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Benefits of Using a Tenant Representation Broker

Tenant Representation Broker

This post was updated on August 8, 2018.

Isn’t it cheaper to use the listing broker?  The one whose name is on the sign?

Even for savvy business people, this is a myth that we hear over and over.  In order to answer this question, you really need to understand how commercial real estate brokers make money.  The landlord pays commission for both the listing broker as well as the tenant rep broker.  However, the big caveat here is that you, the tenant, ultimately are paying for the commissions through the lease that you sign as landlords have already taken into account the cost of commissions when they determine their rates.

The listing broker is responsible for representing the landlord’s best interests.  Their job is to find a tenant to lease space at the best terms to the landlord.  Even if the broker agrees to represent you as a client, your needs come second to the landlord’s needs – and this is something that is in writing between the listing broker and the landlord.   This is a practice called dual agency.  Think of it from another angle.  If the landlord thought that the listing broker was giving you an advantage by working for you, do you think that the landlord would allow it?  The answer would be a resounding no.

A tenant rep broker’s only job in the transaction is to represent you and your best interests.  If you decide to walk away because they aren’t finding you spaces that work for you, they haven’t made a dime on you.  In addition, when they negotiate for you, they are only concerned about what will work for you, whereas the listing broker may be worried about irritating the boss and may not negotiate so hard for you.

Now, going back to the point earlier, that you, the tenant ultimately pay commissions through your rent.  The landlord has already taken into consideration that the commissions will be paid, regardless of who represents you in the transaction.

The landlord isn’t going to agree to lower the rent or give you more rent concessions because he’s going to have a lower cost of sales because the listing broker is representing you.  Listing brokers love representing the tenants for their own listings because generally, there’s very little negotiation and the deal gets done with less friction but potentially costing you, the tenant, more.  Whatever commission was budgeted for the tenant’s representative, some portion, or all of it, will be paid to the listing broker.  The bottom line is this: if the listing broker represents the tenant, they make more money on the deal.

It just makes good business sense to have someone represent you who has your best interests in mind, not someone who would like to represent you because they earn more commission but is actually legally bound to hold someone else’s best interest first.  Knowing this, why wouldn’t you want to have your own representation?

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‘Little Showcase of Horrors’ – More Historic Portland

A few weeks ago we posted a blog post with a few of our favorite buildings in Portland. We thought it was fun so here are some more beautiful buildings that our photographers have taken shots of.

New Market Theater Block

Built in 1872, this Old Town building’s name comes from the fact that it originally housed a market on the first floor and Portland’s first theater on the second floor.

The first floor arcade was highlighted by a total of 28 marble produce stalls.  For much of the 20th century the building was used to store car parts until 1980 when it was renovated into a retail and office building.

Also of note, The Portland Symphony Orchestra was officially founded in 1882 and started in the New Market Theater block.

The Brewery Blocks

I’m sure The Brewery Blocks need little introduction to any Portlanders. To those reading from elsewhere, The Brewery Blocks were the location of the City Brewery and later the (and more famously) Blitz-Weinhard Brewery from the mid 1800’s to 1999. The oldest buildings remaining were built in 1908, including the Brewhouse Tower.

In 1999 the Weinhard brand was sold to Miller Brewing Co. and brewing was subsequently sent to the Olympia brewery in Tumwater, WA. The Brewery Blocks, which by this point had increased to 5 blocks, were put up for sale and in 2000 were redeveloped into a mixed-use project with office, retail residential spaces.

The Brewery Blocks’ most famous tenant is Henry’s 12th Street Tavern, which features 100 beers on tap, almost entirely from Oregon. Powell’s Books, while not in the Brewery Blocks, borders block number 2.

Smith’s Block

Originally built in 1872, Smith’s block was just one of nine Portland buildings featuring one of the more popular Portland cast iron patterns. Now, it is the only survivor amongst those buildings.

