Tenant Representation

Tenant Representation: What it is and how to use it.

or, How to lease commercial office space.

Tenant Representation

When a business person needs to lease space, whether office, retail, or industrial, they too often start by

  • 1) driving around town and calling the telephone numbers on “For Lease” signs they see on buildings, or
  • 2) Googling “space for lease”. In both instances, that business person will almost always end up talking to the landlord’s broker.

The landlord broker’s job is to lease the empty space in the building advertised at the highest possible return to the landlord.

So, on the landlord or ownership side of the leasing process, the business person faces not just the building’s owner, but also a professional, licensed real estate broker and company who usually leases many different buildings and who monitors the market on a daily basis-- not just through the internet, but through telephone calls, market research and personal relationships. On the tenant side of the leasing process, the business person has whatever person he or she has assigned to the task and whatever information they can glean from the internet. The tenant must become an instant expert at leasing—something that is not a part of the tenant’s core business, and concerning a decision the tenant faces only once every time their lease term ends. In the case of a start-up business, it may be the first time the decision makers have ever faced commercial real estate business decisions.

Facing such an information deficit, most CEO’s and decision makers for companies large and small now hire their own real estate professional. That professional is called a “tenant representative”, or in the case of sales, a “buyer’s agent”. The tenant representative most often, but not always, is paid by the landlord but is recognized up front as the agent of the tenant.

Effective use of tenant representation.

The first element is obvious: hire a tenant representative that has market knowledge of the type of space and the relevant market and sub-markets of interest to your company or organization. You should also expect your tenant representative to learn about your business, customers, and employees as all three are important factors on what space is best for your business.

Technical and legal knowledge are also important factors. The tenant representative often interfaces with an architect on design and basic requirements needed in the space, and with attorneys on the legal terms that can often make or break a good deal for the tenant.

The tenant representative should create a market for your tenancy. This is imperative even when a tenant may end up targeting only one space or building—perhaps that building meets all of the company’s requirements in terms of location, size, price, and image. IT DOES NOT MATTER. The tenant representative will develop alternatives that the tenant representative can use to leverage the targeted building. We like to have at least three viable contending buildings for the client’s tenancy which we then use to maximize concessions from the landlord—lower rent, free rent, increased build out contributions, and lower escalations.

In today’s competitive environment, use of tenant representation will save the decision maker of any company or organization both time and money if used effectively.

We can also help reduce your ? commercial lease rates - see our blog about this


When a business person needs to lease space,
whether office, retail, or industrial, they too often start by 1)
driving around town and calling the telephone numbers on “For
Lease” signs they see on buildings, or 2) Googling  “space
for lease”.  In both instances, that business person will
almost always end up talking to the landlord’s broker.  The
landlord broker’s job is to lease the empty space in the building
advertised at the highest possible return to the landlord. 

Reduce Commercial Property Lease Rates by Relocating

Relocate to reduce cost

Reduce Property rates

Competition is a fact of business life and never more so than in today’s environment. Top executives and business owners are forced to do more with less if they want to survive and prosper. One important way to do so is to reduce the commercial rent a firm pays to its landlord.

Since the cost of housing a business is usually the second biggest expense for most firms, reducing rent will quickly add significantly to the bottom line. If a business rents space and is nearing the end of a lease term, the decision maker has two primary avenues to pursue to reduce its commercial rent expense—renew the firm’s existing lease or relocate to another building. 

Whether a lease is renewed or the business is relocated, the good news is we expect 2017 to continue to be an excellent market for tenants to meet their cost cutting goals. An earlier post took a look at renewing an office lease. Let’s now take a look at relocating to reduce occupancy costs.

When should you start?

An approaching lease expiration is often the catalyst to review how much space is needed. An “approaching lease expiration” really means no less than 12 months from the end of the lease term. Starting early will allow the tenant to maintain its options and to create a market for its tenancy among competing landlords. Allowing sufficient time is a key component of a successful relocation.

The time needed to improve the targeted office space is one of the biggest variables as to how long it takes to relocate. The time needed for improvements and reconstruction runs from two weeks to 30 days for new paint and carpet to four to six months for a build out from shell condition. Keep in mind these improvements will not begin until a lease is signed, the security deposit is made, and the first month’s rent is submitted to the landlord.

Analyze your needs.

The ratio of square feet per employee has declined over recent years and will most likely continue to do so. Reasons for this decline include the competitive environment already mentioned, increased use of modular furniture, telecommuting, and “hoteling” (use of work stations that are not reserved to any one person but can be used by anyone when they are in the office as opposed to in the field, travelling or in customer or client’s offices).

A good architect and broker will help with the analysis of the space needed.

Questions that need to be asked and answered include:

  • How will a new location affect the firm’s customers or clients?
  • What is the image the firm should project through its space?
  • How will relocating affect employee commuting times and employee retention and morale?
  • Can the business make use of an open plan that includes more work stations/modular furniture as opposed to individual offices?
  • How many employees need real privacy to be effective?
  • How many conference rooms or teaming rooms are needed?
  • How many people do the conference rooms and teaming rooms need to accommodate?

