding, fiduciary obligation to disclose everything about you, your company, and its real estate needs to property owners, including your confidential information. He is compelled to negotiate against you on behalf of property owners, to get you to pay as high a price as possible, and to get you to agree to terms that would be more favorable to property owners.

That’s right! The law of agency requires that, absent a written agreement to the contrary, a real estate broker is the agent of, and must protect the interests of, the entity from whom he or she receives compensation. Since, in most commercial real estate transactions, broker commissions are paid by landlords, without a written agreement between you and the broker stating that the broker represents you even though he’ll be paid by the landlord, you’re out of luck!

Surprised? You shouldn’t be.  Don’t take my word for this.  Ask any attorney how this really works.

But, deals are done this way all the time….right? So, why change things now?  Formally engaging a real estate professional to represent a company in acquiring real estate is not a new concept.  In fact, most commercial real estate transactions nowadays include both a landlord representative and a separate tenant representative, where the tenant representative has been formally engaged by the tenant through a written agreement.

Don’t landlords sign representation agreements with real estate brokers?  Doesn’t your company sign other agreements and contracts, such as leases, purchase agreements, service plans, employment agreements, vendor contracts, and others?

So, why not hire a real professional and protect your company’s interests?  Perhaps you don’t trust your broker or would not want to be bound to him.  That’s an easy one!  Find the right broker…and, hire him by a written agreement that protects your company’s interests.

Then, you and your company will be protected, and you will be assured that you won’t be sleeping with the enemy!

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 finance 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 Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, 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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

broker, commercial real estate broker, landlord, commercial real estate, office space, industrial, warehouse, distribution, commission, representation, New Jersey, RealStrat, zezas, Real Estate Strategies Corporation

Brokers Compensation is Performance Based…But, Who Must Perform?

I love it when some commercial landlords claim that the commissions they pay to commercial real estate brokers should be conditioned on whether a tenant performs or defaults under a lease.  Some landlords insist that they should not be required to make future commission payments if tenants default.  Some go so far as to demand reimbursement of commissions by real estate brokers when tenants default.

Many commercial landlords argue that commissions should be paid based on the value landlords derive when tenants pay rent.  Those landlords claim that if a tenant defaults in paying rent, then the landlord’s value is diminished, and the commercial real estate broker should somehow be responsible for that default and should not be entitled to its full compensation.

This is simply an issue where commercial landlords attempt to pass on their risk to real estate brokers, as a result of landlords not performing the due diligence necessary to protect their own interests.  Do landlords really believe that real estate brokers are capable of analyzing the financial abilities of commercial tenants?  Do landlords really expect brokers to act as credit analysts and insurers of tenant creditworthiness?

Sure, the compensation of commercial real estate brokers is performance based.  But, to who’s performance does that relate?  Not the tenant’s performance!  Real estate brokers are not compensated based on the performance of their tenants. That’s why most courts of law have found that a real estate broker’s commission is due when the lease is executed by landlord and tenant, not at the end of the lease after the tenant has performed its obligations. So, from a landlord’s perspective, a commercial real estate broker should be paid for its own performance, for “delivering” a tenant, not for what that tenant does or doesn’t do after the landlord has accepted the tenant and after the landlord has freely elected to enter into a transaction with that tenant.

In fact, a commercial real estate broker working on behalf of a tenant may receive payment from the landlord, who is, in turn reimbursed by the tenant for the cost of the broker’s compensation along with other costs through payment of rent.  So, because tenants reimburse landlords for real estate broker compensation, some courts of law have held that, in fact, it is the tenant that actually pays the broker’s commission.

The world has changed and business, especially commercial real estate, has become a riskier industry.  Companies that appear to be healthy may not be, or may become unhealthy and default on their obligations at a later date.  This puts more burden on commercial landlords, and the necessity for them to take greater steps to protect their interests has become even more important.  For the record, it is not only tenants that can become unhealthy….

The issue of whether landlords should place the burden of tenant default on the backs of commercial real estate brokers has been an on-going source of debate, both in this blog, in LinkedIn, and in the commercial real estate industry.  And, so long as some commercial landlords, not the best or strongest landlords, mind you, unfairly attempt to shift their obligations and risks onto commercial real estate brokers, unfortunately this discussion will continue.

However, as the commercial landlord industry consolidates and becomes more sophisticated, that out-dated mentality of “stick-it-to the-real-estate-brokers” appears to be fading away, as greater numbers of commercial landlords recognize the benefits they derive from commercial real estate brokers representing tenants and the commissions to which those brokers are rightfully entitled.

 

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 finance 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 Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, 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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###

6 Critical Steps to Protect Your Commissions in a Challenging Market

The compensation of most commercial real estate brokers is performance based, especially in lease transactions.  When real estate brokers perform, they are entitled to receive their compensation. Yet, too many seasoned brokers put their compensation at risk, too often.

Follow these six simple, but critical steps to protect your commissions, and to ensure that you’ll be paid fairly, in-full, and on-time.

Step 1. Speak Up!

