If you own a business, you most likely have a commercial office space.
That office carries with it many expenses: the most obvious is the monthly rent or mortgage. With an office space also comes staff and payroll. These two items are not only needed for business operations, they are also two of the highest expenses for most businesses. That being the case, only one of them is really negotiable. You may decide to cut staff, but when it comes to payroll, you either pay people what they are valued at, or they go somewhere that will pay them.
Real estate, however, is 100% negotiable. You can decide if you lease or own. You can determine the size, location, and amenities your space will offer. You can choose to be in a stand-alone or multi-tenant building. You can determine the length of lease, concessions you ask for, economic terms, business terms, etc.
So if real estate is one of your highest expenses behind payroll, and if there are so many options and choices to make when it comes to your office space, how can you maximize the opportunity? To start, you need to understand how the game is played. As a business professional, the playing field is not level. If you do not own your own building, you might engage in 2 to 6 commercial office transactions in your career; whereas most landlords and sellers negotiate real estate transactions professionally for a living. You specialize in your field; they specialize in their field. If the outcome was based upon your understanding of construction, you would probably win.
However, the process and outcome are instead based upon comprehensive real estate market knowledge, authoritative posturing, and negotiation expertise. Winning requires having more options, understanding the correct timing, posture and negotiation tactics that landlords use, and in many cases, being able to withstand the stress and conflict that many landlords and sellers use to exploit unsophisticated or uninformed tenants and buyers.
Let’s focus on a few of these concepts. If you start the transaction at the wrong time, you lose leverage and posture. If you don’t know the market, you are simply begging or bluffing. If you can’t handle conflict, you will most likely receive even more pressure and stress from the landlord or seller to make you uncomfortable and force you into making a decision that you will regret. And even if you could overcome all of these, without professional representation you are going to be viewed as a novice and are not going to receive the respect that is necessary to achieve the most favorable terms available to you.
Nearly all landlords and sellers hire or consult with professional commercial real estate brokers to give them even more leverage so they can win. Why? Because they understand what is really on the table when it comes to each negotiation. For them, if they give up unnecessary concessions or go lower on rates than they need to, it costs them tens to hundreds of thousands of dollars of profit per lease. The reality is, those are the same items you are trying to maximize and capitalize on.
Large national tenants and buyers understand this concept as well. If you polled Fortune 500 companies, you would find they either hire professional representation on every transaction, or they have a team of in-house professionals who are trained and equipped to maximize the opportunity. They understand the potential upside or downside involved in every transaction, and they are committed to getting the best possible terms in every transaction.
Most business professionals and administrators don’t understand that commissions in commercial real estate are typically paid the same as they are in residential real estate: by the seller or landlord. This means representation does not cost the business more money. Fees are set aside in advance and are either used to provide each party with representation, or the landlord or seller keeps that money or gives their broker a double commission. As the tenant or buyer, it’s important to understand that you are not the person setting the total commission amount. You are not choosing to do a “for sale by owner” listing where you can determine if the commission amount is lower if you represent yourself in the transaction. The landlord or seller determines the total commission amount.
As a tenant or buyer, if you don’t engage professional representation, you are simply losing the opportunity to have professional representation and without saving any money. If you are looking to maximize profitability, start by understanding how much is on the line with your lease or mortgage. Then, make the choice to hire representation that is 100% free to you. Select a commercial real estate broker that understands the needs of a construction tenant or buyer, only works for you as the tenant or buyer, can help you find the most options, has the strongest game plan, and who can take and absorb the conflict and confrontation that is inherent in every negotiation that involves a lot of money. In doing so you are positioning yourself to win.
The bottom line is there are tens to hundreds of thousands of dollars available to either be won or lost in every commercial real estate transaction. Your profitability affects your clients, your staff, your family, and many others. Maximize every commercial real estate opportunity by taking advantage of the best resources available to you. Winning on your next commercial real estate transaction can transform your business!
CARR, Inc. is a national leading provider of commercial real estate services for corporate tenants and buyers. Every year, thousands of businesses trust CARR to achieve the most favorable terms on their lease and purchase negotiations. CARR’s team of experts assist with start-ups, lease renewals, expansions, relocations, additional offices, purchases, ground-up construction projects, and business transitions. Firms choose CARR to save them a substantial amount of time and money, while ensuring their interests are always first.
Tammy K. Clark