During the 1950’s, the quarter of the building on 1st and Ash was torn down and turned into a parking lot. Despite this loss, the rest of the block remains and has been restored as recently as 2008.

Stay tuned! More to come and as always, send us your suggestions PDX!

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A Successful Startup Story – Founder’s Instinct, Go Direct.

As I discussed on my last article, The #1 Mistake Many Startups Make When Managing Growth-Remember the Garage?, I wanted to share with you an anecdote from a well established web company in Seattle, that will remain anonymous, let’s call them Dot.com.

Looking Good, Billy Ray! Feeling Good, Louis!

The year is 2010, and Dot.com has done extremely well for themselves. The founder’s acquired the domain name and other assets for under $5,000 and proceeded to build it into a top 100 most visited websites in the US, over a span of 7 years.

They have gone through a couple of office moves. Each move they upgraded and eventually ended up in some Class A space in the heart of Seattle, which  has a fairly competitive office market.

Shortly after they move into their space, they are already needing additional space. They had a couple hockey sticks in their growth chart! The founder heard that the neighboring tenant was looking to sublease some space, exactly what Dot.com was looking for.

Let’s Make a Deal

The founder calls his trusted commercial broker who found them their current digs and instructs them to place an offer of $15/sf on a short-term lease on the neighbor’s space. The broker informs him that they didn’t even get as much as a response to our offer from the landlord’s brokers. The founder assumes that maybe the offer was insultingly low.

The next week, the founder just happens to run into the neighbor and decided to ask about the space, nothing to lose since they already rejected the offer.  It was clear at this point that the neighbor never even saw the offer. Much to the founder’s surprise, the neighboring tenant seemed remarkably eager for Dot.com to pick up their space. They shook hands and came to an agreement for $3.60/sf on the spot.

This is just one example where the broker channel was ineffective and this isn’t necessarily a knock on brokers but more a reflection of the commission based compensation model that brokers live in, a you get what you pay for mantra.

Bravo to the founder for going direct and cutting out the middleman; probably another reason why Dot.com is still so successful.

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Our First Portland OfficeSpace Showcase…Distinctly Portland!

Over the past few months, with the help of some wonderful photographers, we have been hard at work capturing the architecture and beauty of downtown Portland, the Pearl, the Central Eastside and many of the other Portland neighborhoods. Some of this could only be done with the cooperation of our friends in the Portland brokerage community, the rest we did by simply walking the streets and shooting buildings.

Most of the pictures can be found on the site, but here are a few of our favorites.

The Blagen Block:

The Blagen Building, located in Old Town, was built in 1889 and is a gorgeous example of Italianate architecture, which was at the height of its popularity in the second half of the 19th century.

Its location on NW 1st is absolutely picturesque. Pure Portland.

Blagen Block

The Spalding Building:

These pieces are located in the Spalding Building’s lobby. Made out of old vaults, their contrast to the clean and beautiful lobby is quite striking.

Spalding Building

A closer view.

Spalding Building

The Spalding Building was built in 1911 and was added to the National Registry of Historic Places in 1982, one of over 500 in Portland.

The Postal Building:

Pardon the photography on this one; this was before we realized it was best to take the camera out of my hands.  The Postal Building, built in 1901, was added to the National Registry of Historic Places in 1978. I found the highlight of this building to be the beautiful atrium. (Wish my picture did it justice)

Postal Building

The Barber Block:

Most people familiar with Portland will recognize the historic Barber Block. Built in 1890, this building is another example of Italianate architecture but with a unique flair of Richardsonian Romanesque architecture as well.  Known as an east Portland landmark, it was added to the Registry of Historic Places in 1977.

Barber Block

Barber Block

Barber Block

That’s all for now but there are countless incredibly beautiful buildings in Portland, we’ll be back with more soon. Let us know if you have some buildings that you would like to see in our showcase!

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The #1 Mistake Many Startups Make When Managing Growth. Remember the Garage?

