Is the TENANT REP broker dead?
The TENANT REP BROKER. A species found ONLY in commercial real estate brokerage. Sure, you have resi agents that represent buyers, but not as their only source of making a real estate deal. Generally, a resi agent finds a buyer from an open house, an on-line lead, or an up call...but the buyer's inquiries originate from a property listing...not from resi agents patrolling the waters for potential buyers in the market. Notice, I said BUYERS. In the resi world, TENANT reps are non existent...because the fees generated from a residential lease don't cover a Cadillac payment...much less provide a means for support.
In order for a tenant rep broker to survive, several things are needed. A "tenant's market" must be present. Tenant rep brokers capitalize on an imbalance in the market...more available spaces than tenants to fill the spaces. A tenant representative derives her value from controlling the tenant (a signed engagement), finding the alternatives (available spaces), creating an auction among property owners for her tenant's occupancy, and demanding to be compensated by the owner of the space. The owner endures the agony and reluctantly forks out the fee in return for a three to five year tenancy from the occupant. But, please don't be mistaken, the owner grits his teeth throughout the entire process, envisioning a time when he can renew the tenant without a "representative" punctuating his tenant's requests. When the market becomes an "owner's market", the imbalance shifts in the owner's favor. Because the occupant has fewer alternatives (less vacancy), the owner can many times avoid opposing a tenant representative...and save the fee. We see this dynamic in Orange County, California these days. The classic "tenant rep" firms have been forced to seek compensation from property management, sub-leasing assignments, project management, lease administration, etc.
When Roger Staubach stopped winning Super Bowls and started repping national office tenants, the model was entirely different than the tenant reps of today. In the eighties, a national office tenant would engage Staubach to determine their office needs, source the locations, space plan the alternatives, negotiate the lease, manage the construction of the tenant improvements, and affect the move...ALL with the promise of a complete rebate of the fee if the amount of money saved by the tenant wasn't offset by the amount of the fee. Space planners, construction managers, and transactional brokers were ALL a part of the Staubach team of professionals...many were paid a salary...not a leasing commission.
So is the TENANT REP broker dead? I believe so...or his role is dramatically reduced. Because most of the commercial real estate markets have recovered and vacancies have declined, the imbalance of available space to requirements for the space present less of an opportunity for exploitation...AKA the need for representation.
By: Allen Buchanan
Principal | Lee & Associates
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