15 Reasons You Need a Tenant Rep Broker for Commercial Leases

In this article, you'll learn:

• How tenant rep brokers ensure favorable lease terms and prices.
• Tenant reps' roles in providing tailored advice and simplifying negotiations.
• Benefits of using a tenant rep, from finding spaces to managing leases.
• How tenant reps level the playing field in negotiations with landlords.

If your company is looking for a new commercial lease, there's a secret that big and small companies use to get the best space at the best price with the best process: they use a tenant rep broker to help them. Tenant reps are commercial real estate professions that focus on working with users of office, retail or industrial space to help them find the best spaces and negotiate the best deals. When you use one, you get an expert in your corner throughout the process and you do it at little or no cost (usually the latter!).

Commercial real estate brokers are licensed professionals who help their clients with their real estate needs. Unlike residential brokers, commercial brokers sell and lease office, retail industrial, apartment and other types of buildings.  Many of them work with landlords to list buildings for lease or sale. You've probably seen their "for lease" and "for sale" signs as you drive or walk through commercial corridors. Some work with investors to help them buy or sell buildings that they hold in the hopes of making money. Some work with anyone who will hire them.

A small subgroup of commercial real estate brokers specializes in working with tenants. These professionals -- tenant representatives or tenant rep brokers -- are experts on businesses like yours and on how to find the right space for your needs. Tenant reps might not be experts on how to find you an apartment building to buy so that you can collect rents, but they know which spaces are available and how to negotiate a lease transaction. Many can also help you between transactions so that your tenancy can go as smoothly -- and profitably -- as possible. 

The key thing about a professional tenant rep is that they work for you. While the brokers that you see on signs are usually hired on an exclusive basis to represent the landlord (although they're more than willing to "help" you out), your rep owes his or her allegiance to you. In most states, they serve as fiduciaries -- which means that they have to treat your needs as if they were their own. This means that you have someone in your corner -- just like the landlord has in his or hers.

Now that you understand what a tenant rep can do for you in general, here are the fifteen reasons that you need a tenant rep broker for commercial leases.

1. Finding the Right Fit

Tenant rep brokers help you find the right fit in two ways. First, they help you define what you need -- which might not always be what you think.  Then, they go out and find potential spaces that suit the needs that you define. Of course, once they find it, they help you get the space as well.

Some companies have detailed specs for what they need in a space. You might know that you need 175 rentable square feet per employee in a space that is twice as long as it is wide with 30-foot column spacing. Or, you might know that you need an office that is "big enough." If you're the latter, your tenant rep can help you define your needs, but if you're the former, a good tenant rep can help share what other companies do and what industry trends are to help you potentially refine your model. Once you figure out exactly what you want -- and what deviations from your standard are acceptable -- the next phase begins.

Your tenant rep should be an expert in the local market and, if you're working with a national or regional rep, he or she should have a network of local experts in place. In either case, local expertise means that your broker will have access to a wide range of spaces. Then, he or she will winnow them down to find the potential ones to suit your specific needs. Once you have that list, you can begin the process of touring spaces, sending out requests for proposals, negotiating leases and, eventually, moving into your company's new space.

2. Upfront Consulting

It's likely that you're an expert in your business. If you make widgets, you know exactly which machine to tweak to get clean edges, how to staff your sales team to maximize your penetration of a given territory, and on and on.  As an intellectual property attorney, you know the ins and outs of how effective filing dates of applications impact your ability to beat a competitor to a patent. But do you know how to determine if Class A space is really worth the cost premium over Class C? Or if it's better to be downtown or close to your workforce in the suburbs? Or what the optimum number of elevators is in a 55-story building?

Before you begin looking at spaces, your tenant rep will spend time with you to understand your business. He or she should look at how it operates today, at its history, and at where you plan for it to go. Once they understand the business, they can work with you on the specifics of your space needs. If you have a detailed space plan, they will use their knowledge to help you refine it, but if you don't, they will guide you as to which spaces are best for your needs. 

