Industry jargon. Commercial real estate is chock-full of it. Whether you have negotiated a commercial lease before or it’s your first time, chances are you will run into some potentially... Read More
It isn’t uncommon for people to try to navigate the commercial real estate process without consulting a brokerage or agency. However, typically this happens because they are unclear on exactly what a tenant representation broker actually does and are unaware of the value they bring to real estate transactions.
Some people use general terms like “realtors,” “real estate agents,” or “real estate brokers” to refer to the people who interact with property sellers, lessors, and renters during real estate transactions. While they may have all gone through similar training or passed the same licensing exam, not all agents are always acting in the same capacity during a real estate deal. Some commercial real estate brokers will work exclusively as listing agents, while others will take on tenant representation only, and some will represent both sides.
Here, we’ll answer the following questions:
- What is a tenant representation broker?
- How can a tenant rep broker help my business?
- How do I find a tenant rep broker?
- What are the differences between a listing agent and a tenant broker? What are their distinct roles in the commercial leasing process?
- What does the leasing process look like?
What is a tenant representation broker?
The tenant broker (also referred to as a tenant representative or a tenant representation broker) is responsible for supporting clients looking to rent or buy real estate throughout the commercial leasing process. A tenant rep broker becomes a renter or a buyer’s advocate and representative, acting on their behalf in a commercial real estate transaction.
Your tenant rep broker will guide you throughout the entire process, from identifying viable listings and advising you on market conditions, to scheduling tours of spaces you approve and managing offers and negotiations.
Tenants: It’s important to remember that agents representing landlords count on your lack of commercial real estate knowledge in order to secure the highest rent possible at the lowest possible expense to the landlord. That’s why it’s beneficial to have a real estate professional holding a broker’s license exclusively on YOUR side as well. Using their industry knowledge, they’ll work hard to ensure that you get the best deal possible.
How much does it cost to use a tenant rep broker?
Tenant brokers might make a commission on every deal they close, but it’s not a fee the tenant pays. That honor goes to the landlord. The landlord budgets a commission that is split between his or her agent and the tenant broker. There is no out-of-pocket broker’s fee for the tenant.
How tenant brokers can help your business
Finding a new home for your company can be very challenging. Getting the assistance of a broker with commercial experience can ease a number of difficulties and level the playing field between you and the landlord. Here are a few of the things a reputable tenant broker can do for you:
- Provide professional expertise: Real estate brokers have gone through training and passed a licensing exam, so you are getting the advantage of having expert knowledge from a licensed agent during negotiations.
- Save time: The search for the ideal home for your company can be very time-consuming. You may not be able to escape the work of touring numerous spaces, but you can at least have the help of a real estate agent to do the research and legwork.
- Find a space that meets your requirements: A tenant broker can help you assess and prioritize your requirements so that you focus on what is especially important in your search. A good brokerage will have a knack for teasing out a business’s most critical needs, be they location, types of property, lease term, rental costs, etc.
- Get access to the best places on the market: A real estate agent will have a broad knowledge of available spaces or sites that fit your preferences. A really good one is able to earn special relationships with landlords — that may mean you can see a space before anyone else.
- Lead negotiations: The tenant broker has the experience to negotiate with the landlord on your behalf, using their skills to your advantage.
- Get you a better deal: Real estate agents with experience advocating on the tenant’s behalf are often better able to secure a more advantageous deal, whether it means saving money on rent or getting other beneficial terms in the lease.
- Help you decide on relocation vs. lease renewal: When your lease is up, your tenant broker can advise you on current market conditions so you can make an informed decision about whether it’s better to relocate or renew your lease. Whichever one you choose, they’ll be able to expertly assist you.
How to find a commercial tenant broker
Finding a tenant broker you like can be a process unto itself. If you call the phone numbers on the “Space for Rent” signs you see around town, the person who answers likely represents the landlord — not you. Their interest is in making the landlord happy. Furthermore, they will assume that if you call them and you’re not a broker, they know more about commercial real estate than you do.
To find a good, knowledgable commercial tenant broker who will advocate for your business, here are some tactics:
- Get recommendations from friends and peers who have moved offices before. It helps if their business is similar to yours, as your space requirements might be similar. If they had a good experience, they can recommend a good broker. If they had a bad experience, that information is valuable, too. They can help you spot red flags and shady practices much sooner.
- Search on Google. Just like finding an apartment, your search will likely start online, especially if you’re an organization without a dedicated real estate team. You can Google office space and start combing through sites with listings, but remember: the pictures might disappoint you, and without the pictures, it’s hard to know what you’re looking at. All the same, you might enjoy browsing the listings and getting a feel for the market in the neighborhoods you like.
