Understanding the Basics of Tenant Representation
Tenant representation is a part of commercial real estate where an agent focuses on only the tenant’s best interest. It is a type of real estate brokage where the agent works directly with a tenant in search of a property and during the negotiation process.
The process of searching for and leasing a property can be overwhelming, especially when you have a busy schedule. Fortunately, there are agents that specialize in these processes and will help take the stress of property search off your hands while giving you the best deals on the market. These professionals are called tenant representation brokers.
Who is a Tenant Representation Broker?
As the name suggests, tenant representation brokers or tenant reps take care of the tenants’ side of commercial real estate transactions. The duties of a tenant rep include but are not limited to the following:
• Determining whether to renew or relocate
• Searching out perfect spaces for tenants
• Securing the best terms
Determining whether to renew or relocate
One of the first and primary jobs of a tenant rep is helping their client decide whether renewing a lease will be more beneficial than relocating to a new space at the end of the current lease.
Typically, the rep will recommend the client to renew a lease if they are comfortable and happy with the current lease terms. However, if the client absolutely wants to relocate, the rep is obligated to see the relocation process through as well.
Searching out perfect spaces for tenants
Say the tenant doesn’t want to renew the current lease and would like to get a new space, the tenant rep’s job for this process is broken down into three basic stages.
• Client’s needs assessment
• Market survey
• Physical tours
Client’s needs assessment
In this stage, the tenant’s real estate needs are discussed. This typically includes, location, size, growth potential, terms, and the quality of office spaces. This stage is usually quick as most times, the client already knows what they want in the new space. However, if the tenant isn’t sure exactly what they want, it is the job of the broker to help smoothen out this stage to move on quickly to the next.
Most often, estimating the office size to lease is what tenants struggle with. Fortunately, this is one of the specialties of a tenant rep. A rep is able to estimate the size of office that would be perfect for the client by taking into account the number of employees they have, what they have planned for their office layout, and the company’s potential for growth. Click here to calculate how much office space you need.
Getting the right space is extremely important for both startups and established companies looking to find a new headquarters.
Once the broker has the client’s specifications, like location, size, and sometimes how old the building is, market survey begins. The rep begins creating a list of available properties that meet the client’s specifications. A tenant rep employs a mix the following to help speed up the market survey:
• Property listing services
• Industry connections
• Market research
During market survey, a broker utilizes the opportunity to eliminate deal killers very early in the survey. Typically, they engage in quick conversations with every listing broker with properties that fit the client’s specifications. Usually, these conversations are about the length of the leasing term. Properties with lease terms that do not align with the client’s are quickly crossed out from the list to narrow it down for the next stage- the physical tour stage.
In tenant representation, this is also an important stage. Once the list has to been narrowed down to a handful of spaces that are the best fits, the broker takes the client to tour all the properties to make the final pick. Usually, the broker tours these properties prior to going over them with the client in order to note the special features each space has.
Once a date has been set with the listing agent, the tenant rep takes the client to tour the spaces. If done properly, each tour shouldn’t last more than half an hour. During the tour, the client is availed the opportunity to have an in-depth look at each space before making a decision. The deciding factors are usually parking spaces, state of the building, quality of office space, lighting, and other amenities offered.
Securing the best terms
Once the tour is over and the client has made a choice of which space to lease, the tenant rep moves to get the best possible terms for the space. First, the rep sends a formal request for the property owner’s proposal. This proposal contains the terms for which the landlord is willing to lease the space or property. The proposal is not binding in anyway as it only helps to provide a starting point for the negotiations.
Upon receiving the landlord’s proposal, the client sends a letter of intent (LOI) as a counteroffer. In this letter, the client outlines the terms and rates for which they will be willing to proceed with the lease. Naturally, the property owner will object to some of the terms listed in the LOI.
This is usually expected by both the tenant rep and the client. The property owner in turn sends over a counter offer leading to the back-and-forth that is always present in real estate transactions.
This goes on until both entities reach a consensus. Visit https://www.entrepreneur.com/article/253732 to learn more about real estate negotiations.
Having a busy schedule shouldn’t be the only reason for which you hire a tenant representation broker. If you plan on getting the choicest office location for the best terms and rates, you should put in a good amount of time finding the right tenant rep to help you out. Aside from shortening the time it takes to scout for spaces, they help you save money while doing so.
Also, these professionals have an eye for details in spaces and properties you are most likely going to miss. You should bear in mind however, that hiring them will cost you a chunky bit, but compared to the total amount of time and money you’ll save, they are worth the investment.