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How Tenant Rep Brokers Get Paid

by Lynn Blakeley

If you have spent any time researching tenant rep brokers, you undoubtedly have run into many who claim that their services are free to the tenant who retains them.  There is some "truthiness" to  statements like these, but they are not 100% accurate.  The more precise way to characterize the relationship is that there is usually no direct, out-of-pocket expense to the tenant  for the broker's services.

In the typical situation in San Antonio, a landlord will expect to spend 6% of the rent value of the lease on broker commissions. This is usually split by giving the tenant's broker 4% and the landlord's broker 2%. (But don't feel sorry for the landlord's broker.  She has an entire building to lease!).  In situations where the tenant is not represented, the landlord's broker gets 4% and the landlord ends up saving 2% in commission costs.

So, if you decide to forego hiring a broker to represent you, the direct result is that the landlord saves money. If you expect the landlord to then turn around and make a gift to you of this savings, you obviously have not negociated with many landlords.  You will have to drive a hard bargain in order pry these dollars out of the landlord's fist and unfortunately, it will not be a fair fight (because you don't have any one with any expertise representing you, remember?)

The problem is that with no expert knowledge of the market, or of the many traps and pitfalls involved in commercial leasing, the landlord can take advantage of you in ways too numerous to list.  In the end, you may end up thinking that you have made the deal of the century when the reality is something far different.

To take the simplest example, suppose the landlord's asking rate for office space is $30 per square foot per year.  You may think you have mastered the Art of the Deal by signing a lease at $28, but did you know that no one else in the building is paying more than $26?  And the rental rate is just the most obvious place where a lack of expertise can hurt you, its not the only place. Finish out allowance, term, and expense pass-throughs are a few other examples.

The bottom line is that  at the end of the day, you may hope that you have somehow mangaged to capture that phantom 2% in the form of reduced rent or some other tangible benfit, but in most cases, you will never really know for sure. 

 

Questions about Office Leasing?

In the posts below we address many of the issues that routinely come up in office leasing. Check out the posts or just give us a call to discuss your specific concerns: 210.349.6111.

Rentable Square Feet and the Common Area Factor

Types of Commercial Leases

The ABC's of Building Class

It's All about the Base

How much Office Space Do You Need?

Lynn Blakeley represents tenants in office lease transactions. Call Lynn at:

210.349.6111.