Who is your commercial real estate advisor really working for?

As an office tenant your goal is to achieve the best possible terms and rental rate for your company.  In order to achieve the best possible outcome, you will undoubtedly need to hire a real estate advisor who understands the intricacies and pitfalls of commercial real estate.  Ideally, this will be someone who works for a firm that specializes in only representing office tenants.  A tenant representative or ‘tenant rep’ is a commercial real estate broker who represents the interests of tenants and occupiers of real estate.

When interviewing a broker to represent your company for its next lease renewal or office relocation, it’s critical to understand why having the right representative can significantly impact the outcome of your transaction; for better or worse.  To understand the difference between hiring a firm that represents only tenants, or a firm that represents both landlords and tenants, you must first understand the potential conflict that exists within the traditional commercial real estate model.

Most brokerage firms are in the business of representing both landlords AND tenants.  This creates the potential for a conflict of interest to exist since the revenue earned from landlord representation always eclipses the revenue earned from tenant representation.  Even if a broker at that firm only works with tenants it is hard to ignore the fact their firm heavily relies upon the revenue generated by the landlord that they are negotiating against.  This representative may even be negotiating against someone in their own office or even their own boss.  Perhaps, they are negotiating against a landlord they have represented in the past and would like to win back the listing, which could bring a major conflict into the negotiation.  We see the disastrous results of these negotiations daily and they are not pretty.

The only way to eliminate this conflict is to remove the opportunity for it to exist in the first place.  By working with a firm that never represents landlords you can rest assured that the only interest they are concerned with is yours.  Since they only sit on one side of the negotiating table, they will always do what is truly best for the tenant.  They are not incentivized to show you properties that do not meet your criteria, they are not negotiating against anyone at their own firm and they should strive to negotiate lease clauses that are truly for the benefit of the tenant. To put it bluntly, they advocate for you and only you.

When interviewing a potential broker, one of the questions you should always ask is, “does your firm represent any local landlords, and are we planning on touring any properties that your firm represents?”  If the answer is ‘yes’ you have the right to go into that arrangement with eyes wide open and your advisor has the responsibility to be transparent about their firm’s obligations to that landlord.  Hiring a firm whose interests are only aligned with yours is the most effective way to optimize results, avoid pitfalls and give you peace of mind.