All of this happens before you ever start touring spaces. And, because the tenant rep almost always gets paid by the landlord when you lease a space (or by the seller if you buy one), it happens without you incurring any cost. Your tenant rep does all of this consulting work for you for free -- based on your promise to let him or her represent you in the transaction.

3. Seeing the Whole Market

For better or for worse, opacity defines the commercial real estate marketplace. Unlike the residential world where you can find pretty much every house on an MLS system, our industry has no one central repository for all of the space that is available at any given time. Furthermore, because of the unique nature of leasing space, even if there was a central data bank that you could access, you would still miss out on a great deal of inventory. Odds are that it wouldn't list spaces that might be built if there was demand. Or spaces that an existing tenant would vacate if they had someone to take it over. Or spaces that are coming on the market in 18 months but aren't listed yet.

Tenant rep brokers are experts on the market, on what is available and on what is coming available. Some of this information comes from the same data sources that you can see, but the best spaces take more digging. Your tenant rep works directly with active brokers to know what is going on in their buildings. They also work with tenants across the market, so they have insider information on who is happy, who isn't, and who is moving.  You might be able to find some of these spaces yourself, but you can't find all of them. And the best spaces are frequently the ones that get leased out before they ever hit the public market.

Bear in mind, also, that if you work with a broker that isn't a tenant rep, he or she has a built-in incentive to only show you spaces that he or she represents. This means that the broker that might be a local expert still might not show you the entire market. Your tenant rep will -- after all, it's his or her job.

4. Saving Time

The process of finding a space is extremely time-consuming. Think about all of the steps you have to go through:

1. You have to become an expert on commercial real estate to figure out the right way to translate your business' needs into physical space.

2. You have to become an expert on the buildings in the market, their vacancies, the tenants in the market, and their future plans to make sure that you don't miss any spaces that might be on the "hidden" market.

3. You have to determine which of the available spaces and buildings fit your criteria.

4. You have to work with the leasing contacts for all of those buildings to arrange a tour of the spaces.

5. You have to arrange and lead that tour.

6. After the tour, you have to manage the process of sending requests for proposals to the landlords with buildings that might work.

7. You have to coordinate the process of getting responses back from the landlords.

8. You have to summarize all of the RFPs on a grid of some sort to determine which ones justify a response.

9. Once you've decided which proposals to entertain, you have to open negotiations with those landlords... and coordinate that process.

10. You have to finalize the letter of intent with your chosen space and get it signed.

11. You have to manage the process of having a lease drafted that meets everyone's business and legal needs (and manage all of the personalities involved).

12. While you're working on the lease, you have to facilitate the process of due diligence, space planning, and selecting a construction team and other vendors for getting the space ready for move-in.

13. You have to get the lease signed.

14. You have to coordinate getting the space ready for move-in.

If you have a tenant representative, all of this preparation work gets done for you so that you just have to tour spaces, make decisions, and sign. Going it alone means that you're on the phone, in the car, searching for vendors, and having to spend a great deal of time on everything. Furthermore, since it's unlikely that you have more contacts or more experience with the leasing process than your tenant rep, you are more likely to either make errors or come up with imperfect options.

5. Leveling the Playing Field with Landlords

There are two ways to win in a negotiation. One is to come in with an information advantage. The other is to simply be a more skilled negotiator.

Are you truly an expert in the local commercial real estate market? Do you know which buildings are actually hot and which ones aren't? Do you know what rents landlords are actually getting -- as opposed to what they tell you they're asking for? Do you know where the new buildings are coming -- and how badly they'll squeeze the existing ones? Do you know whether it's reasonable to ask for $30 or $40 in tenant improvements? As you ponder these questions, keep this in mind. The landlord on the other side of the table has someone on his or her team that knows the answers to all of these questions. With this in mind, the odds are that you'll go into a space negotiation at an information deficit.

