In this article, you'll learn:
- Why firms representing both tenants and landlords are a conflict of interest.
- The importance of tenant reps asking detailed questions about your needs.
- Why geographically fixed firms might limit your options.
- How inexperience can affect the quality of lease negotiations.
When looking for the right commercial real estate representative, getting overwhelmed is easy. However, if you’ve decided you want to work with a tenant rep, you’ve probably made the right choice. The right tenant rep can save your company millions in CRE costs while securing the most favorable terms.
But how do you know you’re signing on to a working relationship with the right rep?
As tenant reps ourselves, we have seen what corporate clients look for. Our industry experience also lets us know what they may not be looking for, especially when deciding which firm to look for.
Working closely with other CRE professionals has allowed us to know the red flags you should avoid if you want to secure the best property, deal, and terms.
So read on to learn about some of the most prominent red flags to look out for, including:
- Firms that represent tenants and landlords
- Representatives that don’t ask enough questions
- Geographically fixed firms
- Inexperienced brokers
1. Firms that Represent Tenants and Landlords
If this list could have a flag redder than all the others, it would be attached to the corporate service brokers.
They go by many names, but essentially, they are organizations that have departments that represent both tenants and landlords. So, while your rep may not work directly with the properties that they show you, they still report to the same chain of command.
This is a significant conflict of interest.
Tenants beware of firms that advertise property listings on their websites.
When looking for a tenant rep, you can keep in mind what you would look for in a good attorney. Would you agree to work with a lawyer whose firm also represented the other party? You would constantly be questioning where their allegiance lay.
When working with a conflicted professional, there is always a looming fear that you could potentially be getting taken advantage of.
2. Reps that Don’t Ask Enough Questions
When working with a tenant rep, you want to be ensured that your property requirements and budget are being carefully considered. To determine your optimal building, your rep should have a crystal-clear understanding of your company’s culture, size, and geographic requirements.
As a shortlist, your rep should be asking you questions, including:
- What is your current space requirement?
- What is your future space requirement?
- What are your company’s projected growth models?
- Are there territorial preferences?
- How does your company make use of space?
- Are you looking to have many private offices? Or open, collaborative space?
If there is not a thorough understanding of your company’s climate, how will a rep find you a property that meets all your needs?
Specifically, considering size, if your rep does not fully comprehend your future projections, you may find yourself either forced to move early or pay for wasted space.
Fully understanding your needs will also allow them to act on them truly. For example, let’s say you need warehouse space, and you think it should be located in upstate New York. A tenant rep who understands your requirements and goal of lowering costs may find a property ten minutes away over the border in Connecticut where tax and rent prices may be more favorable.
They found the perfect property for your company by thinking outside of the box, which can only be done if they clearly grasp your intentions for space.
3. Geographically Fixed Firms
Depending on your state, the requirements for licensed brokers will vary. However, every state requires that brokers have a license to practice.
Great brokers will belong to national networks of the Society of Industrial and Office Realtors (SIOR) and/or the Certified Commercial Investment Member Institute (CCIM). Only the top-tier real estate experts qualify for either of these professional networks. If they are members of these prestigious groups it avails them to a network of up to 16,000 other great brokers globally.
You may potentially miss out on the best properties and prices if they aren’t licensed in these networks or willing to travel out of their immediate area. For example, states in the sunbelt are highly business-friendly. If your rep is unwilling to search for properties in that area, you could miss out on a CRE opportunity to save your company millions.
Before you sign on with a rep, you should clearly understand where they are willing to work.
4. Inexperienced Representatives
As discussed earlier, when looking for a tenant rep, think about what you would look for in a good attorney. This includes their specialty, geographic business focus, and level of expertise.
You want to work with a specialist who has seen it all in their field.
Real estate is typically an organization’s second most significant cost, so you don’t want to leave yourself open to mistakes. Professionals who spend years or decades learning the art of lease negotiation are better equipped to protect your interest than someone fresh to the industry.
This is not to say that an inexperienced rep can’t be brilliant or provide excellent service, but the likelihood that they will catch mistakes or omissions in lease clauses may be lower.
The whole point of hiring a rep is the understanding that they know what they’re doing. You can offload the responsibility of securing the best CRE solutions to capable hands without worrying. And sophisticated tenants need sophisticated brokers.
For example, if you’re the CFO of your organization, you may only have to deal with leases once every five years. So, you want a professional whose level of expertise exceeds your own. Working with a rep with a certain breadth of experience, running deals five or six days a week for years, will ensure that nothing is left to chance.
How to Avoid the Red Flags of Tenant Reps
Finding the right tenant rep is a critical step you can take to reduce your CRE costs. But how do you know if you found the right one?
It depends on your company’s unique culture, needs, and budget. A tenant rep relationship is not a one size fits all experience. The perfect rep for one company may not suit another.
However, you can ensure that you are working with the right one by keeping the aforementioned warning signals in mind.
As we discussed, the main red flags to look out for are:
- Conflicted brokers who also work with landlords
- Reps that don’t understand your needs
- Firms unwilling to search outside their immediate area
- Representatives who don’t meet a certain breadth of experience
If you remember these points, you will be on the right path to finding a rep that will be dedicated to finding you the optimal property, lease terms, and price.
At iOptimize Realty®, we are tenant reps who are committed to finding our corporate clients CRE solutions that work for them.
Our over three decades of experience have fine tuned the process of finding and securing the best properties at the lowest prices.
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