Tenant Representation – The Best Deal in Commercial Real Estate?

As a tenant representative, my job is to help my clients to find the best deal on the ideal location for their business. One of my key points in selling tenant representation is that it costs the tenant absolutely nothing. Not bad when you compare your tenant rep broker with your attorney, your accountant, your financial advisor and your doctor.  But is tenant representation really free? The short answer is yes. If you are comfortable with that answer you can stop here, but if you’d like an explanation, let’s continue.

Sure you can find space on your own. Thanks to services like Loopnet and more recently CREXI and their residential counterparts Zillow and Trulia, there is more real estate information online than ever before. But in a recent search for a tenant requirement, I came up with over 100 possibilities. Do you have the time, the patience and the expertise to reduce this to a manageable number, to be sure you haven’t missed something, to understand the differences in pricing structure, and to make the calls to verify availability? And is the agent even going to return your calls or emails? Then, do you fully understand the intricacies and potential hidden costs in leases than go on for over 30 pages and seem to be getting longer every year?

Personally, I am a notorious do-it yourselfer. I am constantly working on projects around the house and take a lot of pride in my accomplishments. But years ago I realized I was better  handing my 401K to an advisor who lives, eats and breathes the stock market, having my taxes done by a professional and I certainly wouldn’t have attempted my own knee surgery.

Tenant representation involves gaining a thorough knowledge of the tenant needs including budget, layout and image in addition to location, location and location. Your tenant rep has an intimate knowledge of the market, the properties and the players. Your tenant rep will create competition between landlords and skillfully negotiate the best possible deal on your behalf. I provide a professional service that saves my clients time, money and aggravation. Tenant reps are highly paid for providing a valuable service.

So what is the true cost of my services? The market fee right now for a tenant rep is 3 to 4 percent of the lease value. Most of the major landlords in the market are paying 4 percent.  But that fee is paid by the landlord not by the tenant. So there is no direct out of pocket cost for the tenant.

But my fee has to be added indirectly into your lease payment, right? Not really. The market fee for a landlord broker is 6 percent. If the tenant is represented, that 6 percent is split between the landlord’s broker and the tenant’s broker. So the landlord pays the same 6 percent whether the tenant is represented or not.  So if you don’t have representation, you are essentially cheating yourself and paying the entire fee to the landlord’s rep. By not hiring a tenant rep, you are basically throwing 3 percent of your rent out the window.

Yes, the landlord will often add one more point for the tenant rep broker so they will pay 7 rather than 6 percent. You may also see a landlord rep taking a little less on a direct deal without a tenant rep. So in some cases, my services may cost the landlord one extra point. But landlords have already budgeted for commissions for tenant brokers and it generally has no effect on your rate.

Landlords often tell me they love paying commissions because it means they are getting good tenants who will provide steady income over the long term. And most prefer negotiating with brokers who understand the process rather than tenants who may not.

Can I help you to negotiate a deal that is one percent better than you can do yourself? And can I protect you from mistakes that can cost many more percent?  The short answer on this is absolutely yes.

Call, text or email me and I would be happy to represent you to negotiate the best deal on the ideal space for your company. I will save you time, money and aggravation, and best of all, (and I hope you now have a better understanding) it costs you nothing!

About Ken

Sr. Vice President Brokerage and Tenant Representation at Levy Realty Advisors, LLC
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