Execute.

Driving around looking for buildings with a “commercial office space for lease” sign and then calling the numbers on the signs is not an effective use of time for any busy executive--nor is Googling “find office space” or “commercial real estate for lease”. Hiring a competent commercial real estate agent to act on your behalf will go a long way towards ensuring your business saves both money and time. Relocating a business is disruptive and time consuming. Executives need to run their business.

Rather than waste time educating yourself on a market that is relevant to your business only once every several years or more, hire a professional to do it for you. It will save additional time if the decision maker can appoint a “point person” to work with your commercial agent to develop the short list of attractive alternative buildings and spaces. It is important to note that the agents listed on signs or in websites for available buildings and spaces work for the Landlord, not the tenant. Finally, using your own tenant representative will even the information gap vis-à-vis your landlord and its broker.

With the team assembled and your needs analyzed the search will begin in earnest. Your tenant representative will provide you with a survey(s) of available buildings and spaces. From these surveys, the goal is to come up with a short list of opportunities. Your tenant representative will obtain further information on the top choices including the “as built” condition of your selections. Although you may want a space to be built out from shell condition per your plan and specification, if you can find spaces that come close to what you need as currently built out, there will be more room to press the landlord for other concessions like free rent, reduced rental rates, and lower escalations.

Tours are then conducted of the top choices. Unless your current building has been eliminated for some reason, it is recommended that you include spaces in your current building on your tours. From those tours, the goal is to come up with several realistic alternative spaces. Your tenant representative will then exchange letters of intent with the top choices to compete the alternative spaces against each other thus making a market for your tenancy among the competing landlords. Upon receipt of best and final proposals, you will select the top choice and request that the landlord prepare a lease for review. There may be several rounds of negotiations on the lease language. Once finalized, the tenant will be expected to sign the lease and to submit the first month’s rent and the security deposit. Then and only then will any work on negotiated remodeling or improvements to the space begin. As stated above, these improvements can take anywhere from two weeks to six months to complete.

Once the work is substantially complete, the move in may be scheduled and completed. In a nutshell, this is the process to maximize the savings that a commercial tenant can achieve in today’s market which has never been better for commercial tenants.

Rick Lane is a top realtor with Weichert Realtors in the Washington, DC Metropolitan market.

He has 20 years’ experience in real estate brokerage and real estate law and construction. He is a winner of a Weichert National Sales Award (top 5% nationwide).

He is a former partner in the law firm of Thompson and Waldron and a former Vice President with the Trammell Crow Company in Washington, DC.

Rick is a graduate of the University of Virginia and William and Mary Law School. He may be reached at:..

Richard F. Lane, Esquire

Weichert Realtors
Elkins Lane Realty Advisors
121 N. Pitt Street, First Floor
Alexandria, VA 22314
Direct: 703.888.5106
Cell: 703.626.6691
Office: 703.549.8700
Email: [email protected]
www.elkins-lane.com


Competition is a fact of business life
and never more so than in today’s environment. Top executives
and business owners...

We did it again –

Sunstar

Weichert Commercial Elkins Lane Realty Advisors is proud to announce that it has completed its tenant representation of Sunstar Strategic—an Alexandria, Virginia based media relations and marketing communications firm. Acting as Sunstar’s exclusive tenant representative, Elkins Lane Realty Advisors (“ELRA”) scoured the targeted Alexandria, Virginia office market for attractive alternatives to renewing Sunstar’s lease in its existing office building.

After competing these options against Sunstar’s existing landlord, Sunstar elected to relocate to new quarters.

Through a combination of a more efficient use of space and a lower rental rate, ELRA was able to attain a 56% savings for Sunstar in the cost of housing its business--all without sacrificing Sunstar’s image or business. It is a tenant’s market. The time to save on your commercial office lease is now.

Weichert Commercial Elkins Lane Realty Advisors is proud to announce that it has completed its tenant representation of Sunstar Strategic

THE ART OF RENEWING YOUR OFFICE LEASE

Call us to help renew your lease @ (703) 519-0782

Call us to help renew your lease @                     (703) 519-0782

If a firm or business rents space, rent is usually the second biggest expense after payroll. Today and throughout 2017, Washington, D.C. Metro area commercial office tenants nearing the end of their lease term have a unique opportunity to dramatically reduce what they are paying their landlord. Costar, the leading commercial real estate database, reported DC Metro wide end of second quarter 2016 vacancy at nearly 15% with vacancy in many submarkets exceeding 20%.

More than at any time in the last 10 to 15 years, Landlords are competing aggressively both to attract new tenants and to retain the tenants they have. We expect this trend to continue through next year.

To take advantage of this market, owners and chief executives of area businesses can either relocate or renew their existing lease. We will take a look at the decision to relocate in a later article. For the purpose of this article, it is assumed an office tenant leases space that still works well for its business in terms of size, location, and image. The goal of this tenant is to renew its existing lease with its existing landlord.