In a galaxy far, far away…

In the beginning, most start-ups follow a certain pattern:

  • Inspiration leads to the “killer” idea
  • Bootstrapping
  • Sourcing Capital
  • Recruiting an A-Team
  • Product Development
  • Building an Infrastructure
  • Iteration
  • Managing increasing Costs
  • Growth

There are many versions of the story but in my own career and listening to the anecdotes of many other entrepreneurs, most folks like you and I have sang and are singing the same song.

Boot Strappin’ 

In the early stages, everyone including founding members are wearing many hats.

  • You may be starting your empire from the confines of your garage.
  •  You may be able to delegate certain tasks to your founding team of two.
  • You may want to hire or outsource but the cost benefit may not make sense at this time.
  • This may not be most efficient but it’s cost effective.

Everyone is burning the midnight oil to get to market as quick as possible and the Agile Development model is adopted. Your development team is furiously taking feedback and the products and business models evolve. You and your team have proof of concept now and the future looks bright.

Your first two revenue models don’t produce as you hoped they would, so you scrap them and finally find a revenue model that works for you.  Soon, the revenue grows from a trickle to a stream and it looks like it will be a steady stream. Life is good and all the blood, sweat, and tears seem to be paying off. Team morale is high and even the instant noodles taste infinitely better!

You Did What With My Money???

Depending on your cash situation, this may be the time you seek additional funding. You’ve proved your concept, generated revenue, and now you’re looking to scale that model. I won’t go into valuation models, capital structures, or optimal equity distribution, but another major attribute that most investors want to see is fiscal responsibility.

When I talk about fiscal responsibility, I don’t mean extreme conservatism, as say an accountant would, but more of a prudent balance of risk, reward, and stewardship. There will be a certain amount of cash burn related to the Agile Development process as some features will be pushed to the side or scrapped all together, but cash burn that locks you into long term contracts that increase your fixed cost structure that may not contribute to the business are things to look out for. This may be one of the most overlooked aspects of the start-up life.

Pre-Y2K Hysteria

In the early go-go internet days, many companies got to this stage and proceeded to secure prime Class A office space with room to spare for their burgeoning venture only to find out that they over estimated the growth that they would experience. This left many start-ups in a precarious position, after all, most start-ups aren’t experts in commercial real estate.

There are many more practical options for office space nowadays. We will always have the garage to start out in, move to a shared or co-working space, perhaps graduate to an executive suite space, or look for a screaming deal on a sublease space offered by perhaps some of the less fiscally prudent start-ups out there.

Your Space Says A Lot 

Many successful entrepreneurs look fondly on their days of bootstrapping:

  • Remember when we had to float all our credit card balances to pay for the gear?
  • I miss those days all 5 of us were huddled on top of each other in the basement working 14 hour days.
  • It’s lunch time, 7-Eleven or the Gas Station?

Another common thread among many successful entrepreneurs is balancing image from reality. From the type of marketing spend to the type of office they lease. Don’t be fashionable, be fundamental. If you just raised money, it can be difficult to justify contracting for prime office space when you’d rather hire more people to get you to your goal.  Not only will your investors appreciate this, so will all other equity stakeholders.

For all you start-ups out there, the sublease space may provide you with the most flexibility and lowest cost to leasing office space. Unfortunately, this market is underserved and is sometimes difficult to find. Many brokers also aren’t very helpful in this type of space search as they have to put in the same amount of time as a normal search but only get paid a fraction of their commission rate, on a sublease.

Craigslist is the most common place to find the smaller sublease spaces out there and they do a great job of aggregating those spaces. However, as many of you are familiar with, the craigslist experience is not for everyone, especially those that don’t have much time to spend on sifting through endless ads. Let alone setting up tours and other logistical tasks.

As you can guess, I work for a start-up called OfficeSpace.com and we focus not only on larger spaces, but smaller spaces and sublease spaces as well. We are looking to solve the small and sublease space problem and we’ve launched our Beta in Portland.

