I received a telephone call yesterday from a business owner 2 years in to a 5 year lease. This is not an unusual
occurance. It happens frequently. What made this unusual is the business owner (let’s call him Bob) had spoken with me over 2 years ago, inquiring about using our services to help them relocate their business in Tampa, Fl.
For whatever reason, Bob had decided to go it alone and not use our services. Now, here he was 2 years later asking me what could be done to rework his lease. Bob had negotiated a $22/sq ft lease, which would have been on the high side of his submarket as a modified gross lease, but not an unreasonable rate at all.
The problem was, he had negotiated a triple net lease and he was responsible for Common Area Maintenance (CAM) on top of the negotiated rate. The CAM being charged was close to $6/sq foot and upon reading the CAM definition in the written lease, it was packed full of JUNK FEES! In other words, CAM (which is supposed to be a pass through cost from landlord to tenant) was nothing more than a profit center for the landlord. As a result, Bob was paying roughly 30% higher than the market rate and having a difficult time covering his rent.
The fact that we lose business to other brokers is no surprise. It happens every day, but I am always perplexed when a buyer/tenant decides they can handle locating a property and negotiating a lease on their own. Commercial real estate is not rocket science, but there are HUGE pot holes that tenants can hit, if they are not careful. Most services of tenant/buyer brokers are usually paid by the landlord/seller, so it is always hard for me to understand why someone would decide to go it alone in an arena in which they (tenant or buyer) have limited experience, the stakes are high, the amount of market information available on commercial real estate to the general public is limited and the lease structures are complicated.
Here are some reasons why you should consider hiring a commercial property agent to help secure property:
1. Expertise. Good commercial property brokers scour the market on a daily basis. They know the owner of many of the properties in the area and know how willing which landlords are to negotiate and which ones are difficult.
2. Cost of Service. Typically, landlords have built in commissions for buyers and landlord representation. If you elect to not have representation, the budgeted commission goes to the broker negotiating against you, not on your behalf.
3. Time Savings. A good agent knows the market and does not have to start from scratch learning the good areas and good deals.
4. Negotiation. Structuring leases or purchases can be complex. It should help to have someone on your side of the table armed with knowledge on sound structure and market conditions.
5. Space efficiency. Some buildings are more efficient than others. Common areas can consume enormous amounts of space and increase your rent dramatically. A good agent can guide you away from buildings that have huge common area charges (or at least provide an apples to apples comparison) and provide additional insight on to how best to design office layout after you have decided on a location.
6. Data and Tools. Most commercial property agents spend hundreds if not thousands of dollars a month for reports and market data on sales and leasing trends in their markets. This can be invaluable when making site selection decisions, discovering where your customers are and how best to logistically position your business.
7. Integrated Services. Legal, interior design, office layout, architectural services. Would you know where to go and who to trust to help you properly set up your business or practice? Leverage the commercial broker’s network to help you accomplish your goals.
One final note: Please seek legal advice when buying and leasing. It is not unusual for a 2000 square foot lease to run as much as $100,000 over the entire term. Relatively speaking, a quick review by an attorney can be well worth the investment.