As early as possible, discuss your compensation requirements with both your tenant – client and any landlords with whom your client may consider entering into lease negotiations.  That means at your first meetings, before your prospective client actually becomes your client, and at your first landlord meetings, advise them how you expect to be compensated, how much, and why.  Advise them that your compensation is performance based…based on YOUR performance in bringing about an executed lease, not based on the tenant’s performance once the lease is signed.  That’s a critical aspect of a real estate professional’s compensation.  Once the transaction has been completed, so has the job of the real estate broker, and at that point his / her compensation has been earned and is due.  Real estate brokers are NOT in the tenant credit guarantee business and are not responsible for the performance of the tenant after the lease is executed.  Read more on this subject.

Explain to your tenants that at some point, while you are working to protect them, you may ask for them to demonstrate to the landlord that they expect you to be compensated adequately.

Step 2. Make It Clear in Your Representation Agreement

Never work to acquire real estate on a company’s behalf, without having a written agreement between them and your company.  Your agreement should define your obligations and those of your client.  It should specify how and by whom your company would be paid, and should state that your compensation is not dependent on your client’s performance under any lease. Moreover, in your agreement, your client should agree not to execute a lease until your company has secured an executed commission agreement from the landlord.

Step 3. Spell It Out in RFPs and Offers:

Include text in all requests-for-proposal and offers, specifying how much and by whom your company would be paid, that your compensation is due in-full upon execution of the lease, and that the tenant’s creditworthiness and/ or performance under the lease shall not impact how, how much, or when your compensation would be paid. The old standard text that often appears on offers saying “Commission to be paid by separate agreement” is no longer a viable means of protecting yourself.

Shouldn’t the landlord know in advance what your compensation expectations are, so he/she can properly budget for transaction costs?  Shouldn’t your tenant-client know how you’ll be paid?  Then, why not be transparent?

Include text in RFPs and offers clearly stating that you make no representations, claims, or warranties, as to the tenant’s creditworthiness, financial condition, or ability to perform any of its obligations, that the landlord will be solely responsible to conduct its own investigation of the tenant and satisfy itself as to the tenant’s financial condition, and that your compensation shall not be conditioned on the tenant’s creditworthiness, financial condition, or ability to perform any of its obligations.

Step 4. Be Clear in the Commission Agreement

Irrespective as to whether it is a common practice in any market for a landlord and tenant broker to enter into a commission agreement, always secure a written commission agreement before a lease is executed.

In almost an identical fashion, include text in the commission agreement, whereby the landlord acknowledges that you made no representations, claims, or warranties as to the tenant’s creditworthiness, financial condition, or ability to perform any of its obligations, that the landlord will be solely responsible to conduct its own investigation of the tenant, and that your compensation shall not be conditioned on the tenant’s creditworthiness, financial condition, or ability to perform any of its obligations.

By the way, since you’re asking the landlord to acknowledge that you made no claims, be certain not to make any!

Step 5. Use the Lease to Protect Your Compensation

The lease provides an excellent opportunity for you to be transparent with your tenant and bring the tenant in on the commission conversation.  Explain to your tenant that as you fight hard to secure favorable terms on its behalf, you will need the tenant’s help in securing favorable commission terms.  The tenant’s assistance becomes especially important since you will not ask the tenant to compensate you, but only to stand arm-in-arm with you as you negotiate both the lease terms necessary to protect the tenant and the commission terms needed to protect your company.

With tenant and broker in a unified front, this approach benefits both tenant and broker.  It clearly telegraphs to the landlord that both tenant and broker are aligned in all respects, are co-dependent, and that the landlord will not likely be able to divide and conquer, as some overly-aggressive landlords will seek to do.

Include text in the lease stating that if the landlord does not pay the broker its commission in-full and on-time, in accordance with the terms of the commission agreement, then the tenant may, at its option, pay the broker’s commission and deduct an equal amount from its rent without being in default.

Most tenants will have no issue with the addition of this type of text, as it places no burden on them, and the decision to pay you will be at their discretion.

Some landlords will yell and scream and claim their lenders will never approve of such text. Since such text places no greater burden on landlords than the terms contained in the commission agreement, and since it specifically references the terms of the commission agreement, lenders typically take no issue with such text.  If a landlord fights hard on this issue, be very careful and there may be real problems hiding around the next corner.

Step 6. Secure the Lender’s Cooperation

Landlords get lenders to grant non-disturbance agreements all the time, wherein lenders agree not to disturb tenants’ right to use and occupy their space in the event of a building’s bankruptcy or other similar circumstance.  Similarly, brokers should insist that landlords secure from their lenders written agreements stipulating that, in the event of a building’s bankruptcy or other action that might displace the landlord, the lender would fulfill the landlord’s commission obligations.

In tough times, unusual things can occur, and a business-as-usual approach can prove dangerous. This is especially true when it comes to broker compensation, which is sometimes treated as the last point to be negotiated or as a landlord’s slush fund, in some transactions.  Moreover, if during lease negotiations on your client’s behalf, a rogue landlord thinks he/she can get the best of you because you were not aggressive in securing your compensation requirements, that unfortunate perspective will likely translate into how the landlord will negotiate with you for your client’s lease. If you’re weak in protecting yourself, you’ll be perceived as being weak on your client’s behalf, and in fact, you may actually lose for your client, while you lose for yourself.

 

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 finance 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 Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, 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.

LINKS:

RealStrat News
Biographies
Articles
Properties
What Our Clients Say

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

###


Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 42 other followers

Follow Me on Twitter

Error: Twitter did not respond. Please wait a few minutes and refresh this page.



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.