What Is That Broker Doing, Saying, And Dealing

In the past the expectation of working with a commercial real estate broker has been to get assistance in finding a choice of workable sites based on the parameters given to the broker. Whether working with a tenant or a buyer, the broker has been responsible to fit the need with the space. In the past once the property was located some brokers then waited for the transaction to close in order to collect the commission.

To a great extent the service of locating the site continues to be the mainstay of brokerage. However, with the demands of consumer protection resulting in new state regulations, advanced technology, and sophistication within the industry to create more profit centers, a broker’s role has expanded. A broker who finds the property and then waits to be paid may end up a deal short.

Brokers have been comfortable in years past to represent a landlord and/or seller and the user in the same transaction. Another practice has been to “switch hit” in different transactions by representing a seller in one transaction or then representing a buyer in another transaction. Now, there are laws of disclosure and agency which result in the broker clarifying his position at the onset of dealings with the client or customer. Brokerage firms and sole practitioners now find it in their best interests to create a better service by representing all tenants and /or buyers exclusively (a tenant/buyer representative broker) or only landlords and/or sellers. If those roles should be different at different times the broker is now regulated by law to make the disclosure as to representation. Additionally, if a broker is listing a property and in fact finds the user, that broker is now required by law to have established his position before commencing negotiation. Brokers must think through the “chain” of representation, disclose their position and incorporate their thinking into an office policy.

Once the broker has established himself as a tenant/buyer representative, he must locate that ideal property. Over the years the means of accomplishing this goal has seemingly improved with the use of computers and databases available over the internet. Brokers buy services which delineate markets and submarkets. Available space, rates prices, and descriptions of properties in these markets are readily at hand. On the surface it looks like the task has been simplified. However, while this information has become easier and quicker to transmit, a database is only as good as the information being fed into it. Thus the primary function of a broker finding that ideal property reverts to the age old methods of communicating with other professionals, interpreting market knowledge, relying on word of mouth, or sometimes just plain “windshield” time….driving an area to see the lay of the land.

In today’s market, with the oversupply of office space, various database services offer an easy research tool. Locating an investment property can be more difficult as some of the brokerage houses which list these properties often do not market the properties outside of their own their client base thereby keeping the entire transaction “in-house”. In these cases the more established methods of broker to broker communication are essential.

The area of biggest change in the role of a broker has been the establishment of ‘teams’ and in some cases entire new departments within a brokerage firm which offer management of the move to a new facility. Before the process of locating space even begins, the brokerage firm sells the client or user on the idea of managing the actual buildout of space or the construction of the building. Once the transaction is completed the process is turned over to a previously designated project manager who solicits bids for design, furniture, voice and data installation and construction. In a lease transaction some or all of these services are negotiated into the tenant improvement dollars which are at the landlord’s expense. Instead of the landlord handling the construction, a team representing the tenant completes the work.

This process is effective in a soft tenant market and works best with larger square foot lease transactions. Certainly this type of service can also be used effectively for a large build to suit transaction. Users are in effect hiring the brokerage firm to act as their contractors. Tenants should be aware that this type of negotiation can sometimes cause problems when a landlord prefers to use their own professionals who are knowledgeable about their building and protective of the surrounding tenants who will be impacted by noise and use of elevators. The landlord may resist transferring his management profits to the brokerage firm or may, in some cases, add a fee on top of the outside management fee. In a build to suit situation the user needs to beware of using a project manager who is not truly a contractor and may be creating unnecessary overhead.

Knowing the market conditions, the players, and the business points that can be negotiated all serve to enhance the broker’s position. In effect the broker brings a climate of competitiveness or leverage to the table. It helps for the broker, who has been communicating for a number of years in a particular market, to know the other parties and their past dealings. This might include being aware of unreasonable landlords or sellers or an attorney who is efficient in the use of time.

No matter what has changed in the industry, the success of a good broker’s business remains, or should remain, the level of trust and integrity in what he or she does, says and deals. The relationship is built on acting as a fiduciary to provide the best advice and always acting in the best interest of the client.

Paulette Wray, principal of Wray & Associates, a Denver-based tenant representation firm, has 20 years of commercial real estate experience.

1225 Leyden St    •     Denver Colorado 80220     
  Phone 303.320.4488    •     Fax 303.377.2003

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