How many leases have you negotiated this year? Again, your landlord or his agent typically does multiple negotiations a year -- many have multiple negotiations running at the same time all of the time. While almost anyone can learn to negotiate, experience helps. And given the complexity of commercial real estate negotiations, specific experience in the industry is crucial. Most tenants that go it alone might be great negotiators, but they aren't the best commercial lease negotiator at the table.

What this means that if you are unrepresented, you go into the negotiation with two fatal disadvantages. And that means that the landlord's going to win. Hiring a tenant rep restores the balance of power. Your tenant rep is an expert. He or she also has a great deal of negotiating experience. And this levels the playing field for you.

6. Building Competition

The golden rule of business -- that he who has the gold makes the rules -- applies to commercial leases in a non-obvious way. You might think that as the customer you are in control, but most landlords think that they are the ones in the position of power. This means that, barring something to level the playing field, you walk into the room at a significant disadvantage.

If you want to get the best possible outcome from your commercial lease negotiation, you have to create competition -- or the appearance of competition -- for your tenancy. This means that every space that you consider has to be aware that there are other spaces that you find equally desirable and that they only way that they will get you to sign the commercial lease is to offer you a compelling package.

A tenant rep broker helps you create that competition. First, simply showing up as a prospective tenant with a broker along with you sends the message that you're serious and that you have someone in your corner that can show you multiple spaces. Second, your tenant rep knows how to build real competition. They know which buildings to show you and how much to tell -- or not to tell -- each landlord to maximize your negotiating position.

7. Complicated Terms and Jargon

Like many industries, commercial real estate has its own language and its own specific jargon. It's possible to figure it out, but if you don't understand how a load factor impacts your space, what CAM charges are from building to building, and how many nets your lease should have (as few as possible!), you could end up paying too much for your next office. After all, this is an industry where a $60 per square foot rent gross lease can be cheaper than a $50 per square foot net lease. (If you don't understand why... you need a tenant rep's help!)

A commercial real estate broker knows that gross leases mean the landlord pays the building's bills while net leases mean than the tenant pays them. They also know that load factors measure how much of the building's shared areas you pay for, they know to ask for detailed information on each building's charges for taking care of the property and its shared services and amenities, and they know that triple net leases tend to shift the most responsibility to you.

Your tenant rep knows the industry's terms and jargon. And they know what the market conditions are. This means that they're in the best possible position to find the right commercial lease options for you.

8. Connections to Industry Professionals

While it might not take a village to get your business its next commercial lease space, getting the best possible outcome usually requires a team of professionals working together. Frequently, you also need professionals that are either physically proximate to the buildings that you are considering, in the same state for licensure purposes, or both.  Your tenant rep can help you build a team staffed with people including the following.

• Real estate attorneys. While your company probably has a skilled legal department, reviewing a commercial lease is a specialized skill set, and you may choose to have a real estate attorney that is skilled in local laws and customs to support you.

• Space planners and architects. Whether you are gutting out and rebuilding a new space or just moving existing cubicles and partitions around, your tenant rep can help put you in touch with people that are experts in maximizing how you design and use your new commercial leased space.

• Construction professionals. If you need to do heavy work in your space and your negotiated lease lets you choose your own construction team, your tenant rep knows which companies do the best work at the best prices with the ability to meet your deadline.

• Supportive businesses. A good tenant rep has a Rolodex filled with past clients. It's likely that they know someone who can help you with anything you need, like a great coffee service, a new PR company to help promote your new office, or anything else. This service is particularly valuable if you are coming into a new market where your existing relationships might not be able to help you.

• Ownership support. While we've talked a lot about leased space, if you decide that buying a building is the right option for you, your tenant rep knows the people that you need to make that transaction successful. They can connect you with a lender to help you finance your purchase, escrow and title companies to run the transaction, due diligence companies to help you make sure that the building you are buying is everything you expect and, once you close, they have relationships with facilities and property management companies that can help you operate your space.

