Are all Commercial Real Estate brokers or agents the same? Do I really need a broker or can I do it myself? These are very important questions that must be answered for every type of business as one chooses a commercial real estate broker at various stages of a company’s lifecycle.
How to pick the best commercial real estate broker whether you are a Fortune 100 Company or a start-up, whether you seek new warehouse space in an industrial park, a sleek downtown office or a fun loft for your millennials, is a decision that must be made wisely. Are all brokers the same? Does it matter who you select to represent your firm? Yes, yes it does! Of course it does! Very much so.
Making this decision can set the stage for real estate being an asset that either helps propel your business forward or becomes a noose around your neck. Selecting the right office space, industrial space, retail space can make or break your overall business.
A space that reflects your culture and becomes a place where employees enjoy spending their time can be an irreplaceable source of collaboration and creativity. An office space that lacks flexibility may hinder your ability to attract talent. Or a space may simply cost too much money and then simply it is a drag on the bottom line.
A Commercial Real Estate Broker is not a “one size fits all” commodity. I can assure you that brokers are quite different from each other in terms of the level of service they offer, the resources they bring to your project, and the advice they provide to get you to the point of decision on your space.
After spending over two decades in the industry as a broker, consultant, and service provider, in my professional opinion, I believe that there are 5 key factors to consider when you are ready to select a commercial real estate broker to represent your interests and find you the ideal home for your new office, industrial or retail space for your operations.
The first and most important factor in my opinion is somewhat intangible…this factor is chemistry. Do you trust the commercial real estate broker or agent and their team? Do your instincts tell you that they have your best interests at heart as their driving force? The reason why chemistry is so critical is primarily due to the lack of alignment in the way in that brokers are compensated for their services. This is an area of commercial real estate where there is a lack of transparency. By becoming knowledgeable about the track record and reputation of your potential broker you can get a head start on a great decision. Most brokers can become your strongest asset and most are highly ethical but there are some “bad apples” as in any space.
A Commercial Real Estate Broker is paid a commission by the Landlord or Seller of the property your company ultimately selects and often the fee is a percentage that is tied to how much space you occupy and the length of the term of your contract. To illustrate, a very common lease commission calculation would be calculated using this formula: 4% x 5,000 square feet x 3 years x $25 per square foot in rent. In this example the fee paid by the Landlord to your broker would equal $15,000. In some markets the calculation is simply a set amount multiplied by the number of square feet. For example, in Chicago, it is $1.25 per square feet x 5 years x 5,000 square feet for a total commission paid of $31,250. As you can see, the commission owed to the broker who represents your interests is often tied to how much your space costs you or how many square feet you occupy. To further complicate this, some properties offer a “bonus” commission for your contract (which not all brokers disclose). I believe this bonus should be disclosed by the broker to its client but that is left to the broker’s discretion. You want to work with a broker who is transparent with you and of course, who would not be swayed by any bonus. Most brokers are ethical and will provide this information but it never hurts to ask.
Commissions for both the tenants representative and the landlords representative are expected by most commercial properties and therefore, built into the pricing of the property. If you don’t use a commercial real estate broker, you are likely leaving money on the table and foregoing valuable expertise that could provide you with a better space solution with more flexible terms at a lower cost.
Commercial real estate is one of the few remaining industries where you can’t easily shop prices or availability online to see what is being offered and then make a strategic decision with open information. You are relying, almost solely, on the information provided to you by your broker. A good broker must be detailed oriented, thorough at understand the market, able to understand your business and a master negotiator. This takes a unique type of person!
Lisa McClung, CEO of Coda Signature added what is fundamental to her, “The broker taking the time to understand my goals and business strategy…that the transaction is a means to an end. Less sophisticated brokers are focused on the timing of the transaction and fees – because that is how they are compensated. Brokers who understand my business and align with my timing are the ones that become long term partners and are always my first call for any future transactions.”
The second key factor is the broker’s overall qualifications and references. Do they have happy and satisfied customers? Brokers often specialize in the type of building you seek (office, industrial, retail). Each of these asset groups are very different in terms of market knowledge and specifics. For example a strong retail broker will understand the demographics and traffic patterns, a strong industrial broker will be knowledgeable in terms of rail access, value of various ceiling heights, and cross-dock buildings whereas an office broker would be able to advise on where and what type of space will help you attract the right employees and retain them and what term to commit to for your company. For example, if you are making a leasing decision for a fast-growing startup, a short-term lease might make sense even if there is a premium cost. Brokers that specialize in start-ups can be instrumental in helping you think through various options tied to flexibility that will have a long term impact on your company .It is critical that your broker have deep experience with completing successful transactions for like-type companies. “Market knowledge AND the willingness to understand that every deal is the most important deal to THAT client,” is crucial criteria as summed up by Duke Long, Owner of Duke Long Agency, EIR Second Century REACH.
Third, is the broker a good listener who truly understands your needs? Listening skills are important for any consultant however, with your broker this is critical as you can waste significant time looking at properties that do not meet your needs. While much of the commercial real estate process can be done in advance through virtual viewing often, it is important to physically visit a number of spaces before you commit. Many brokers will view this as “time with their client” while you will likely view it as valuable time away from growing your core business. Therefore, an expert broker who listens and understands that you value your precious time is a key factor.
Resources of the firm is the fourth key factor. In addition to having a great broker, does the firm also provide construction and project management services to assist you with your construction budget and to manage the buildout of the space? Perhaps you want to consider locating in the suburbs versus a downtown location. Having a firm that has strong representation in both areas would be critical so that you get complete information. Furthermore, a firm that has a labor and demographic expert, and even an incentives expert (often municipalities will provide tax incentives to companies that provide new jobs or even retain jobs that would otherwise move elsewhere) might be even more significant in determining the best solution for your company.
The fifth and final factor to consider has to do with the reputation of a broker’s firm. What type and size of firm should you consider? Do you need a global, well-known marquee brand such as JLL or CBRE Global, a mid-sized player or a niche, boutique firm? Is their brand value important to you? These firms all have quality advisors. However, doing research on the firm, their focus, and resources, can be another factor to help determine who and what firm is the right fit to meet your objectives. Some firms are full service and provide all imaginable real estate services from property management, project and construction management, leasing and investment sales while others are niche firms only providing services that serve the tenant OR the Landlord. Regardless, it is important to make sure the brokerage firm has all the services that you will need from the search to the build out of your space to and post lease services you may require such as operating expense and tax audits. There really is no place to go and compare firms so it’s critical that you consider all these factors and do your own homework.
If you get the right broker on your team working hand in hand and as a partner with you, you will be fully informed on the market dynamics and will likely get much improved economic terms than you would on your own or with an unqualified broker. You could even be out touring properties that meet your needs in a matter of days from this decision being made. The full leasing process can be as short as 3 months, or if you want to take more time to design custom space, the process could take a full year or more. Additionally, as commercial real estate is now adapting to the digital world, more information is becoming available to companies that includes virtual tours and 3D imaging, which all can assist to accelerate the process. Therefore, this process with the help of a savvy broker should become much more customer friendly and open.
My recommendation is to meet with and consider a minimum of 3 and a maximum of 6 firms. While some larger firms will include up to a dozen firms, this is not necessary and is a waste of your precious and valuable time. By applying these 5 key factors to select the right broker for YOU, your company will be set up for success.
Securing the confidence that your broker is partnering with you to further the success of your company does not have to be intimidating and does not need to happen in a black box. Selecting the broker that best meets your needs will result in identifying space that is aligned with your firm’s personality and culture and will positively impact your firm for years to come.
Written by: Sheila Samii Matuscak, CEO & Founder, CoeoSpace