At this point in your commercial property search, you are well aware of tenant reps. However, you may think a relationship with a pure tenant rep is too good to be true.
We’re sorry to interrupt your skepticism, but working with a tenant rep provides real value, saving you large sums of money and time. How do we know this? We’re tenant reps! We have worked with hundreds of corporate clients and have witnessed firsthand the areas in which they benefitted.
We aren’t saying that you need to work with a rep to find the best properties, but that the relationship will likely save you millions of dollars, months of time, and a lot of hassle.
As tenant reps at iOptimize Realty®, we understand that you may have questions about the process, so we have compiled a list of facts you should know. By learning what tenant reps want you to know about their craft, you will cut through uncertainty surrounding the relationship and be able to make more informed decisions for your CRE.
So read on; we will go through the essential points, including:
1. Tenant Reps Only Work for You
Who’s the one person you can trust through thick and thin to protect your interests? Your mother? Your partner?
Your attorney.
Maybe you were expecting a more touchy-feely answer, but it's true! When working with a lawyer, you trust their experience and ability to find you the best legal solution. They have a fiduciary to you. Do you ever question where their allegiance lies? Of course not! This is how your relationship with a tenant rep should be.
Often, large brokerage firms have departments representing both sides of a CRE deal. When your broker also has their hand in the landlord’s pot, how can you know they are getting you the best deal? Pure tenant reps alleviate this concern. By working only for tenants, you get the peace of mind that someone is working on your behalf alone.
|
Think of a great tenant rep as your surrogate real estate department. |
Their fiduciary is to you as the corporate tenant. This empowers them to find better properties, drive tougher negotiations, and secure lower prices.
2. Don’t Underestimate the Value of Negotiation
The biggest weapon in the tenant rep’s arsenal is negotiation. Nearly everything is negotiable. From the base rent to the rent escalation, from the lease’s terms to your tenant improvement allowance, there is always room for arbitration.
Tenant reps are experts in negotiation. Just as you wouldn’t want to represent yourself in court, it would not be wise to go head-to-head with sophisticated landlords, their legal teams, and sophisticated landlord brokers.
The landlord and their broker are likely in this business for at least a decade. They think about real estate deals 5/6 days a week. No matter how sophisticated a negotiator you are, you probably make a deal in this area once every five years, at most.
It’s not that you couldn’t negotiate for your interests, it’s just that it makes more sense to designate the task to a professional who conducts deals daily, fully knowing the ins and outs of the craft. You're smart, but here this could potentially hurt you. Intelligence does not necessarily translate to a successful outcome in CRE negotiations. When going up against a blackbelt, knowing a little bit of karate is worse than not knowing any. So, level the playing field. Put on your team a skilled tenant rep and your real estate attorney.
Negotiation can save you millions, and having the right person to negotiate for you will save you weeks or months of precious time.
3. Pay Close Attention to Your Lease Terms
The most significant way tenants leave themselves vulnerable is not knowing what dangers lurk in their lease terms. If you are not careful, you may miss out on certain vital rights or pay millions of extra dollars over the leasing term.
Terms can make or break a lease. The lease will likely bind you for 5/10 years, so you want it drafted in your favor.
One should also pay close attention to the phraseology of the draft. In many cases, the jargon landlords use can exclude your ability to enact your clauses.
For example, if not drafted correctly, the sublease clause can be dangerous. It is a critical area in which your rights should be clearly laid out. Sometimes, the landlord may give themselves the right “to reasonably reject” a subtenant. What they have conveniently left out of the picture is just how long they have to provide you with an answer. So what seemed like innocuous verbiage will actually prevent you from holding on to a subtenant.
You should be getting extremely granular with the details of your clauses. Leases are often 80+ pages and drafted by the landlord’s team. They know all the areas within those 80+ pages where you can get taken advantage of. Do you?
The worst thing you can do is trust that the lease was drafted in your favor. There should be an in-depth review of each section.
4. The Property Search May Take Longer Than You Think
When looking for a new commercial space, allocating sufficient time for the search is critical. The entire process, from outlining your needs to executing the lease, will typically take about nine months.
Of course, many variable, potentially time-consuming factors can draw out the process. The timeline will depend mainly on the unique circumstances of your deal, but it is key to give yourself enough time.
|
It is generally advised to begin the commercial property search about 18 months before the end of your current lease. |
This will give you enough time to properly undergo a comprehensive search and negotiation process, increasing the likelihood of finding the perfect commercial space.
It is also notable that the process is highly time-intensive. For those with responsibilities outside of their company’s real estate, devoting sufficient time and energy can be an impossible task.
Are you prepared to individually call the landlord broker of 30 - 50 properties? To the landlord's broker, an unprepared tenant is like steak in front of a tiger. The ringing of your call will sound more like a dinner bell to them. That is why so many corporate tenants designate the job to a trusted tenant rep. You get the peace of mind as if you were doing it yourself, but you save 90% of your time.
5. Your Geography Can Make-Or-Break Your Budget
Many companies accept the extreme overhead of their locations as a fact of life. What they don’t realize is how much they could save by moving to a business-friendly area.
The organizations with the most to gain are those in the worst states for business, like New York and California. By moving a satellite office, warehouse, or headquarters to a state more conducive to business growth you can quite literally save millions in:
- Cost of Living
- Corporate Income Tax
- Personal Income Tax
- Sales Tax
- Commercial Real Estate Rent
- Gas Prices
- Etc.
The importance of reassessing your CRE portfolio is especially pressing if the country is in a recession. Companies are already looking to save anywhere they can, and relocating is a very real method to save up to 80% on your properties.
Massive corporations have already taken the leap and relocated to more business-friendly states. They have created business hubs in more affordable areas, reducing the risk for those looking to move now.
6. Tenant Reps are Better Than Free
Ok, this sounds like a gimmick- but it’s not. Tenant reps are free to the corporate tenant. No, really, you read that right. Free.
But not only are they free...working with a tenant can save you millions over your lease term.
Tenant reps come at no cost to the tenant because the landlord pays their fee. This means you get the expert due diligence of a real estate professional at no cost to you.
The tenant rep acts as the conduit of a win-win situation for the tenant and landlord. Let’s break it down.
Landlords need reliable tenants to fill their space. As a result, they are willing to reward a tenant rep for connecting them with a credit-worthy tenant for at least 5/10 years.
The tenant is still the primary beneficiary of the relationship with the tenant rep. Not only do they not pay a dime for their dedicated service, but working with a rep will significantly reduce the occupancy cost of the lease they execute. Tenant reps know all the areas within a lease where they can save their clients money. As a result, the lease's Net Present Value (NPV) will be far more affordable than if it was negotiated without representation.
A rep can save millions in rent, escalation dollars, and an increase in your tenant improvement allowance, etc.
Should You Work With a Tenant Rep?
The answer is up to you now that you have a clearer image of the tenant rep process and how they work. Tenant reps can save millions and months of time for your team. If this is something you’re interested in, working with a rep is right for you.
At iOptimize Realty® we believe in the value of tenant reps. We have seen how our clients have benefitted from renegotiating their existing leases, reanalyzing their space utilization, and relocating to more business-friendly areas. No matter what your CRE needs are, tenant reps can provide worth to every corporate tenant.
Schedule a meeting with a rep today.
Wondering where to begin?
Related Content
Subscribe to Our Learning Center