9. Understanding the Market

To put together a successful commercial lease negotiation, you need two things. First, you have to have access to any suitable spaces that are available. Second, you have to have enough market information to know what to ask for and to be able to tell when you have found a good deal. A tenant rep helps you accomplish both.

While today's commercial real estate market is more transparent than that of decades past, you still can't find every space on the market. Some are listed, but not advertised. Others aren't listed. And others aren't even on the market yet, but people who really know the market know when they'll be coming online. You can't find these spaces -- but a tenant rep can.

You might be able to get a good sense of what landlords are asking for spaces in their buildings from publicly available websites. However, what landlords ask for is rarely what they will accept after a competitive negotiation. When you work with a tenant rep, you get the benefit of his or her expertise to structure your initial offers and to run the entire negotiation process to get you the best possible price for your commercial lease. After all, they know what landlords will actually take.

10. Navigating Complex Commercial Leases

Commercial leases are extremely complicated documents that can run into the hundreds of pages. As with any business legal agreement, much of the lease is boilerplate language that might be legally important but that has little business impact.  However, buried throughout the lease are many seemingly small points that can significantly impact your experience as a tenant and your total occupancy costs. While tenant rep brokers aren't attorneys, they are experts at finding business points in leases. This means that, along with your legal team, they can help you understand the business implications of any commercial lease so that you can formulate the right strategy for your business.

11. Long and Arduous Lease Negotiations

The process of negotiating a commercial lease can stretch on for as long as a year. Getting a lease done isn't a one-call process. You have to manage multiple offers, get to an LOI, get a lease document executed and deal with all of the pre-move-in issues, as well as anything else that can come up during your tenancy. A commercial real estate broker that specializes in tenant rep work can manage and simplify this process for you.

Before you can even start negotiating your commercial lease, you have to go out and find spaces and landlords with whom you want to open a negotiation. Positioning yourself to receive competitive offers is a key part of the process. It starts with an exhaustive search of the market to find on- and off-market spaces that suit your needs. Then, your tenant rep reaches out to those owners or their leasing teams to book tours. Once you've seen the spaces, you and your representative send out requests for proposals (RFPs) to get responses from the landlords of the spaces that you like.

While getting RFPs are an important first strategic step, the RFPs are where the negotiating begins. You and your tenant rep will figure out how to counter each landlord based on your needs and based on your collective perception of their needs. Don't be surprised if some landlords drop out while others make you go through a few rounds of negotiation. The more they talk to you, the more they can give up!  Once you conclude the negotiation, you will both sign a letter of intent or some other document that serves as a precursor to the lease.

At this point, the process starts to take two tracks. You and your space planning and construction team are probably getting started on the work that you need to do to get the space ready for you to move in. At the same time, your tenant rep, the landlord and, potentially, your attorneys begin working on the lease document. While you might have all agreed on the business points in the LOI, getting everything down in a format that makes the attorneys happy can take additional negotiating.

Once that negotiation finishes, the lease gets signed and your work isn't done. While the lease should govern what happens as you prepare to move it, don't be surprised if issues come up that require further negotiation. What fonts can you use on your signage? What kind of a door are you allowed to use for your suite's entrance? And do you really need to use the building's catering service whenever you order lunch for your employees? Your tenant rep can keep an eye on all of these processes and shepherd you along until you are eventually ready to move in. And then, they can keep helping you as you work with the landlord's team while you are a tenant.

12. Save YOU Money

A good tenant rep should save you money throughout the process of getting your next commercial lease.

Here is a sampling of how:

• A tenant rep can help you understand what you really need and where you really need to be, potentially saving you from leasing too much space or locating in a too-expensive building or submarket.

• They can find you spaces that aren't on the open market, potentially saving you from having to compete with other tenants to get them

• They will create a situation where you can have multiple landlords bidding for your business.

