When renewing a lease, getting a quality tenant rep involved early can pay
huge dividends, according to Piers Pritchard, senior associate, and Jay Holland,
senior vice president and principal, both of
Colliers Turley Martin Tucker.
“Your landlord is in the real estate business;
brokers level the playing field,” Pritchard
says. “Brokers provide expertise so you can
concentrate on your core business.”
Smart Business spoke with Pritchard and
Holland about what services tenant reps provide, the importance of making contact early
and what types of savings can be realized.
What benefit does a quality tenant rep bring
to the table?
A quality tenant rep provides a broad spectrum of services. It’s not as simple as just
showing buildings — there is a wide array of
knowledge that is necessary for every aspect
of a transaction. This includes accurate and
up-to-date market information, construction
expertise and a detailed knowledge of lease
documents. In addition to identifying properties and providing expertise in the negotiation process, a good tenant rep will provide a
comprehensive financial analysis that allows
their clients to compare alternatives on an
‘apples to apples’ basis. By utilizing the services of a quality tenant rep, a company can
reduce occupancy costs, increase profitability, mitigate lease risks and minimize time
invested. A quality tenant rep will also interview architects on behalf of tenants. If a tenant is going to move or renovate its existing
space, it will need an architect to design the
space. A good tenant rep interviews architects and negotiates architectural contracts
— at no charge.
How can a tenant rep help a company gain
leverage during the negotiation process?
When negotiating, it’s critical to have as
much leverage as possible. When conducting
real estate negotiations you gain leverage
through a number of factors. Some of those
include using market comparables — knowing what other deals the landlord has done,
what the market dictates, what the landlord
acquired the building for, upcoming lease
expirations and if the owner has any intentions on selling the building. All of these factors affect a lease renewal and good brokers
will use this information to gain leverage with
a landlord, whether it’s an existing landlord
or potential relocation.
At what point should a company contact a
tenant rep?
The lead time necessary is dependent on
the size of the tenant. The largest tenants
need to engage a tenant rep several years
prior to lease expiration so new construction
can be considered. For smaller tenants, it’s
important to contact a tenant rep at least 12
to 18 months prior to a lease renewal for several reasons. One, the lease renewal/relocation process, when done properly, simply
takes that much time. Secondly, and more
importantly, in order to properly assess all of
a client’s options it’s imperative to review,
explore and negotiate any relocation options
before a tenant hits renewal option dates.
Typically, tenants will have the option to
renew their lease with an option time
between 6 and 12 months before the lease
expires. It’s important that market research is
completed before that option date, because if
it’s not, you’re exposed to your existing landlord. Tenants that pass through renewal
options are often treated differently than
those with options as their ‘parachute.’
Landlords can stick tenants with above market deals simply because the tenant does not have enough time to move. Being ahead of
the curve is critical.
What types of cost savings can be realized by
utilizing a tenant rep?
There are two types of savings, quantitative
and qualitative. Quantitative savings include
how much you lowered the rent, how much
the construction allowance was increased,
and how much free rent a tenant received.
Perhaps even more significant — and
where a good broker can drive value — are
the qualitative items, which are more difficult
to measure. That’s where you really see the
benefit of having a strong tenant rep. Items in
leases like renewal option language, operating expense caps and exclusions, termination and expansion options, white-box definitions, subletting rights and code compliance are hard to quantify upfront because
you can’t associate a dollar value to them.
But over a three-, five- or 10-year period —
whatever your lease might be — you are certainly going to have to reference the lease for
certain items. Qualitative items are hard to
identify upfront, but often provide the biggest
benefit in the long run.
What questions should be asked when meeting with a prospective tenant rep?
First, make sure the rep has adequate experience with similar types of tenants and transactions in the market. Secondly, ask a
prospective tenant rep to answer the most
important questions upfront, including:
Specifically how are you going to save me
money? How are you going to reduce my
occupancy costs and increase my company’s
profitability? What do you know about my
building and landlord? Every good broker
should think from the landlords’ perspective.
What keeps them up at night? What specific
issues are they having in the building? Are
there other tenants with leases expiring in
the near future? Are there tenants moving
out? If there is a tenant moving out, the landlord will be more sensitive to your lease —
they’re already losing one tenant and certainly don’t want to lose another.
PIERS PRITCHARD, senior associate, and JAY HOLLAND, senior vice president and principal, are both of Colliers Turley Martin
Tucker. Reach Pritchard at (314) 236-5477 or [email protected]. Reach Holland at (314) 236-5446 or [email protected].
