Perfect World

In a perfect world the tenant wastes no time renewing a lease or finding a new location, has no need for expansion, never has a rent increase, and landlords are the equivalent of a good neighbor or an old family friend.

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It is impossible to reflect upon such a broad category, but elected to choose some examples that most tenants can relate to. Many soon-to-be-clients when first visited had some concerns about using a broker. A common concern was the fear of damaging the great “relationship” that had been established with the landlord’s agent. We discussed the “relationship” factor with tenants along with day-to-day experiences and found that the following topics were brought up frequently.

Vacant Space

 

Tenants mentioned that part of the “relationship” involved the frequent visits by the landlord’s agent. It was observed that visits by the landlord’s agent started to really slow down after move-in, and then visits seemed to suddenly increase as space was coming available for lease next door to the tenant.  

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Gifts

Many tenants were surprised to learn that many of the gifts received from their landlords through the year along with the occasional tenant functions were paid for right out of the Operating Expenses. (“Additional Rent”) Yes, in fact this means that the tenant paid for the gifts, not the landlord. This doesn’t even take into consideration the overage of food and gifts the property managers sometimes take home and enjoy as a result of intentionally over-ordering. This example is not meant to be a reflection upon all management companies, but just mentioned to shed some light upon realistic situations.  

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Property Management/Properly Managing

When thinking about property management, the words “properly managing” should also come to mind. Property management fees are built into and paid out of your rent. The property manager should treat you with the respect associated with treating one’s boss, after all it is because of you that they have a job. If you are in a situation where it seems like your reasonable requests are being consistently ignored then you are probably not getting treated properly. In a quality project, the property management team should be comparable to a concierge service. Response times should be within 3 hours from when the call was made. The property manager should be at the helm of the building and the staff should be like the left hand of the manager. This is called a team effort management approach. The landlord has hired the property management firm on your behalf to take care of the property and you the tenant. Management companies earn anywhere up to 7% in fees from the gross income of the project for making sure that you are being serviced as a tenant and that costs are kept under control. Please take note that keeping costs under control, is not supposed to mean property management imposing their will and ignoring your problems.  

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Lease Renewal Time

One of the most important aspects in the “relationship” as described by tenants is a visit from the landlord’s agent 6 months before the expiration of the lease. This is usually when the agent walks in with a big smile and assures the tenant that he is a valued customer. He immediately proposes a sharp rental rate increase as a token of the landlord’s appreciation for being such a great tenant. The landlord always likes tenants who help him create a greater income stream, and more value in the building. Does this sound familiar so far?  

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Per an undisclosed, Houston commercial real estate Landlord’s agent: “Tenants using a commercial real estate broker (Tenant Representation Broker) to represent them unequivocally negotiate substantially better terms, conditions, and concessions when leasing commercial space.”  Tenants need to understand that the landlord’s agent has a job to do when it comes to achieving results for the landlord. Landlord’s agents negotiate against tenants for a living. Houston commercial real estate is very financially oriented, bottom line driven, and un-emotional, unlike its sister industry residential real estate.

Remember, what is getting cut is usually your pocket book if you are not careful, and time is against a tenant who is not carefully planning out his options with a broker. A good broker will educate you about the market and will serve you well. Always remember, the landlord’s agent is there for a reason he is an expert for the landlord, this is his job.

Timing

Sometimes, responses will seem to be delayed for one reason or another, and it will take a lot of time to get a response. Does it seem that when you are anxious to get something done, that the landlord reacts slowly? Does it seem that when you agree to accept the landlords initial proposal, that the his response time is quick? Does it take less time to have a 60 page lease document prepared by the leasing agent, than it does to get a return call or response from the property manager? Make sure that you are prepared to spend another 3 to 10 years dependant upon the management team in place prior to electing to renew. These are just a couple of things to consider prior to making a leasing decision. A good broker is aware of these and other issues. For example, the closer to the lease expiration date you get without a firm decision the more vulnerable a tenant can become to committing to less attractive terms and conditions. A good Houston Tenant Representation broker will make sure that you don’t run out of time by creating options, but it is wise to always start early, so as not to operate in a crisis mode. The sooner that you start working with a broker the better this will allow you and the broker to fully understand the requirement and make acceptable recommendations. Listen to your brokers recommendations.

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The Importance of Big & Small Tenants

We also like to know if the tenant is happy with their landlord. If the tenant leases a small space and the tenant is happy then often the chances are great that other tenants are happy too. Taking care of small tenants shows that the landlords operation is running smoothly and properly and that there is no favoritism. Some landlords take care of only the large tenants. Each and every tenant big or small is equally important to us.  

