Wednesday, March 24, 2010

FACILITY LEASING - Selecting a Broker

clip_image002[1]This article was written by Dennis Wright, SCORE Orange County Management Counselor

In recent articles I have said that business owners should not attempt to lease new office, retail or facility space, or renew an existing lease, without engaging a qualified real estate professional - an experienced commercial real estate broker - and it makes sense at this point to offer a few thoughts on doing so…

National or regional firms may have more information in their data bases and amongst their generally larger staffs that could, in some cases, “level the playing field” during negotiations. In addition, if they also represent local landlords the opportunity to earn larger commissions by representing both parties can be a real motivator. On the other hand local firms and those who represent only tenants, may provide more personalized service without bias. So this decision is largely a matter of opinion or preference.

When you reach out to any of them, however, you should first talk with the office manager about your needs (be it office space, retail space, etc.) and ask that he / she assign an appropriately experienced broker to your project. Brokers with the title Associate are often newer staff members, a Vice President or Director is more experienced and a Senior Vice President or Executive Director even more so. The size of your project though, and therefore the potential commission, may influence who it is assigned to. So don’t be reluctant to say “no thanks” and look elsewhere for representation.

Don’t engage someone who, after you have outlined your needs and wants, starts off by telling you that you can’t get this or that in today’s economy, or in the particular market you wish to locate. You want a “can do” broker; one who is willing to try. In addition, I recommend dropping any broker who you have trouble reaching during the business day, one who frequently returns your calls after business hours. Unfortunately this practice is not uncommon, and it says much about the value he / she has placed on your project.

Insist that you be provided with regular updates as the search for space progresses, as well as copies of all related correspondence in a timely way. It’s very important that you stay involved throughout the entire process because only you know what’s best for your business and some change in direction may be beneficial.

Never tell your broker everything. He / she should believe, just as you are trying to make the landlord understand, that you are willing to go elsewhere ( even if the property is clearly your first choice ) if the terms and conditions of the lease don’t meet your needs and most, if not all, of your wants… and you should be. Tenants frequently accept leases containing undesirable terms because they are enamored with a particular space, but down the road there could be a price to be paid for doing so.

And above all else keep in mind the value of the lease you eventually sign - in net total dollars - generally determines the amount of commission the landlord pays out to the brokers involved… to his and to yours. Brokers may have fiduciary responsibilities, but at the end of the day - experienced or not - your role (and title) is “Decision Maker” and it will be your lease to live with in the months and years ahead.