Q&A: Does a Broker Have My Best Interests in Mind?

I started using a broker, but found that he actually gets paid by the landlord. How do I know he has my best interests in mind and should I even use one?

True, Landlord’s pay brokers a commission for closing a sale or lease transaction. The actual commission, however, is based on the market and is typically the same rate regardless of what building you decide on. In addition, your rental rate is unaffected by whether commission is paid or not because lenders require Landlord’s to include commissions in their building’s balance sheet. That being said, it is vital you trust that your broker is looking out for your best interest before starting the process. A true tenant broker is trying to do his/her best for you because he/she does not have buildings to sell or lease, and his/her long-term livelihood depends on your continuing business relationship. An experienced broker knows market rates, trends, market concessions, and pitfalls that a landlord will try and use to his advantage. You might negotiate your lease once every 3, 5, or 10 years. A successful tenant broker negotiates and is in the sales/leasing arena every day.

Q & A: Refinancing an Existing Lease

I am in the last 2 and a half years of my 5 year lease and I know I am paying more than the market rents. What can I do, are there any options for me?

Think of it in terms of refinancing your house. When the interest rates went down, you might have gone from a 6% or 7% interest rate to a 4% interest rate. You were charged a fee for the refinance, but the amount was most likely added to your current loan amount. It works in a similar way with a commercial lease. You can go through what is called an ‘early renewal process’ to renegotiate your current lease rates and get them to market, but there is a cost to you: Most likely, you will be “charged” an initial 3 or 5 years of term to the back end of your current lease term. It can be a very cost effective decision, but you want to be sure you are comfortable staying at your current location for an added time period. And, keep in mind that using a broker even in an early renewal can be a huge advantage.

Q & A: Downsizing Effects

I am downsizing from 7,000 SF to 5,000 SF of office space in the Atlanta area, but I am not downsizing number of employees. Are there any issues I need to be aware of?

The biggest issue you want to keep in mind is parking. Right now we are working with many clients who are involved in similar transactions and we are fighting for parking spaces (this is all over the metro Atlanta Office Market). Typically, you are given a certain amount of parking per 1,000 SF. When you downsize, you lose parking spaces and may have to consider paying for parking offsite, especially if your employee size stays the same. Your next best option is to consider a relocation and find a building with plenty of excess parking that you can try and capture throughout your lease term.

Q & A: The Key is Leverage

When I signed the initial lease at my current location, the landlord required an additional security deposit of $12,000.00 as a compromise to a personal guarantee. I am now 3 ½ years in and plan on renewing at the end of my term. I pay all my bills in full and on time, is there a way to get any of that $12,000.00 back?

The key is leverage: your leverage is the possibility that you will not renew your lease. You have to make him aware that there are other alternatives besides your current location and even though you are very satisfied with where you are, economic considerations are very important in today’s business climate. My suggestion is to begin an early renewal and include in that negotiation everything you want (as if it were a new lease) i.e., security deposit, lower rate, expansion option at defined rates and TI, etc. Your issue is how long of an extended term you can live with (3 or 5 years). Obviously, that will also determine the additional concessions you can demand. We have been working with many clients in similar situations. You might consider beginning the process sooner than later because we have found that every month inside 18-24 months from lease expiration, your leverage begins to drop. You are an excellent tenant who pays all your bills on time; any landlord would die to have you.

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