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Landlords

Many tenants think of landlords as one person, and a building as their home away from home. In commercial real estate most landlords are large institutions or wall-street companies and the building represents an income stream. It is sometimes hard for tenants to understand this philosophy, but it is wise to recognize this and to use a broker who also does. The landlord has asset managers usually located outside of the city or state in which the property is actually located.  

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Almost weekly the asset manager will input the rents into a nifty computer program which will indicate to them where the rents need to be in order to achieve their investors financial goals. These computer programs take very little into consideration of the actual real estate market conditions existing in Houston. Sad but true in some cases, the real market conditions are over inflated which is the reason that the numbers worked for the asset manager to be able to recommend the purchase of the building up-stream in the first place. As a result, Houston has found itself with a majority of out-of-town landlords over the last couple of years. This situation, has made understanding the local real estate market slightly more complex. The tenant usually is very aware and the first to know when the rental rates being offered by a landlord are unreasonable. Yes, the tenant knows this, the landlord’s agent knows this, but the out of town landlords are trying to compare the rents of  Houston office space to Manhattan or Boston at times. You can’t blame the landlord because remember after all it was the asset managers over inflated numbers that encouraged the landlord to purchase the building in the first place. Also, understanding how these math formulas work in the asset managers grand scheme of things is relatively simple. If a Houston office buildings occupancy is struggling, then in most cases the computer program that they are using is going to compute a higher rental rate for those tenants renewing, to make up for the unrealized revenues attributable directly to the vacancies. At times new tenants to a building might enjoy better rental rates than those determined to renew in place.

Another important point is that an asset managers salary is usually directly tied into a percentage of the gross rents for a project. It is difficult for asset managers to lower rental rates for obvious reasons such as ; not wanting to take voluntary pay cuts and not wanting to be embarrassed when presenting transactions to the landlord. Sometimes these large institutional investors price themselves way out of the market because of this. It is important for tenants to learn and accept that moving always has to be a real consideration.

Additionally, it is interesting that in most cases asset managers have very little or no leasing experience. Yet they place the burden upon their “messenger” the landlord’s agent to perform sometimes impossible and unrealistic results. Remember, having a relationship or not with the landlord’s agent has nothing to do with a Houston Office Space  lease negotiation being handled in a proper and professional manner. A qualified broker looks past the landlord’s leasing agent in negotiating a lease and understands that the leasing agent is merely the “messenger.” Tenants should expect to have to make tough and responsible business decisions and set aside their emotions when expecting to achieve maximum results and look out for the well being of their business.

Leasing Commissions

In business you demand and achieve results, and in negotiating a lease your approach should be the same. Don’t let your guard down or change the very thought process which has made your company successful, by trying to save a buck. A landlord’s agent, loves to tell tenants that money can be saved by negotiating one-on-one without a broker. If the tenant agrees to do this, the landlord figures the chances are substantially greater of reaching an agreement. Otherwise the tenant would not place the lease negotiation over their core business responsibilities. Also, the landlord’s agent makes more money by not having to split the commission with your broker. We enter a written agreement with our clients which states that commissions are paid by the landlord, not you the tenant. This is how we are able to provide you with excellent service without having to bill you for our services.  

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Houston Commercial Real Estate Lease Agreements

A Landlord’s agent is the Landlord’s expert and a lease agreement is like a landlord’s marked deck of cards. There are usually anywhere from 52- 89 pages in a lease that discuss issues that can end up being very expensive if you are unaware of them. Some leases are so long that we are not always convinced that the landlord truly understands the document he has written. Yet, your company is expected to sign it. That’s why we always recommend that you have your attorney review a document prior to execution and will be happy to work closely with your counsel if necessary. The landlord’s agent (expert) negotiates leases everyday for a living, what do you do everyday? Are you prepared to step into a bullfight, without experience, proper conditioning and training. “Tenants represented by a broker unequivocally save more money and negotiate better terms and conditions than those tenants who negotiate one-on-one with a landlord.  

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Creating Leverage

Communication is crucial in a lease negotiation. The communication should be kept between your broker and the landlord’s agent. Even when the negotiations are not favorable we believe that this policy is still best. Communicating with the landlord one on one is an indication of desperation and could be the fastest way to lose any leverage built since commencing the lease negotiations. Remember, the landlord’s agent has trained ears and has heard the same story time and time again, thus has made an art out of learning to read between the lines. Our attorney client’s say, ” when representing one’s self, a fool has himself as a client”. Most seasoned professionals recognize this to be true. Be an informed consumer and allow your broker to achieve the best possible results. If you think that you are being offered a great deal, then the landlord should let you put it to the test by using a broker?
 
 
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