What is a Tenant Rep Broker?

A commercial real estate professional’s work is generally divided between agency assignments - listings - wherein an owner is represented or tenant or buyer representations. In the former - an agency - needed is a buyer or tenant for a vacant building. So, we are hired to locate an occupant. The latter? Yep. We are engaged to source a spot for a buyer to by or a tenant to lease.

Today, I delve into the world of buyer and tenant representation also know as Tenant Rep. By the way - this genre of commercial real estate practice evolved in the mid eighties. Largely responsible was the legendary Dallas Cowboy quarterback Roger Staubach. Prior to that time most of us were generalists and even today most of us work both sides of the fence - owners and occupants.

When do you require a Tenant Rep Broker? Most typically a need arises. Such as - the current physical plant can no longer house the operation or the opposite - swimming in excess square footage is the company. A lease expiration portends a requirement as one of three decisions must be made - stay and extend the term, move, or stay month-to-month. Mergers and acquisitions can create a Brady Bunch of facilities with a consolidation warranted. Opening a location in a new market creates a search criteria. Sure. You could attempt to navigate the waters without help - but you recall what someone once said about the person who represents himself.

What is typical? Standard among most practitioners in this space is an engagement agreement whereby you - the occupant - “hire” the broker to conduct a search and market your requirement. Included in this marketing is a notification sent to cooperating professionals, solicitation of owners with buildings meeting the criteria, and a vetting of potential buildings submitted for consideration.

Who pays? The cool thing about engaging a Tenant Rep is the owner of the building pays him. You may be thinking - I know I must somehow pay more. In actuality, you don’t. Most market lease rates and sales prices contemplate a broker fee. If you forego representation - you pay more because you lose the benefit of her market knowledge - which leads to more favorable rates and terms.

Are other services included? In some instances - yes! Many Tenant Rep outfits employ project managers, space planners, architects, and move advisors. All are included with no cost to you.

How does the process work? Steps may vary. But generally - you engage the professional, your requirement is clearly defined, marketing collateral is created, your requirement is published to the brokerage community, submittals are received and vetted, buildings are previewed, alternatives are toured, requests for proposals are submitted, proposals are received and compared, negotiations commence, negotiations are finalized, a lease or purchase agreement is signed, the deal is closed, improvements to the space - if any - are completed, you move in. Whew! Now you understand why you shouldn’t try this untethered. It’s a complicated process with many steps.

With an EXPIRING Lease, you'll make ONE of TWO Decisions

Today, I want to discuss your commercial real estate lease agreement - you know, that twelve page document you gave a cursory review before you signed your John Hancock - the legal sized occupant of your bottom desk drawer - that tome you swore you would review at the beginning of the year and didn't - and here we are.

The goal today is to make sure the decisions are yours to make and not foisted upon you by the owner of your building.

When your lease expires you will make one of two decisions - you will stay or you will move. Let's do a deeper dive into both decisions, shall we?

You have decided to stay. Do you have the right to stay? In other words, does your lease contain an option to renew? If you don't have an option, have you spoken with the owner of your building to see if another lease is in his plans? Let's presume your lease has an option to renew. Most options contain time frames which are sacrosanct. You have a specific period of time in which to exercise the option - your desire to stay put. If you miss the exercise window, you may not be bounced, however, those carefully negotiated option terms may no longer be in force. With no option to extend, you should determine well in advance of your lease expiration your desire to renew. Engage your owner early - 12-18 months before your lease expiration and craft a renewal agreement. In the event, your owner has another idea - he's decided to sell your building and not renew your lease - you have adequate time to look for a new home for your business.

A move is in your future. The business has eclipsed all growth projections and the only way to continue the upward sales trend is to relocate to a larger building. Should you look for something to buy or should you consider a lease on a larger building? Two pieces of advice, here. Allow plenty of time to look at buildings, arrange financing (if you are buying), and lose a couple of negotiations. And, engage great help to shepherd you through the maize of commercial real estate availabilities. Unlike residential availabilities, commercial availabilities are not widely viewable on line. Sure you can scour LoopNet, however, LoopNet is designed to give you just enough information to prompt a call to the owner's broker. You really can't rely on the available data contained and the information is not readily searchable - especially if your operation requires a special feature such as an abundance of office space.

Is there a third decision? Absolutely! You can opt to do nothing, allow your lease to expire, and continue on a month-to-month basis while you plot your future. The problem with this strategy? Generally, commercial leases contain nasty little creatures called "holdover" provisions. Your owner has the right to increase your rent by as much as 200% if you occupy the building past the expiration. Some owners are adamant about imposing these holdovers - so beware! Without a lease in place, your owner can sell the building to an occupant who will soon be sitting in your office while you are loading the moving van - it happens! If you find yourself in a quandary, I would suggest renewing your lease for a short term - one year - until you get the space requirements figured out. If your owner will do this, you will save a innumerable amount of money and avoid a forced move.