There is a definite art to renewing an office lease. It is not just a matter of asking the landlord for a renewal proposal, countering terms a few times, and then executing a lease amendment extending the lease term. By using these tips, tenants can achieve the lowest rental rate and the most concessions from the landlord.

START EARLY. The renewal cycle should begin 12 months before the end of the lease term. The tenant should initiate the renewal process by a written request to the landlord for a renewal proposal. In no event should the tenant wait for the landlord to send a proposal. The goal in dealing with the landlord is to maximize the tenant’s options and leverage vis-à-vis the landlord even if the tenant really has no intention of moving. A relocation typically takes four to six months to complete depending on the amount of work that needs to be done to the new space. If the tenant waits until late in the lease term to begin renewal discussions with its existing landlord, the landlord will know the tenant has few options and in all likelihood wants to renew in place. The tenant should aim to complete the renewal negotiations no less than four to six months from the end of its lease. That way If renewal negotiations break down, the tenant can still relocate in an orderly and competitive manner. Another downside to waiting too long is if the tenant fails to renew or to complete a relocation before the end its current lease term, the tenant is usually penalized by the “holdover rent” provisions in its existing lease. Holdover provisions are included in almost all commercial office leases and typically require the tenant to pay 150-200% of its then existing rent if the tenant holds over past the end of its lease term.

REVIEW THE EXISTING LEASE. It is common for leases to include a right to renew the lease term. If so, the renewal provision usually requires the tenant to exercise that right by written notice to the landlord within a stated number of months from the end of the lease term. The method of establishing the renewal rate should also be reviewed. If the tenant did its homework when it signed the initial lease, the renewal process will include a negotiation period between the tenant and landlord. The renewal rate should be pegged to the then market rental rate including market concessions from the landlord (free rent, tenant improvement allowance, etc.). If the landlord and tenant fail to agree on the rent and concessions within the stated period, a “three broker method” is often used to set the rent. Each side picks an “expert” and the experts then pick a third who come to a binding decision on the rent package. However, some leases provide in no event will the rent be less than the existing rent, or worse, that the renewal rate will be two to three percent higher than the then existing rental rate. In today’s market, even if the lease includes provisions like these, the tenant should find the landlord is willing to waive the provision, especially if the building has a lot of vacancy—it is a tenant’s market.

MAKE THE EXISTING LANDLORD COMPETE. The tenant must make its existing landlord believe it could leave the building. Landlords count on “tenant inertia”—they know relocating is disruptive to the tenant’s business and expensive. Consequently, it is not uncommon for an existing tenant to be offered a less competitive rent package than a new tenant the landlord is trying to entice into its building. This point is closely tied to the fourth and final point.

  • what is the best, most attainable rental rate,
  • what should the landlord offer for improvements to the space,
  • should the package offered by the landlord include free rent and how much,
  • what is reasonable for rent and expense escalations.

A little research on the internet is not sufficient to close this gap. By hiring a competent broker, the tenant evens the playing field, and it informs the landlord that the tenant is committed to developing options to the tenant’s existing space. The landlord will then know it must compete with those options. The existing landlord need not and should not ever know that the tenant’s goal is really to renew its existing lease. Again, the object is to maximize flexibility and leverage for the tenant. A good broker will schedule and conduct tours for the tenant/client of available space in other buildings. This ensures the word gets out to the brokerage community, and specifically to the tenant’s existing landlord, that the tenant is “in the market”.

Finally, hiring a broker will save you time and money even taking into account the commission the landlord will pay the tenant’s broker. Not all, but most office buildings in the DC Metro area are institutionally owned—national or regional equity funds, real estate investment trusts, life insurance companies and the like. Each year these landlords budget for commissions, tenant improvements, and other concessions the landlords will need to make to lease their buildings. Based on first-hand experience, the landlord does not offer one price to a tenant with a broker and a lower price to a tenant who is not using a broker. If there is no broker, the landlord simply keeps the difference. In terms of concessions to a tenant, landlords pay what is “market” provided the tenant and its team have skillfully used the market to force the landlord to maximize the concessions by the landlord.

The only area this may be different is for a “Mom and Pop” type owner. However, even here, a good broker will be able to use the market to the tenant’s advantage.Use these tips and watch your bottom line improve.

Rick Lane, Esquire is a former partner in a real estate and construction litigation law firm with extensive brokerage experience representing tenants in northern Virginia, D.C., and Maryland.






THE ART OF RENEWING YOUR OFFICE LEASE

If a firm or business rents space, rent is usually the second
largest cost item after payroll. Today and throughout 2017,
commercial office tenants in the Washington, D.C. Metropolitan
area nearing the end of their lease term have a unique opportunity
to dramatically reduce what they are paying their landlord.
Costar, the leading commercial real estate database, reported DC
Metro wide end of second quarter 2016 vacancy at nearly 15% with
vacancy in many submarkets exceeding 20%. More than at any time in
the last 10 to 15 years, Landlords are competing aggressively both
to attract new tenants and to retain the tenants they have. We
expect this trend to continue through next year.