A Better Way to Broker
Every three years, Bill faces one task with dread: As CFO, part of his responsibility includes negotiating a lease renewal for office space. Every year, as he enters the world of commercial real estate, he feels like he’s “walking through the valley of death.”
Every dollar saved on the lease goes straight to his company’s bottom line, yet no one seems to have his best interests in mind. The landlord’s interests are clearly his own—the more space, the higher the price, the longer the term, the better. The tenant representative broker working “for him” receives most of the commission, which is calculated as a percentage of the value of the lease—again, the more space, the higher the price, the longer the term, the better. So it’s hard to believe that either one has Bill’s best interest at heart.
Bill faces the entire ordeal with dread. It has been Bill’s experience that soon into the process; he’ll find that he’s the one managing it, not his broker. He’ll show Bill various expensive properties with long-term leases that are unsuited to the objectives Bill stated at their first meeting—did he listen at all? He’s certain they could get a three-year lease with a few months of free rent, but his broker will continue to show him five-year leases with no free rent. Bill will shake his head in frustration, asking, “Why can’t I get a termination option if I’m willing to pay a fee for it!”
Bill will end up being the one who spends hours calculating office sizes to see if he can get away with less space, a job clearly not in the interest of those getting paid. Negotiations never go well. He’ll ask for termination options but will be told, “There’s no give on the other side.” He’ll wonder if his broker even tried to fight for what he wanted. His concerns will go unanswered, time will run out, and once again, he’ll sign a lease that results in a commission split between people who weren’t working as advocates on his behalf.
The above story is based on actual experience. In companies across the USA, mid-level and senior executives, CFOs, and real estate managers have reached a breaking point from their encounters with commercial real estate brokers. It’s not simply a case of poor service, lack of communication, or limited experience—though these are all factors. The commercial real estate market is in the midst of a shakedown. Amid economic recession, falling property values, and increased scrutiny of the large institutions that caused much of the economic collapse, there’s an increased awareness of the serious misalignment of interests between the client and the broker. This breakdown in the client-broker relationship is leading many to ask, “Is there a better way to broker?”