As seen in
May 19, 1999
The successful tenant rep in a landlord's
market
by JAMES MEISKIN,
PRESIDENT, PLYMOUTH PARTNERS, LTD.
 The
recent further tightening of real estate markets is good news
for the landlord, but represents a serious challenge for the
tenant. It is now more critical than ever that a proven, experienced
real estate professional be part of the team when a company
considers a lease negotiation, an expansion or relocation of
offices, the acquisition of a new facility, or the consolidation
or sub-lease of excess space.
U.S. office and industrial markets have dramatically changed
over the last 18 months, with rental rates increasing, concessions
diminishing and availability of space greatly reduced.
Today, the real estate industry is quickly moving into more
markets in the U.S. where rents are rising and space is tight,
especially for large blocks. Many tenant rep brokers who entered
the industry within the last five years encountered soft tenant
controlled markets, where concessions were readily achievable
and almost any transaction resulted in a "good deal."
In some cases, the tenant representative's only experience in
negotiating lease transactions had occurred when the tenants
controlled the market and transactions were easily accomplished.
The shift to the landlords' control of many markets has left
some brokers ill-equipped to deal with the steadfast positions
landlords are taking, the compromises required to structure
deals, and the legal expertise required to close deals. Owners
are taking strong legal positioning in areas such as ADA compliance,
indemnification, default provisions, construction management/supervision
fees, and assignment and subletting clauses.
What Skill Sets Are Needed Now?
Given these changing market dynamics, what is going to happen
to tenant representation? When soft market conditions existed,
the number of traditional tenant rep brokers greatly increased.
Brokers who concentrated on "getting the deal done"
are now ill-prepared to develop a new approach and strategy
to accomplish the client's economic goals.
It is unlikely that market knowledge alone will compensate for
a lack of strategic planning skills. Tenant rep brokers must
continue to develop innovative and creative strategic development
skills. Future relationships with clients will be developed
and maintained by the ability to determine a tenant's occupancy
needs; project costs; analyze alternative solutions (e.g. consolidations,
contractions, early re-negotiations, etc.); and the ability
to build flexibility into the lease transaction.
Since future results will be obtained only through tenacious
and creative negotiations, a different skill set, necessitating
that brokers are expert negotiators both on economic and legal
issues, is required today. It will be necessary over the next
decade to possess: Strong negotiating skills; the ability to
grasp and react to market changes quickly; creative and analytical
thought processes; the ability to structure complex transactions
with proven ability to persuade; expertise in lease negotiations;
and analysis skills from both the landlord and tenant perspectives.
"Tenant rep brokers must continue
to develop innovative and creative strategic development skills."
Tenant Rep Team
These skills, which can be developed through
training, are frequently second nature to project leasing agents
who have focused their efforts on leasing properties for owners.
These professionals and others should be considered when putting
together a tenant rep team. Project leasing agents typically
are involved with many types of users and multi-faceted, complex
lease negotiations. Also, they are experienced in dealing with
the variety of negotiating styles used by brokers, real estate
managers, architects and attorneys.
Project Managers
Additionally, brokers with project management
experience have a unique perspective of the owner's viewpoint
on the methods owners and landlords use to structure leases
to achieve desired returns. The owner's emphasis on credit-worthiness,
long-term tenancy, rates of return, and key lease points can
then be transferred to the tenant side of the transaction.
Leasing Agents
Often, leasing agents participate
in a larger number of transactions on an annual basis than
tenant rep brokers. As an example, the typical tenant rep
brokers may complete eight to ten transactions per year. Whereas,
the average leasing agent may handle as many as 50 transactions,
including renewals, expansions and lease buy-outs and/or re-negotiations
with existing tenants, as well as transactions with new tenants.
As tenant rep brokers are beginning to negotiate in stronger
landlord markets, the most valuable asset on their negotiating
teams is experience from the landlord or project side that
provides a balanced perspective and valuable insight into
an owner's negotiating position.
Former Corporate Real Estate Managers
Another excellent addition to a tenant
rep negotiating team can be former corporate real estate managers,
who have experience managing many different types of complex
corporate real estate issues. This valuable insight provides
clients with an opportunity to work with a team member who
has "walked in their shoes" and can often offer
innovative solutions based on personal experience.
Tenant rep brokers should begin to look to the various disciplines
within the real estate industry to add to its brokerage team,
thereby offering the client a wide range of expertise. As
real estate transactions become more complex and difficult
to finalize, the experience of these industry professionals
and their perspectives can assist with closing the transaction
and providing the highest quality of service to the client.
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