• A market expert -- like a tenant rep -- knows the difference between what landlords ask for and what they will take. This helps you get the lowest possible rent and the most concessions such as rent abatements and tenant improvement allowances from your landlord.

• Your tenant rep's vendor relationships can help you find better professionals at a lower cost and save you from making expensive mistakes by hiring the wrong people.

• Once you are a tenant, some tenant reps provide ongoing services like assistance with CAM auditing or lease administration services. At a minimum, they will keep you aware of what is happening on the commercial lease market so that you can make better strategic decisions during your tenancy and as you approach your lease's expiration date.

In addition to all of these benefits, most tenant reps provide this service at no cost to you. While a free service doesn't technically save you money, it's still free!

13. No Cost

Your tenant rep usually won't charge you anything for all of the work he or she does to find you a new commercial lease. Their commission is typically paid by the seller or by the seller's broker.

While customs can vary from market to market, in commercial real estate, fees are usually paid by the owner of the property who hires their own broker to represent them. The fee that the owner makes available is usually enough to compensate their broker and for their broker to compensate your tenant rep -- much like how fees get split in a residential real estate transaction. During the course of the transaction, your tenant rep will include a request for his or fee (usually in the letter of intent that precedes the signing of the lease), and the fee will become due upon certain milestones in the lease.

Usually, the size of the pie is already set by the agreement that the landlord has with his or her listing broker. This means that if you call a listing broker directly and work without a tenant rep, that listing broker will simply get both sides of the fee. The landlord doesn't save money and you don't save money when this happens. That other broker makes more, but that other broker isn't truly working for you, so you get no real benefit out of their windfall. Ultimately, it's better for you to have some of that pool of commission go to support a broker who truly works for you -- your tenant rep.

14. Ongoing Service

Once you sign a commercial lease and move into your space, it might seem like your broker's job is done. You hired your tenant rep to find you an office and now that you've moved in, there's nothing left for him or her to do. Right?

Wrong. At a minimum, your tenant rep will be there for you if you have any questions about your lease or your tenancy. Don't be surprised if they reach out to you periodically to see how things are going, as well.

During your tenancy, you might find times when you have a specific need for some outside advice. For instance, if your commercial lease has CAM charges and an annual budgeting process, your tenant rep can usually give you some insight as to whether or not the budget you receive is in line with the market. If you outgrow your space (or it outgrows your needs), your tenant rep can help you sublease it out or let you know if there are other options in the market. They might even be able to help you negotiate an early termination or buyout with your landlord.

When renewal time comes for your commercial lease, your tenant rep comes into his or her own. Anything that your tenant rep did for you when you moved into your space, they can do again for your renewal. And if you think that you want to take your option and renew, your tenant rep can help ensure that you get the best possible deal regardless of what your option actually says.

15. Conflict-Free Service

Not every broker that you hire works only for you. But if you work with a dedicated tenant rep -- like iOptimize Realty -- they have only one client in their transaction -- you. This conflict-free relationship means that you can trust your tenant rep and know that he or she has to put your interests first.

In real estate, agents typically owe their allegiance to the client that engages them. So, when you call the listing agent of a space whose sign you see, that agent actually works for the owner of the building. While any ethical professional will do their best for any client, they are legally bound to put the owner's interests first. For example, in a negotiation where they know that an owner will come down in price, they don't have to let you know. In fact, they shouldn't, since they owe their allegiance to the owner.

When you have a tenant rep that owes you their allegiance, you don't have any of these worries. If they find out information that is helpful to you, they have to share it. And if you tell them something that might be helpful for the other side, they don't have to share it. If they find out about a better building, they'll let you know. They work for you. And they usually do it for free!

Conclusion

When you're ready to look for your next commercial lease, we've given you 15 reasons that you should get a dedicated tenant rep to help you. A tenant rep saves you time and money while finding you better options and giving you a better process throughout every phase of your search and your subsequent tenancy.

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