TENANT ADVISORY SERVICES
Selecting space for your company and successfully negotiating a lease you can live with are complex, time-consuming tasks, full of potential pitfalls. The pitfalls only multiply if you undertake the process on your own without the benefit of an experienced commercial real estate professional serving as your advisor.
Hiring a tenant representative to advise you and act on your behalf can eliminate many of the hassles in site selection and lease negotiation process, and prevent potentially disastrous missteps. More importantly, aligning yourself with an experienced advisor can result in real economic benefits and help turn your real estate into a strategic asset.
Working on Behalf of Tenants, Not Landlords
Commercial real estate advisors, who work exclusively for tenants and users of real estate, never work on behalf of landlords and developers, thereby eliminating the potential for any conflicts of interest. Using the services of a tenant advisor has become more commonplace over the past 10 to 15 years, since real estate agency laws required real estate brokers to disclose that they are working on behalf of the landlord, not the tenant. Your goal in working with a tenant advisor is to obtain true economic savings and secure space on terms that best serve your needs over the life of your lease. While working on your behalf, an experienced tenant advisor should generate savings and benefits that far exceed the cost of his or her professional compensation. From needs analysis to exit strategy, you can expect a proactive tenant advisor to perform the following;
Analyze Space Needs.
Assist you in calculating your actual space requirement and determining your particular design and build specifications. This can prevent you from wasting time on space that may not be right for your organization. Most importantly, it can prevent you from leasing too much space. The landlord or his representative has no incentive to help you economize on space and save money
Investigate all available properties and determine which are the most appropriate for the needs of your company.
This involves more than scanning the available listing services. Often times a tenant advisor can identify a property that is not an obvious choice to meet your needs, and space opportunities that may not be actively on the market. This could result in lower rental rates and space that is otherwise better suited to your needs.
Create competitive bidding between landlords.
An experienced tenant advisor can launch a successful bidding process and prevent you from being a “captive audience” to one landlord or developer. The optimal number of bidders is usually three. Even if there is one property that you and your advisor agree is the best, creating a three-way competition will optimize your negotiating position. The result can be concessions and incentives that meet or exceed the norm in the marketplace.
Protect your interest during lease negotiations to achieve the terms that meet your present and potential future needs.
Using the tenant advisor’s experience and knowledge of real estate transactions can help you avoid possible pitfalls. For example, a tenant advisor would ensure you retain such options as subletting in the event you eventually shrink your organization or outgrow the space. Options for an exit strategy are often overlooked at your peril.
Serve as a buffer between you and the landlord.
If needed, a tenant advisor can act as the “bad guy” during negotiations. At the same time you are securing major economic concessions, relying on a tenant advisor to act as the “bad guy”, can keep your relationship with the landlord cordial, and preserve good will that may be needed in the future.
Identify lease provisions that could cost or save you money during the lease term.
These are often hidden in the lease document and are easily overlooked. As an example, operating expenses and real estate tax clauses typically contain language that provides for escalations over the base year, which can have a significant impact on occupancy costs over the term of the lease. By properly negotiating these clauses, these escalations can be kept to a minimum.
Handle the paperwork and other details of the lease negotiation.
Having a tenant advisor prepare all requests for proposals (RFP’s) and letters of intent, can help to resolve issues before the final lease is prepared. A professional tenant advisor is familiar with all real estate forms and documents that are necessary for each transaction, and can help you avoid potential liability by signing something by accident, or out of ignorance.
Settle disputes that arise even after the lease is signed.
The tenant advisor can serve as an experienced set of ears and eyes to verify the details of a transaction. The advisors transaction files can provide the documentation necessary to clarify what was said and done during the negotiations.
Spotlight the savings.
When you see rental rates quoted for space, those rates include the costs for any leasing representative or for the developer’s in-house leasing staff. Compensation for the tenant representative is also part of the stated rental rate. An experienced tenant advisor should be able to save you that amount and more.
Ensure you get the most value in any improvement allowances.
For example, without good representation, the tenant may sign on to an improvement allowance of $50 per square foot, not knowing that the actual cost for such work is $30 per sq. ft. The tenant advisor knows the market, would negotiate on your behalf to recapture any surplus funds, and be sure they are applied to lower the rent. (For 60,000 sq. ft. of space, that would result in a savings of $1.2 million!)
Safeguard you against signing onto any provisions that run against your economic interests.
For example, many leases tie rents or expenses owed to the landlord to the consumer price index (CPI) or some other index. Landlords will often ask that these rents or expenses float with an index. The tenant representative can ferret out such a provision and negotiate on your behalf to minimize these increases.
Identify and define lease terms to benefit you.
If your lease holds you responsible for ongoing maintenance, as many do, the tenant advisor can assure that the definition of ongoing maintenance does not include the repair of pre-existing deficiencies, such as roof and mechanical system problems that may already have plagued the building. The tenant advisor will know how to establish the move-in condition of the premises as a benchmark, indicating the point at which your wear and tear commences.
Win concessions that anticipate your actual needs.
For example, a tenant advisor can often negotiate rent concessions for “moving and set-up time for the installation of furniture an fixtures.” This means your lease begins, but you won’t pay rent during the time it takes to become operational. Because you will still operate out of your old space during moving and set-up time, this concession can provide relief from paying double rent during the overlap period.
The tenant advisor is a specialist in selecting space and negotiating leases. Making effective use of a real estate professional to advise you in every step of the transaction will generate cost savings, and provide you with space and lease terms you can live with during the entire lease.