Commercial Leasing 101

Commercial real estate is an extremely competitive and complex business, with many variables to consider and hundreds of thousands of dollars at risk in even the most basic transactions. It’s also an adversarial process that pits parties with opposing interests against each other - the landlord trying to determine the greatest amount the tenant will pay and the tenant seeking the lowest amount the landlord will accept. Generally speaking, the side that is best prepared prevails.

In commercial real estate, “preparation” means discovering all of the available spaces that are suitable for your use, identifying those property owners who have the most urgent needs, and understanding what rates and concessions can likely be achieved (based on ever-changing market conditions).

If you don’t have a thorough understanding of how the commercial leasing process operates you will save time, money and aggravation by outsourcing the task to an advisor that does. When selecting a real estate advisor use the same criteria as you would when choosing a CPA or attorney, namely, confirm they are in the business of solving your particular problems and do not have any potential, or undisclosed, conflicts of interest. Just as in accounting or law, you want an advocate that will protect your interests, provide you with complete information, render objective advice and solutions, and negotiate tenaciously on your behalf.

The 'deal' is in the details.
Just as in accounting and law, commercial real estate transactions are made up of many seemingly small, but interrelated details.

This is especially true of commercial lease transactions, where the ‘effective’ rate a tenant pays is comprised of the ‘contract’ rate less a myriad of offsetting reductions (i.e., ‘concessions’ such as a period of full or partially abated rent, landlord provided tenant improvement allowance, fixturization period, reduced charges for covered parking, moving allowance, and many others.)

The failure to recognize and negotiate any of these concessions can, over the life of a typical lease, cost a business thousands of dollars in excess rent.

Remember, once your lease terms and conditions have been negotiated and the lease is signed, you must live with whatever is contained within the ‘four corners’ of the document.

Do not make the mistake of trusting these negotiations to well-meaning, but inexperienced staff members or brokers who primarily make their living representing landlords.

The difference between being treated as a ‘Client’ or as a ‘Customer’ is thousands of dollars.
A ‘Client’ is owed the highest degree of confidentiality. A ‘Customer’, on the other hand, merely needs to be treated ‘fairly’.

To me, you are a valued CLIENT. Your goals are to lease suitable property for the least amount possible and under the most favorable terms and conditions to your business.

As your representative, it is my job to ensure that the landlords remain unaware of your businesses circumstances and the other leasing opportunities available to you. I protect your interests by insulating you from the landlord and his/her property managers, agents and brokers.

To the landlord, you are a merely a CUSTOMER. The landlords’ goals are to lease property for the greatest amount possible under terms and conditions most favorable to the landlord.

Landlords hire property managers and real estate agents, referred to as ‘brokers’, to insulate them from tenants and increase the value of their properties. As ‘de facto’ employees, ‘listing’ brokers have a fiduciary responsibility to the landlord, their ‘client’. They are accountable to the landlord and must, at all times, use their best efforts to protect and promote the landlord’s interests.

Property managers and ‘listing’ brokers view tenants as merely ‘customers’ who are not entitled to the same degree of service or confidentiality as is the landlord. When you share details about your businesses circumstances with the listing broker you are actually diluting your future negotiating leverage. The less they know about your businesses circumstances the better.

Stephen A. Cross, CCIM owns CROSS Commercial Realty Advisors and represents business owners, healthcare professionals and corporate decision-makers in matters involving the lease and purchase of commercial real estate. Contact: 480-998-7998; steve@crossrealty.com.

This information may not be copied, reproduced, distributed or displayed without express written permission.