Amazing! In a recent conversation, a landlord’s broker actually suggested that our client, a tenant in the building represented by the broker, should only have engaged our firm to represent it if they elected to relocate out of the building. What he meant was that in dealing with the landlord, the tenant should have no representation. Is this guy nuts? Did he assume that I just fell of the monkey truck? (I know, this should say “turnip truck” but I thought “monkey truck” better fit the story!)
This broker actually said that our representation of the tenant for both a relocation and a stay-in-place transaction would be unfair to the landlord, because the landlord should be given every opportunity to retain the tenant. Did this guy think EVERYONE works for landlords? Did he not get the concept of tenant representation, the service model that’s been around for over 25 years, and the benefits that tenant representation creates for both sides of a real estate transaction?
Question: If the landlord is represented by a broker then, why shouldn’t the tenant engage an advisor to give it access to equal information and expertise?
Answer: Because an unsophisticated or dishonest landlord thinks it will be better off if the tenant is not represented.
Tenants engage real estate advisors because they most often don’t have the internal resources, expertise, or inclination to plan and execute real estate projects. However, even companies with real estate expertise often engage real estate advisors because their executives’ greatest value is not in negotiating real estate transactions but, in sustaining their companies and generating revenue. More importantly, in a world of transparency and conflict avoidance, tenants prefer to receive objective advice from knowledgeable service providers who will be indifferent as to which property the tenant selects, so long as the property best suits the tenant’s needs. Lastly, most executives, recognizing that landlords are experts in their field, prefer to even up the sides by engaging their own experts.
By following the suggestion of the landlord’s broker, all of the benefits of engaging an advisor would be lost to the tenant. The advisor would be reduced from an objective representative to merely a salesperson competing against the current landlord for the tenant’s business. This would put the tenant at an extreme disadvantage. The tenant would be suspect of the advisor turned salesperson’s recommendation to move, because the salesperson would only be compensated if the tenant moved. The tenant would have to challenge the landlord’s assumptions for the same reason. The tenant would be forced to expend considerably more energy in assessing, comparing, and negotiating with both the landlord and the salesperson thereby, forcing the tenant to fend for itself in a competition where both landlord and salesperson would have access to more real estate knowledge, market intelligence, and expertise. This approach would yield no benefit for the tenant, would only create opportunity for the landlord, and would likely shift greater risk and cost to the tenant.
The reality here is that in real estate, as in other transactions, corporate executives rarely appreciate being sold or pressured into any deal, especially by landlords. They typically prefer to even the sides by engaging advisors who will consider every alternative and present the most viable opportunities in a fair and balanced manner. By engaging an advisor to plan both a relocation and a stay-in-place transaction, and then to execute the preferred choice, the tenant can be assured of receiving objective guidance, access to timely intelligence, reduced risk and time, favorable terms, and typically lower cost. Interestingly, in this manner, the landlord’s interests, too, are better served because of the obligation on the part of the tenant’s advisor to present the landlord’s proposals on an equal footing alongside those of its competitors.
Some landlords ask why a tenant needs an advisor if a good tenant / landlord relationship exists. First, most landlords incorrectly assume that because a tenant pays rent and doesn’t complain too much, that a great relationship exists. Ask commercial tenants if they have a relationship with their landlord and most will shrug their shoulders and say they haven’t spoken with the landlord since they negotiated their lease. Second, and perhaps, more importantly, tenants don’t typically have access to the same real estate information, resources, and expertise as do most landlords. So, prudence would suggest, along with most stakeholders, that tenants should even the sides by engaging qualified advisors.
So, while the landlord’s broker argued his position, the landlord, despite being directed by the tenant to conduct business through our firm, did everything he could to attempt to negotiate directly with the tenant. Instead of strengthening its position, the landlord angered the tenant, and did a lot of damage to its negotiating ability. This happens more often than you can imagine. The real result is that a landlord who plays these games typically erodes whatever relationship might have existed with the tenant and risks driving the tenant to another building. This typically occurs not because the landlord’s building or services aren’t up to par but, because the landlord attempts to stack the deck in its favor by working to disengage the tenant’s advisor and by trying to unfairly influence the tenant’s decisions.
Attempting to circumvent a tenant’s decision to work through a real estate advisor is not the mark of a high quality landlord, nor a sophisticated broker, for that matter. This landlord and its broker represent an ever-reducing segment of the commercial real estate market. Too many professional and ethical landlords exist today, representing high-caliber organizations, for tenants to have to deal with this type of silliness. High quality landlords don’t need to devolve into playing these wasteful games, as they know how to negotiate intelligently and provide great service and affordable transactions to tenants…that’s what wins the day almost every time!
So, what’s this really about?
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About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to finance and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations. Under the leadership of its award-winning CEO, Andrew Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.
In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate. The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery. Visit www.RealStrat.com. Follow CFO Studio at http://www.Twitter.com/CFOstudio.
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