Stay tuned for my next article, where I will share an example of another start-ups’ experience. All the best to the brash, brave, and entrepreneurial companies out there. All comments are welcome!

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#CRE a Little Spam Sandwich For Everyone?

Social Media is all you hear about these days and Commercial Real Estate is catching this wave.

But I have to ask, why does it seem that the twitter #CRE is a regurgitation of other’s breaking news retweeted to insure that the headline has been reinforced subliminally?  Is anyone really responding to the new “hot” listing via twitter? Is this just the nature of twitter? or are we taking the proverbial ‘first steps on the moon’? Am I just missing the point?

I especially love some of the well respected tweeps start talking about the spamminess of #CRE yet they too are contributing their share of 150 or so retweets/day.  I guess we are all guilty of this and the sense of lost opportunities by not getting on the social media express is tough to ignore.

I certainly don’t have the answers but would love to hear from you!

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PDX Small Space Success!

Shared Photo Studio

With our recent Beta Launch of OfficeSpace.com, we would like to share a successful lease story.

Timeline:

  • Jan 31, 2012, space was fully leased.
  • Feb 1, 2012, received a 30 day notice from her existing tenant.
  • Feb 1, 2012, posted  her listing with OfficeSpace.com.
  • Feb 2 to 13, 2012, received her leads & tour requests from OfficeSpace.com.
  • Feb 14, 2012, found new tenant, signed a lease, move-in date 3/1/2012 and no lost revenue days!

Client’s comments:

“I got significantly more inquiries through your site than I did via Craigslist or posting flyers, so I’m definitely happy with the experience!” – SLG

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Is Portland LEEDing the Sustainability Race?

We all hear about the ‘Greening’ of our office buildings across the country and Portland, Oregon, is certainly no exception. With more and more national press spotlighting Portland, Portlanders are justifiably proud of their majestic city.

The General Automotive Building located at 411 NW Park Avenue, in the heart of the Pearl District in Portland is one of many local showpieces for the core principles of Green Design and Construction. The building is striving to earn LEED Platinum Certification, which will further reinforce Portland’s reputation as the nation’s leader in sustainable urban development.

This remodel of a 1930s building blends the charm of tradition and sustainability of a modern, efficient Green Building.  The remodel allows for increased water and energy efficiency, and a superior work environment in terms of indoor air quality, natural light, design and construction quality. The design team at ConoverBond worked with the existing structural systems, column bays, operative windows and the original brick walls to preserve as much of the original structure as possible.

This is one example, but would love to see and hear from you…what are some of your other favorite green building remodels?  Post your comments here or check out our Pinterest Boards and let’s reinforce the LEED!

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Rates Don’t Improve, but Vacancy Rates Show Good Growth in Seattle Office Space Market

The year ended on a high note for the Seattle office space market in 2011.  Net absorption for 2011 ended just over 1.6 MM sq.ft, almost double the net absorption for 2010.  2011 also marked the best year since a high of 2006 that ended in a little over 3 MM sq. ft of net absorption.

While the overall vacancy rate for the Seattle market didn’t change dramatically over 2010, there is a good story once you dive into the details.  We ended Q4 2011 with 14.8% vacancy in the Seattle office market compared to 15.3% in Q4, 2010.  And while the changes don’t appear significant, there’s a story going on in the Downtown submarket.  Last quarter, several significant leases were closed with Amazon taking 386,000 sq. ft. and a total of over 800,000 sq. ft.  The impact of these leases definitely showed up when we looked at the Downtown area vacancy rates which dropped to 12.9% this last quarter compared to 15.1% in Q4 2010.

Average rental rates remained fairly steady for all of 2011 ending the year at $25.80 per sq. ft slightly lower than the $25.89 in 2010.  However, as the supply and demand paradigms shift due to lower office space availability, particularly of larger spaces in the Downtown area, we would anticipate this to have a positive impact on rental rates.