Finding the right fit in a commercial real estate lease is a challenge unto itself. Aside from researching, budgeting, and planning for an office move or expansion, there’s the lengthy and sometimes stressful endeavor of negotiating lease terms and what you’ll be responsible for paying on a monthly basis.
An effective strategy is to work with a tenant representation broker to help alleviate the stresses of locating the proper space and negotiating the best possible terms for you and your company. But finding the right tenant rep broker can be an overwhelming process to some. With a wide array of qualified, capable brokers in the real estate market, it can be difficult to decide which broker is the best fit for your situation.
Some tenant rep brokers have different specialities, relationships, and qualities that set them apart from one another. Certain tenant rep brokers work strictly within the boundaries of the local market, leveraging personal relationships and neighborhood know-how, while others have the support system that comes with a national brokerage.
To help you navigate the process, we’ve assembled this guide to answer common questions, provide you with a list of things you should ask a potential tenant rep broker, and allow you insights into how a tenant rep broker can benefit your company.
The Difference Between a Tenant Rep Broker and a Listing Broker
Tenant representation brokers act on the tenant’s behalf during a commercial real estate lease negotiation. While some will only work on commercial real estate listings, others will manage tenant representation exclusively, and some will perform both sides of the process.
Listing brokers represent the interests of property owners and landlords throughout the leasing process, including marketing, sales efforts, and sometimes closing on the lease agreement.
How Do Tenant Rep Brokers Get Paid?
Typically, tenant representation brokers are paid by the landlord. Because landlords and property owners don’t benefit unless there’s a tenant in their building, they prefer to cover the tenant representation broker’s fees as an incentive to bring them potential tenants, but ultimately the tenant rep broker will still work on your behalf.
Tenant representation brokers usually take a 4% cut of your total gross rent (or base rent plus operating expenses) across the lifespan of the lease. However, this rate can vary depending on market conditions, property types (such as for properties zoned for office, industrial, or retail), the type of deal (a renewal or expansion may demand a different rate), and the split on the purchase transaction (the percentage that both the selling and buying brokers make on the transaction).
What Should I Ask a Potential Tenant Rep Broker?
Apart from the basic questions into experience, previous client testimonials and references, and recent transactions, you’ll want to ask the following of any potential tenant rep broker before you bring them aboard:
- What’s your specialization? Some tenant rep brokers offer specific expertise into different lease agreement types, property types (such as retail, industrial, or office space), and industries (law firms, startups, tech companies, or restaurants).
- What’s your take on the current market conditions? While tenant brokers are always trying to find the best space for their clients, there’s sometimes more incentive in waiting several months for a more ideal property to be completed. Ask about their perception of the current market and see what they think about new developments coming online.
- What will our relationship be once the lease is signed? Some firms offer consulting for build-out, future sublease potential, and any expansion possibilities in the future. Others may simply move onto the next client. Ask their provided references about any potential tenant rep broker’s relationship with them after the deal is done.
What Qualities Should I Consider in a Potential Tenant Rep Broker?
- Local market experience: Large, national brokerage firms will often provide a greater amount of leverage in negotiations, but local brokerages may have better relationships with local landlords and therefore, better insights into local market conditions. Ask about specialities and each specific tenant rep broker’s latest deals to determine the best fit for you and your business’s situation.
- Follow-through and timeliness: Having a rockstar tenant rep broker is a major asset to a growing company looking for new space, but only if they do what they say they’ll do, when they say they’ll do it. Having conversations with a potential tenant rep broker’s previous clients and references will provide a better picture as to what you should expect when taking them on.
- A clear understanding of your needs and expectations: If a tenant rep broker constantly sends you properties outside of your price range, smaller or larger than your company’s space requirements, or outside of your desired geographic area, there’s nothing but wasted time happening in this partnership. Having multiple conversations and providing a written outline of your requirements will help the process go more smoothly, so don’t shirk on the initial steps when choosing a potential tenant rep broker.
What are the Benefits of Using a Tenant Representation Broker?
Because tenant rep broker fees are covered by the landlord and shouldn’t necessarily factory into your budget considerations, there’s no reason to not utilize their services while searching for new office space. Additional benefits of using a tenant rep broker include:
- Allowing you to focus entirely on your business: Unless you’re in real estate yourself, it’s highly unlikely that you’ll be able to devote the time, attention, and resources toward the commercial real estate industry as would a qualified tenant rep broker. Bringing one into the fold will offload that workload and allow you to focus on improving and growing your business.
- Alleviates potential headaches: Tenant representation brokers are well-versed in the commercial real estate industry and can foresee any potential challenges, pitfalls, and headaches on the way to finding the perfect location for a first-time office or potential relocation.
- Improves your chances of getting the best possible deal: Once you’ve found the perfect location, the negotiation process begins. A qualified tenant rep broker can help you navigate the negotiation process and use their specific market knowledge to secure the best possible deal for their clients. And depending on the expertise and/or size of their brokerage firm, they’ll likely have a considerable amount of leverage and negotiating power than if you tried to negotiate a lease agreement on your own. It’s also important to note that many tenant rep brokers will ask that you sign an exclusivity agreement when working with them which will only strengthen your search and negotiation process. This will remove any ambiguity on which broker is representing you while making you appear as more of a viable prospect to the landlord community.
No matter how you look at it, bringing aboard a tenant representation broker to help with your commercial real estate search is a great idea. Hiring the right tenant rep broker will help you in all aspects of the commercial space transaction – starting with understanding your business and ending with a signed lease. With no upfront costs, a dedicated professional to do the legwork, and better negotiating power than you’d have on your own, there’s potential for tens of thousands of dollars in savings in return for their expertise.