All Tenants All the Time
Tenant representatives offer a different view of the corner office.
the office leasing industry, many brokers represent both landlords and tenants
and, depending on the market cycle, look to one or the other for the bulk of
their business. Yet in a booming office market with ample new construction,
brokers tend to focus on landlords and leasing as this market phase generates
dynamic demand for space. When the office market goes dormant, as it has been
for the last four years in many U.S. cities, brokers often shift their energies
toward tenant representation.
of market cycles, an estimated 3 percent to 10 percent of brokers focus
exclusively on representing tenants. While maintaining good landlord
relationships and following win-win negotiation strategies, their bias is
strictly in favor of their clients. In addition, these specialized commercial
real estate brokers utilize market nuances and work in conjunction with tenants’
legal advisers to structure lease clauses and terms that best meet their
they sit across the negotiating table, brokers representing office landlords
and their own buildings recognize that tenant reps have what they want: clients
who need space. Landlords and brokers marketing available office space should
develop a clear understanding of the tenant rep’s role and build strong
relationships with these professionals to most effectively position space in
who represent landlords should understand tenant reps’ client base. Many office
tenants are not Fortune 500 companies; they are small and medium-sized
businesses that experience the office leasing process every five or 10 years.
many small office buildings are owned by individuals or partnerships, the
majority of large office complexes are owned by institutional investors that
employ professional property and asset managers. Professional landlords also
employ their own brokerage listing agents who monitor the competition’s lease
terms and conditions. They know how many months of free rent are allowed and
how large the tenant improvement allowances are for all the comparable leases
in the market. They also know what types of options they might have to offer to
specific tenants based on the tenant’s credit, the transaction’s size, and the
current state of the market.
that retain their own exclusive representation essentially level the playing
field by gaining access to critical market information. Tenant reps know the
nuances and negotiation hot points that can best serve their clients, such as
knowing that a landlord is in the process of refinancing and is prepared to
make an exceptionally attractive lease to enhance its financing terms.
tenant reps also are aware of long-term bargain sublease opportunities that may
be far more attractive economically than a direct lease and can skillfully
point out the benefits and drawbacks of such alternatives.
it comes to lease renewals, many in the industry wonder why tenants would hire
professionals to represent their interests. The answer is straightforward: When
tenants do not go to the marketplace to fully determine whether the renewal
terms and conditions are competitive, they almost always lose. Knowledgeable
landlords keep pace with the marketplace and fully appreciate the financial
rewards to the property owner when tenants enter lease renewal negotiations
without a broker and without bringing alternative locations into competitive
on broker-to-broker and landlord-to-broker levels, relationships are critical
to dealing with tenant representatives. Belonging to professional
organizations, such as CCIM Institute, further enhances the long-term effect of
professional interaction. The networking opportunities and increased level of
trust associated with fellow designees more than pays for a lifetime of
landlords and their agents treat tenant brokers during a landlord’s market is
critical to how tenant reps view these same landlords during a tenant’s market.
Landlords who believe their office buildings are their castles often raise the
drawbridge at full occupancy, hoping to keep out relocation solicitations.
However, when vacancies increase, the drawbridge comes down. Such behavior
indicates that the landlord has forgotten the tenant reps’ role in introducing
clients to the landlord’s space.
addition, respecting tenant reps’ relationships with their clients is important.
Landlords should direct all communication and negotiations through the tenant
rep — not directly to the client. Another indication of respect is their
behavior in tight markets or when a tenant rep represents an existing tenant on
a lease renewal.
and their agents can best market their properties by following a few basic
steps. The most important — keeping the brokerage community informed — can be
accomplished through simultaneous strategies.
Unfortunately many agents are content to send a single HTML or PDF marketing
flier. However, creative repetition can greatly enhance the brokerage
community’s awareness of available space. E-mailing PDF files with space
details and floor plans can be followed up with mailed brochures. Agents
representing the better-marketed properties often send out reminder mailers,
both as HTML e-mails and PDF attachments.
Brokerage fees and incentives usually increase in soft markets as landlords
attempt to position their buildings at the top of brokers’ A lists. While
broker incentives, such as new cars, in addition to commission fees, might
attract attention, very few brokers would accept a car over a higher
commission. This is especially true in a soft office market where transactions
move slower and substantially fewer take place. Despite the razzle-dazzle of
incentive programs, procuring brokers often prefer to receive a full fee.
the promotional aspect of incentives can be an effective way to attract
attention. Word-of-mouth publicity within the brokerage community often is
generated by incentive programs that push the envelope. A good example is a
program where the procuring broker who brings in a subtenant can choose from
high-end incentives, such as a new Porsche, 300 mini-motorcycles, or a Chuck E.
Cheese’s party for 3,000 of his or her closest friends. The visual aspect also
can attract attention, such as lining up bonus car prizes outside a featured
building with a Lamborghini taking center stage. While these programs may
attract attention, brokers rarely select non-cash incentives. They almost
always request and receive a leasing fee commensurate with the assignment.
houses. Broker open houses can get the marketing ball rolling, but attendance
should match the type of tenancy needed. For example, landlords with large
blocks of office space want to attract senior brokers who represent large
corporate clients. Draws such as weekend getaways won by 50 percent of the
attendees significantly increase open-house attendance.
Staging events at open houses also increases awareness and publicity. For
instance, market forecasts by junior brokers of the major brokerage houses may
attract both news coverage and attendance by more-experienced brokers. In
another example, a sublease open house invited all attending brokers to display
their available sublease space. More than 1.5 million square feet of nearby
office sublease space was on display and competing brokers presented their
space to the entire audience. The event attracted a large crowd and was
featured in local business papers.
point of marketing materials, incentives, open houses, and events is the same:
creating awareness in tenant representatives’ minds of property for lease.
Tenant reps must be aware of a building before they can expose clients to the
space. A marketing campaign with a sense of fun and interest indicates a
landlord or building agent willing to engage tenant reps’ interest.
recurring question is the evolving role of the Internet in finding and
negotiating office space. While the Web may facilitate information gathering
and technology may allow quicker responses, easier lease redrafting, and other
such benefits, commercial real estate is still a person-to-person business. For
example, office tenants can locate corporate sales office availability online,
negotiate using phones and text messaging, and even digitally sign a lease
without ever physically seeing the space. However, if this sales office is important
to a client’s organization, someone has to make sure the views are not of a
local eyesore, the neighborhood is safe, and the employees have nearby lunch
and services facilities. The cost of office space is usually less than the cost
of finding and hiring new employees. Thus, physical inspection of the office
space prior to lease execution usually is mandatory and personal involvement in
the transaction is a must.
Fortune 1000 corporations utilize tenant rep services in their relocation
searches and a substantial number also use them during lease renewal
negotiations. The exclusive tenant representative plays an increasingly
valuable role on behalf of their office tenant clients. Whether it is a
landlord’s or a tenant’s market, the experienced, market-savvy tenant
representative has become an integral part of the office leasing landscape.