We live in the age of the specialist. In every facet of business there are increasing number of areas of core competency. Running a business today is not simple, and it is important to bring in experts with the right training and experience to do the job right.
It is no different in real estate. In the process of negotiating, designing and building space, there are appropriate experts who should be brought in. Experts essential to the tenant’s real estate negotiating team are the lawyer, accountant, architect or designer, furniture vendor, telecommunications vendor, insurance agent, the project manager, and perhaps another essential team member, the real estate advisor.
- Decision Maker
- Full Time Real Estate Manager or Project Manager
- Real Estate Advisor
- Furniture Vendor
Who are the Real Estate Advisors and what do they do? Since most tenants don’t have the time to become a real estate expert, they hire one. Just like the lawyer or accountant, the real estate advisor is essential to providing the special knowledge necessary to manage a real estate project effectively from planning through implementation. A real estate advisor is essential to level the playing field. After all, the landlord and his team handle negotiations every day of the week, while you’re busy running your business.
Let’s look at the Landlord’s Team
- Asset Manger
- Property Manager
- Leasing Agent
- Administrative Staff
- Maintenance Staff
The Landlord’s Team includes the building or asset manager, leasing agent, property manager, attorney, architect, contractors, administrative staff and maintenance staff. With all that firepower, it’s no wonder tenants need a real estate advisor.
How can you select the right one for your business? A real estate advisor may be a real estate broker paid a commission by the landlord, or a consultant paid by the tenant directly.
Just like the financial services industry, the real estate industry has been consolidating. Many small and regional real estate brokerage firms have dropped by the wayside or have been acquired by large, national and international brokerage firms.
The traditional role of a “full-service” brokerage firm is to represent landlords in the marketing of properties. These relationships are called agencies or listings. These same firms also market their services to tenants to aid the tenant in finding the right property and negotiating the lease.
In many transactions there may be one broker representing the tenant and another broker representing the landlord. Sometimes the brokers may even be from the same company or the same broker may represent both the tenant and the landlord. Sounds confusing, doesn’t it?
A tenant representative or tenant rep is a real estate broker who exclusively represents tenants and buyers of commercial real estate. Like a “full-service broker”, a tenant rep broker will receive a commission from the landlord, but he exclusively represents tenants only!
There are far more full-service brokers around than there are tenant reps. In some smaller city markets, there may be very few tenant reps available, if any. Are there advantages and disadvantages of hiring the full-service broker versus the tenant rep?
The tenant rep says that it is impossible to serve two masters – just like a lawyer representing both sides in a divorce. The tenant rep believes that by exclusively representing the interest of the tenant, he will avoid potential conflicts of interest that can occur when negotiating for both sides (tenant and landlord) of the same transaction.
The full-service broker will point out that his company, because of its large size and greater number of real estate agents, the full-service company represents a greater share of the market and hence has a better knowledge of where deals are being made. Some “full-service” brokerage firms are so large that they may even be specialized to the extent that they have their own tenant rep group to overcome the apparent conflict.
While at one time there was a knowledge gap between the large and small brokerage firms in terms of awareness of space availabilities, most brokerage firms today use Internet-based services that provide uniform market information about space availabilities to the entire brokerage community.
Since there are clearly advantages and disadvantages to each type of broker, how can I decide which broker is the right one for me?
Secret No. 22 — Ask any broker you may be considering hiring to state clearly what services he will provide. Then ask him to disclose where his loyalties lie by listing his company’s agencies in the market that you are considering. Remember that you are not hiring a company per se; you are hiring that real estate broker. Make sure to check his or her personal qualifications and references, not just the company’s. A competent broker will be happy to share them with you.
Some tenants are more comfortable with hiring a real estate advisor who is paid by them on an hourly basis as a lawyer or accountant. As you have learned, the real estate business is very complex. A real estate brokerage commission may already be structured as part of the deal by the landlord to take care of his exclusive agent and the likelihood that the tenant may also have a broker. Many tenants prefer for their real estate broker to participate in the already included commission to avoid additional out-of-pocket costs.
Some tenants feel that they can have several real estate brokers compete with each other by going out to inspect different properties with several different brokers to see what properties each can manage to turn up. These tenants fail to realize that instead of getting more market knowledge with two brokers, they actually get less market knowledge. How can that be?
If a broker knows he will get a commission only if you, the tenant, likes the property he has shown to you, that broker can no longer be an objective advisor as his financial interests are now tied to the success of that property. Brokers in this situation, being human, are more inclined to brag about the benefits of the location they have shown you, but may not go out of their way to stress the negatives. By working on an exclusive basis with one broker, you have a better chance of getting straight forward objective advise.
Secret No. 23 — Interview several brokers, but then select one broker. Give that broker a finite period of time, such as six months, to represent you on an exclusive basis. Have the right to terminate the relationship early for cause if the broker is not doing the job he was hired to do.
Categorised in: Experts