Part 2. A Question for Business Owners: Should You Hire a Commercial Real Estate Broker for Your Property Search?
In Part 1 of this post, I reviewed some of the factors that business owners should consider when deciding whether to hire a commercial real estate broker for their property search and negotiations. When you are leasing or purchasing an office or warehouse for your workspace – the area where your employees will work, where you’ll see your clients and store product and supplies, etc. In this scenario, your business is referred to as a “Corporate Occupant.”
The focus of Part 1 was the various economic considerations that drive your lease or purchase decision – rental rate or purchase price, annual increases on rent, cost to build out the space (Tenant Improvements), who pays to replace HVAC units – all the items that are measurable in dollars.
But there are other, intangible factors, that can be just as important. Any of these factors, alone, can have significant repercussions if not handled properly. If you don’t understand them all, or can’t identify them, that’s one more reason to hire a commercial real estate broker to guide you. In this 2nd part of the series, I’ll address some of those non-economic factors.
Besides Economic Terms, What Else can a Broker do to Assist?
A great broker does so much more than negotiate the economics of your transaction. It’s critical that you locate the right property and eliminate the properties that won’t work for you. Can you do that yourself? Do you have the market knowledge to identify every submarket you should consider? Do you know which landlords or buildings have hidden problems – such as call centers over-using parking, roof leaks, poor elevator service? Which buildings are inefficient (have a high common area loss percentage), or which buildings may soon be in foreclosure? If your broker tracks the market, you’ll have the benefit of that information and avoid buying or leasing a “lemon” that you can’t get out of for years. There is no lemon law for commercial real estate!
Even if you think you can do all of these things yourself, should you? What is your time worth? What is your opportunity cost to go out and learn the commercial real estate market – the various submarkets, the going lease rate, the right purchase price based on sale comps, fair market concessions (free rent, tenant improvement allowance) that you should expect? Will it take you thirty hours? Sixty hours? Probably more. If you want a good result, hire a professional who already possesses this knowledge, and use that to your advantage. Even with 20 years of experience representing Corporate Occupiers and extensive market knowledge, I still spend hours searching for the right properties, sending detailed questions to landlords and sellers, confirming the information that’s listed online and diving deeper for other important facts. I have a thorough process of vetting properties before sending them to my clients for consideration and before touring so I don’t waste their time or mine!
Brokers perform other functions that are so helpful in the process:
- Leveling the playing field! The landlord or seller either has their own broker or has probably been in the commercial real estate industry much longer than you. Having a broker on your side evens up the market knowledge and brings a pro into your corner.
- Keeping expectations reasonable. Some tenant or buyers are unreasonable, saying things like “My neighbor told me he leased an office for two years and received ten months of free rent! I want that same deal.” I’ve had landlords tell me that they prefer that tenants have a broker, to explain what is reasonable (and what’s unreasonable!) to ask, and to help keep negotiations moving in a timely manner. I’ve had a landlord broker tell me that a tenant is so unreasonable, that they won’t work with them unless they have a tenant’s broker!
- Conducting a lease vs. buy analysis to tell you which is more favorable for you (both in terms of economics and intangibles).
- Preparing financial projections to show what your lease or property ownership will cost over several years, and comparing all of your choices using these financial projections.
- Connecting you with reliable professionals such as architects, lenders, general contractors, who you’ll need along the way.
- Providing a space program – an estimate of how much space you’ll need to occupy now, and over the next several years, so you don’t outgrow your space and have to relocate early. These graphic illustrations not only inform the Corporate Occupier, but can be shared with landlords to speed up the negotiation process by providing a clear, concise estimate of the Corporate Occupier’s needs.
- Considering zoning so you don’t end up in a property that you can’t use (I’ve heard of tenants leasing spaces with the wrong zoning, and then being stuck paying rent for unusable spaces).
While these factors, and others, cannot be measured in dollars, they can be measured in saved time and effective results. They take the element of surprise out of the equation. Put these issues together with the economic considerations in Part 1, and it is clear that the process of finding commercial space for the Corporate Occupant is much more complex than it appears. This is not something to do without expert guidance. An experienced commercial real estate broker will have the process down pat, and be able to help you move through it smoothly to minimize problems.
To Hire a Broker or Not to Hire a Broker: that is the question. The answer is yes, you should hire a broker. Small mistakes or missed negotiating points can cost you quite a lot either up front, or even several years down the road. The cost can be money, time, limited flexibility, or all of the above. It can also result in your firm being stuck long-term in a bad property – not a good result for you, your employees, or the clients. If hurts productivity and your ability to recruit. Don’t let it happen to you.
Hire an experienced commercial real estate broker to act as your fiduciary and guide you through the process. You can’t afford not to!
