Understanding the Problem
…And Why It Matters to You
At Spaced, we believe every tenant has a right to high quality brokerage services at a fair price.
Unfortunately, tenants rarely get both, and they often get neither.
There is no transparency. Tenants never read their brokerage commission agreements and have little or no idea what their advisors get paid or what services they should receive. Based on our experience, less than 1% of brokerage commission agreements are actually signed by the tenant. Think about that for a minute… tenants pay tens of thousands or even hundreds of thousands of dollars to brokers… and they don’t even read the contract!
Why not? Tenants think the landlord pays the brokerage commission, not them. If you google this topic, you will see article after article explaining that brokerage commissions are “free” to tenants because the landlord pays them. While technically true that the landlord is the one writing the commission check to your broker, landlords are actually just treating that commission as a loan which you pay back through your rent!
There is no education. Tenants have nowhere to go, online or otherwise, to learn how to lease space or even how to find and select a broker to help them with the process. For most companies, rent is their second largest expense, behind their employees. Yet, the vast majority of businesses do not have a dedicated real estate department or even a properly trained in-house person to handle the leasing transaction. Any why would they? Real estate is not their core business, and real estate decisions are infrequent.
There is no curation. Given the inherent infrequency of commercial leasing transactions, brokers are not held accountable for the services they provide. The average tenant signs a new lease every five to seven years, so it’s easy for tenants to forget or even dismiss the service they received, chalking the lack of service up to the inevitable. Further, there is no “Yelp” for brokers, whereby tenants can rate their broker’s performance for the benefit of the general public. Poor service does not have to be a necessary evil … many brokers provide outstanding service for their clients. We intend to help you find them.
There is no alignment of interests. Tenants fundamentally know their interests are not aligned with their brokers’. Brokerage commissions are directly tied to the size (square footage) and length (years) of the commitment made by the tenant… regardless of whether that commitment is appropriate for the tenant, regardless of whether the tenant got a good “deal” and regardless of the services provided by the broker along the way. As a result, brokerage firms have become sales organizations first and service organizations second. Training is spotty, and revenue generation is the one true measure of broker performance. Spaced aims to convert commercial real estate leasing from a sales industry to a service industry.
IS THERE A BETTER WAY?
We certainly think so. In fact, Fortune 500 companies have already discovered it.
Large companies are big users of real estate. They have offices in multiple cities, for different purposes and different personnel. Their requirements are generally very complex and constantly changing. As a result, they are continually leasing new space, expanding, extending, contracting and so on.
Before hiring advisors, these large companies, often with the assistance of their dedicated real estate departments, issue complicated requests for proposals (RFPs) to brokerage firms which must compete for their business. Brokerage firms put together long proposals outlining their capabilities and qualifications and trot in their most experience senior professionals to pitch for the assignment. This process is known colloquially as a “beauty contest.” Competition is fierce. In order to win, brokerage firms must offer the full range of services, commit that only their most qualified and experienced brokers available will work on the assignment, AND offer to share a portion of their brokerage commissions with the client.
Mid-size and small companies have a very different experience when it comes to leasing space. In fact, these companies usually pay more for less.
Our goal here is simple:
1) To educate you on the commercial real estate leasing process
2) To provide you with better service
3) To ensure you pay a fair price
If the Fortune 500 can have all of that… why can’t you?
So… Step 1… Get educated. We wrote the The Art of Leasing Space with you in mind. Everything you ever needed to know in terms you can understand.
Chapter 1 – Understanding the Problem. Check. You’re already ahead of the game. Nice work!
Chapter 2 – The Leasing Process: A Roadmap. A roadmap for the journey you’re about to embark on. Realistic timelines and what you can expect along the way.
Chapter 3 – How to Pick an Advisor explains why you (probably) need a tenant rep broker (aka an advisor), describes the role they play and teaches you how to select the right one for you.
Chapter 4 – Read Your Brokerage Commission Agreement. Understand how your advisor is compensated and what services they are providing.
Chapter 5 – Service Providers: Rounding Out Your CRE Team. In addition to your advisor, you will also need a lawyer, an architect, and a construction manager. Understand their roles.
Chapter 6 – Leasing Basics distills decades of leasing experience into the critical elements of your lease that you need to understand and how to negotiate them with your landlord.
Chapter 7 – Advanced Topics includes proprietary leasing techniques invented for complex lease transactions. These can save you a lot of money, and you won’t find them in textbooks anywhere!
As always, don’t hesitate to Contact Us any time with comments or questions. We’re here to help!