- Work with SquareFoot. Our highly experienced team of brokers has worked with companies across all verticals and growth stages and is well-equipped to find your company its ideal office. Learn more about SquareFoot’s nationwide team.
When first connecting with a broker who you think could be a fit, make sure to vet for trustworthiness and honesty. Identify one who has worked with four or five companies you respect. Then ask those companies about their experience working with the broker. If you hear all good things, chances are the trend will continue. The tenant broker is not going to sacrifice that excellent reputation to cut corners when working with you.
When you do choose a tenant broker, be honest about what you’re looking for and ask plenty of questions. However, make sure that you do not employ multiple brokers. They all have access to the same list of properties, so you won’t get access to more inventory that way. Also, a landlord who receives calls from multiple brokers all employed by you is not going to be motivated to move forward — the last thing a landlord wants is to have to pay commission to more than one broker. You may even want to consider signing an exclusive broker agreement.
How do I know a broker is a licensed professional?
Individual states typically each have their own real estate commission to handle issues around higher education, training, code of ethics, and licensing, so you should do a search for the relevant state commissions or associations for more information.
The difference between a tenant broker and a listing agent
The real estate professionals representing the property seller or lessor in a transaction are called listing agents or listing brokers. Whether referred to as a listing broker or agent, they are responsible for the interests of the lessor under a listing agreement.
The listing broker looks out for the best interests of the property management — not the tenant — in the leasing of their commercial real estate. This includes negotiating terms with the tenant or tenant broker and using their knowledge as a licensed professional to ensure that the outcome is favorable to the landlord.
The listing broker or agent is also required to find suitable tenants to lease the property and is paid a commission by the landlord for that service.
What you need to know about the leasing process
As a business owner, you need to understand the commercial real estate leasing process. If you start looking for space with no clue, it’s hard for a tenant broker to work effectively for you and your business.
Yes, it’s the tenant broker’s responsibility to educate you and locate spaces you may be interested in, but knowing how the process works will help it go much more smoothly. Here are some basic factors you need to be aware of:
- Be aware of the office search timeline: While locating a new apartment might take a few weeks or a month, securing commercial office space can take 3-9 months, depending on the situation. Be sure to allow plenty of time because the negotiation process can take a while. If landlords know you’re pressed for time, you also won’t have much opportunity to bargain.
- Working with a broker is crucial: Licensed tenant brokers complete dozens of leases per year, and have expertise in the market and the nuances of the lease signing process. Best of all, as we mentioned, tenant brokers are free for tenants — they are paid by the landlord. If a tenant broker expects to be paid by your business for facilitating your move, you should consider other options.
- Know what you want: Figure out what you’re looking for and tell your real estate broker. They should know what location requirements, space amenities, pricing, and square footage you’re looking for so they can present you with the best options.
- Consider build-out: Most landlords will not make repairs or modify a space (a process known as build-out) before potential tenants look at it. That’s because they know different tenants have different needs. They are often willing to update a space to meet the next tenant’s requirements or provide a Tenant Improvement Allowance (TIA) so the new tenant can manage the project him or herself.
- Understand landlord priorities: While not all landlords are the same, and each landlord’s perspective will differ, they typically have a few things they prioritize when finding a tenant:
- Stability: Real estate is a very old-school game. If a landlord had a choice between leasing space to a company that’s been around for 40 years or a new company that has just raised a million dollars, which one will he or she choose? Chances are, the landlord will sign with the company that’s been in business for a long time because it has a good track record.
- Diversity: Landlords want to diversify the markets they work with. They don’t want to, for example, fill a building with only technology-related companies. Even if you’re willing to pay top dollar and have a great business track record, you may still get turned down for a space if you’re not working in an industry the landlord is looking for.
- Value: Landlords are often looking for businesses that are willing to sign leases that last two years or more. Again, that’s more stability and also less turnover and work for the landlord in the long run!
Finding an excellent broker you can trust will not only help you find office space more efficiently but will also provide you with a business advisor who can work with you as things evolve. Business is unpredictable. Your business may grow more quickly or more slowly than expected, presenting you with the challenge of finding a new space to meet your needs or monetizing your current, partially unused space. A broker who has worked with you and understands the struggles you’re dealing with can come to you with creative solutions. You never know when you’re going to need them. Additionally, they can assist you with negotiating a lease renewal when the time comes.
If you are looking for commercial office space, then you should seriously consider having a knowledgeable tenant broker or real estate firm by your side to give you better leverage in lease negotiations, offer independent advice, and help you find the right space for the right price.