Six common misconceptions about the commercial real estate process

Scott Price | May 27, 2016

6 common misconceptions

Coming up on a lease expiration? That’s something that people who work in the industry commonly refer to as a trigger event. It’s a deadline that prompts business leaders to focus on ways to impact the work environment for the next five to ten years, and to examine whether or not a move makes sense.

Many companies underestimate the time it takes to thoroughly consider a move, research suitable locations, negotiate a lease deal, and step back to make sure the expense of the new lease fits into the overall business plan and finances of the company. That’s why it is a good idea to start thinking about and searching for an office before you actually need it.  For the most leveraging power, it’s a good idea to begin the planning process 18-24 months before the expiration of a lease, and allow plenty of time to create the strategies for more successful lease negotiations.

It takes more than a little luck when it comes to engaging in a commercial real estate purchase, build to suit or leasing process. You need information and experience to separate fact from fiction. A few common misconceptions include:

The landlord pays the brokerage fees.
The occupier of the space pays these fees. Commissions – like tenant improvements, free rent and other incentives – are included in your lease rate.

Brokerage fees are the same for all agents.
Brokerage fees are negotiable. Agents may earn higher fees when their brokerage represents both sides of a transaction or when the buyer is unrepresented. Agents may also earn higher fees from sellers offering incentives, or extra commissions by including their firm’s captive project management services in the lease or purchase agreement.  Agents may also request higher fees from sellers/lessors they don’t represent to offset fees not earned from their own listings.

Commonly used online property and lease rate tools reveal actual building lease rates.
Online search and listing tools are the marketing tools of sellers, not factual resources for buyers. Brokerages often peg performance off of online published lease rates of comparative transactions — a highly misleading tactic. Lessors and sales agents want you to believe you’re getting a great deal. Consequently, brokerages post higher than actual lease rates to these services and omit important terms and concessions.

“Tenant rep” brokerages have more negotiating leverage than dual representation brokerages who also represent lessors.
Published information on lease rates, allowances and contract terms compared between tenant representation firms and their competitors vary less by type of brokerage than they do by individual teams within those firms.  The individual real estate agent representing you is a more direct indicator of the quality of your real estate process and resulting lease terms than the brokerage firm itself.  The fact that a firm represents only tenants may not necessarily yield a better outcome.

Project management (PM) firms are impartial managers representing your interests.
While there is convenience to hiring a national firms’ captive entities to run your project management, you need to be diligent to make sure you get performance for the fee being charged.  Many landlords cooperate with their third party property management and leasing firms to force project management fees into a tenant’s lease, with no requirements for deliverables or performance levels to justify the fee.  Carefully review your lease terms before signing and be aware that these clauses are negotiable.

All real estate agents show the same properties.
Be aware that not all agents show tenants every space that fits their requirements. While trusted and experienced agents will be diligent in showing all spaces that meet requirements, there are agents that may steer clients toward properties either listed by their brokerage or offering the highest commission.

Don’t get taken by surprise by your next trigger event. At PlaceValue, we are standing by to help you be proactive rather than reactive throughout the process. As a leading independent planning, procurement and project management firm, PlaceValue helps our clients realize today’s high performance, adaptable work place, objectively and without bias. By aligning business workplace design with business strategy, managing the supply chain for maximum value, integrating project delivery, and leveraging our buying clout, we bring our clients immediate cost savings and long-term return on workplace investment. Our independence, world class process and pricing transparency, ensure the best possible outcome for your new workspace. Call us to schedule your free consultation today.

For a more detailed look, download our free report Broker Selection Best Practices. Not only will it help you find the right broker for your needs, it will make sure you know the right questions to ask along the way, to ensure the best possible outcome on your commercial space needs, office or industrial.