This guide is primarily for medium-to-small tenants. These tenants are defined as a company with 25 employees or less, and are in need of an office space of less than 5,000 square feet. While some of these questions may seem simple, the answers are not always obvious.
1. How does the commercial real estate (CRE) industry work?
Most owners of commercial real estate hire real estate agents to lease their property on their behalf. The real estate agentпїЅs responsibility is to represent the owner in leasing the property; not to represent the tenant.
2. How are CRE professionals paid for their services?
CRE agents receive a commission upon the signing of the lease between the owner and a tenant. The amount of the commission of most often calculated as a percentage of the lease value, which usually ranges between four and six percent. For instance, if a tenant signs a 3-year lease for a 2,000-square-foot building at $18.00 per square foot, a 4% commission to the real estate agent would amount to $4,320.00 (3 years x 2,000 sq. ft. x $18.00 x 4%). The owner of the leased building pays the agentпїЅs commission; typically one-half on the signing of the lease and the remaining one-half when the tenant begins occupying the building.
3. What is the difference between a leasing agent and a tenant representative?
The leasing agent has the listing of the property and represents the interest of the owner of the building. A tenant representative (rep) represents the interest of the tenant in the lease. Some agents work exclusively on listing while others take on tenant representation only. Other agents will work with both.
4. Why should I use a broker (agent) if I have an attorney?
A knowledgeable broker, who is a vital part of your team of professionals, uses comprehensive marketing expertise and valuable resources to ensure maximum results in every lease transaction. Using an experienced brokerage firm will complement the rest of the team allowing others to do what they do best in their profession.
5. Do I need a broker to help me find space?
No. Any one can search for office space if they have the time to spend away from their business. A broker however, does so much more that just find office space. A broker uses expertise in the leasing process. A broker starts with a good understanding of your business and gives you advice as to the best space suited for your business. A broker then uses inside resources to locate the best space available that offers a good deal. A broker seeks out the best terms and rental rates. A broker stands beside you from the time the search begins until the lease is signed.
6. IпїЅm thinking about moving my office or leasing a new office. Where do I start?
The first thing is to decide if moving into a new space is the right choice. Ask the following questions:
- Do we want to find space on our own or hire a tenant representative to assist us?
- Is it a good time to move?
- How important is location?
- How much space do we need?
- How much can we afford?
- On what date do we need to move into a new space?
- How will the new space benefit the company and its future?
- What does it cost to move?
- What else is involved in moving (furniture, phones, computers, copy/fax/postage machines, internet access, etc.)?
- Can we afford to lose business or employees during the transaction?
7. Whom does a broker work for?
Brokers generally work in two capacities: as a listing agent or as a tenant representative. Some, if not most, do both. This means that they have property listings and they also work as a tenant representative. If you work directly with the property listing agent, keep in mind that the listing agent is representing the property owner. If you hire a tenant representative, you should consider hiring an exclusive tenant representative that has no property listings. This will ensure you that the tenant representative is working solely for you.
8. What is a representation letter or exclusive agreement and should I sign one?
A tenant representative will present you with a representation letter to sign for your own protection. The letter protects you by stating that you are working with only one tenant representative. It also protects the tenant representative by ensuring that they will get paid if a lease is signed. If a tenant representative does not have a signed letter from you, they will most likely only perform a simple property search. If you want to get the most out of the brokerage community, we recommend that you sign an exclusive agreement instead of working with several agents on a nonexclusive basis.
9. Is finding a space without hiring a broker a good idea?
Generally speaking, the answer is no. You, as a tenant, enter into a lease every so often. A broker, however, deals with leasing negotiations daily. Think of it this way: Would you go into an IRS office without having your CPA as a representative? Again, the answer is no.
10. Now that IпїЅve hired a tenant representative, what should I expect from them?
You should expect your tenant representative to think only of your interest and to give you advice. The tenant representative helps you determine how much space you need, what is your most important selection criteria, and then find and negotiate the space that best fits your needs. When it comes to the negotiation, make sure your tenant representative knows what is important to you.
We hope you found this information helpful. If you have any questions, please give us a call.
Connie Rankin, LEED AP
CRES + Associates