CRE Midwest

The tenant rep broker: Leveraging knowledge, expertise and common sense, regardless of market conditions

Whether the market favors the tenant or the landlord, there are areas in which a tenant representation broker makes a difference.

By Corey B. Chase

Principal-Podolsky Circle CORFAC International

As we move further into 2014, the pendulum is swinging and it is increasingly in a place that favors the industrial building owner.

In the industrial market, as positive absorption takes place for yet another quarter and vacancy rates fall to their lowest point since before the recession, the level of available space options continues to decline.  Generally speaking, the tenant that once had many options regarding the location of his or her business has fewer and fewer choices today. The deal-making concessions and tenant allowances that once ruled the day are dwindling as there is increasing upward movement on rental rates.

In spite of the trending of these basic market fundamentals and a noticeable transition in who’s driving the industrial market, the experienced and professional industrial tenant representation broker won’t require any subsidies.

Whether the market favors the tenant or the landlord, the areas in which a tenant representation broker makes a difference include:

  • Tenants always need an advocate — Whether it’s a tenant’s or landlord’s market, the tenant always needs an advocate. A tenant rep broker’s responsibilities go well beyond identifying the space available in a given market area and the comparable transactions that set the conditions of the market. As an advocate for the client, the tenant rep broker not only knows the comps and the available spaces, but also knows how to leverage and deploy that information, the relationships that have been built, and perhaps the inside information on market activity, in order to press ahead and forge the best deal for the tenant.
  • Opportunities to make a difference — For the typical tenant, market conditions are changing. But in certain categories — uses — very little is changing, and there is still an opportunity for tenant rep brokers to make a significant impact. For example, a tenant may be located in a market where conditions are tightening, thus weakening the company’s negotiating position. However, the tenant rep broker, with a broader knowledge of alternative market locations, can identify strategies and opportunities for the tenant to consider — options that otherwise may not be obvious, like locating to a nearby market where market conditions present better economic alternatives.
  • Situations dictate the need for tenant rep — The tenant representation specialist plays a critical role in creating occupancy opportunities in certain highly specialized segments of the market where there may be a real shortage of buildings available to tenants. In the food industry, for example, tenants may have highly specialized needs, like freezer-cooler space. A tenant rep broker with experience working in that industry may be able to create opportunities where a building owner works with the tenant to convert a more traditional industrial space to accommodate the user.  Accomplishing this takes vision and creativity, as well as the ability to present the opportunity — and attractive lease terms — in such a way that both the building owner and tenant give it serious consideration.
Another example is the build-to-suit market, which is heating up and establishing itself as a viable option. The tenant rep broker can play a significant role in helping a client navigate through the various steps involved in a build-to-suit transaction, from analyzing whether it is the best option available, to assembling land alternatives, to negotiating with construction and development firms on the terms of the transactions and the overall process.

The role of the tenant rep broker is to leverage market information, expertise and relationships within the ownership and development communities to secure the best deal possible for companies negotiating a lease (or sale) transaction. The savvy tenant rep broker knows that there is a fine line between securing the best deal and securing the best deal possible at all costs. There are more than enough examples of a tenant rep broker trying to be the hero and becoming too aggressive when a good deal was essentially done — only to have it blow up because of over zealousness.

Instead, there needs to be a level of respect for and communication with the landlord and its representatives. The reality is that markets do change, and landlords (and their brokers) may well remember just how aggressive, and perhaps unreasonable, a tenant and its rep were. It may all come back to roost when it’s time to negotiate a renewal, an expansion or a new lease.

It’s relatively easy to be a tenant rep hero in a tenant’s market. It’s when the pendulum is swinging, and trending more toward the landlord, when the tenant rep broker truly earns his or her keep, and builds the credentials for long-term staying power in the industry. Sure, it can be more challenging. But at the same time, it is more rewarding to create value when that value is harder to achieve.

Corey B. Chase is a tenant representation specialist and principal with Podolsky|Circle CORFAC International. He also serves on the editorial advisory board of Chicago Industrial Properties.