Commercial real estate today bears little resemblance to the industry of 20 or 30 years ago. Once, the CRE industry depended on capital from a hodge-podge mix of investors that were either overly involved in the asset or that owned it for everything but the fact that it was real estate. Since then, the industry has diversified, professionalized and become much more data-driven. While many of these changes have happened on the ownership side, they still have ramifications for tenants as well.
In order to protect themselves, many corporate tenants use the services of a tenant representative. A quality tenant representative, or tenant rep, will walk the user through the process and lend his or her expertise in each stage of the transaction – from planning to unpacking. But finding a good tenant representative can often be a daunting task. As great a surplus of brokers in the markets, there is difficulty in actually finding one that will consistently put your best interests first. Here a few things to keep an eye out for when looking to add a broker to your corporate real estate team:
One of the classic questions in commercial real estate is whether it's best to lease or buy space. Every time the question gets asked, the answer is always the same: it depends. Here are four ways to dig deeper and find out which strategy is right for your business.
Tenant representation is exactly what it sounds like. It is a type of commercial real estate brokerage where an agent focuses solely on the needs of a tenant, rather than being tied to the lessor or landlord. Tenant reps are the leasing industry's equivalent to a buyer's broker on the sale side of the industry. While the underlying principles might seem straightforward, the benefits of working with a CRE expert that is tied to you run deep.
Using a tenant representation expert when you look for space might be the biggest no-brainer in the commercial real estate industry. If you're considering going on your own for your next lease, here are the top five reasons that you need to get a broker.
One of the most important decisions to make in any corporate real estate strategy is when and how to renew a lease. Depending on how your lease is written, you could end up with a great deal of flexibility. On the other hand, even if your lease isn't written in a particularly generous fashion, you still have the option of attempting to renegotiate.
The first corporate real estate strategy decision to make is whether to stay or to go. If you decide to go, it becomes important to review your lease to see if you can buy out of it more quickly. Even if you can't, if your landlord has a tenant that he can use to fill your space, he might be willing to let you out of your lease to avoid a future vacancy when your lease expires.
If your plan is to stay, it's also important to identify that as far up front as possible. That way, you have the time to potentially try to negotiate multiple times and get the best possible price and terms for your renewal.
Generally, an early request to renew telegraphs that you want your space. You might worry that showing your hand to your landlord could weaken your negotiating position. That's not really a concern, though. If you can't work out a good deal, you can always come back and negotiate later. This is especially the case if you are in a market where your landlord's position is weakening or if you have options that protect you.
Negotiating early may be desirable to your landlord, too. The benefit for your corporate real estate strategy -- stability -- also accrues to his. When you renew early, he knows that he can count on your rent for a longer period of time. Since you've been in your space for less time, he might also be able to save money by offering you a smaller TI allowance.
Waiting until the last second is a dangerous game. If you don't have an option to protect you, you could lose your space. On the other hand, if you are willing to move and have alternatives lined up, you could also end up in a strong negotiating position if your landlord needs you. Ultimately, it comes down to how much risk tolerance is built into your corporate real estate strategy.
A holdover clause that lets you stay in your space past the expiration of your lease also may make waiting until the last second a safer choice. That way, you know that you won't lose your place to do business. However, holdover clauses can be expensive and can be time-limited, so it is important to understand your rights before you get down to the wire.
When you are coming up on a renewal, options can be very helpful. An option usually guarantees your right to renew the space and gives you a pre-set rent level or terms for calculating your rent level. However, just because they bind your landlord to give you a certain offer doesn't mean that they bind you. If it is a better fit for your corporate real estate strategy, you can always choose not to take your option and, instead, negotiate a new lease with new terms with your landlord. The option binds him -- not you. Of course, if you choose to renegotiate from scratch, remember that you can only fall back on your option if it is still valid, so it can be important to pay close attention to its effective dates.
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