Why use a broker?

I was asked by a prospective client why they should hire a broker… They felt there was a compelling case for going it alone:

1. They were renewing in place and had a renewal option in their lease.
2. They had a good relationship with the landlord and didn’t want to rock the boat.
3. The landlord would be less flexible with the rate because he had to pay a fee.

Fair enough… I understand each of these arguments. But when unpacking them, I explained why involving a broker would add value and negate each of these objections.

A broker will help with price discovery to establish a fair rate. The renewal option in your lease reads: “the greater of ‘fair market’ or the ‘then escalated rate.’” Few leases are actually at market when they get escalated through a lease term. Activating the renewal will result in a rate that is higher than market. And why should the tenant pay more than what the market will bear?

Brokers act as buffers, ensuring that the principals are both satisfied at the end of the transaction. Every tenant should have a good relationship with their landlord. But sometimes tempers flare and egos get bruised during negotiations. Everybody wants to believe that cooler heads will prevail and that everyone will be reasonable. But that’s why the lease is in place to begin with…

You’re probably missing something that will more than offset the broker’s fee. The broker understands some of the nuances that you may miss. Items like the base year, tenant improvement allowances, and free rent may be available to you. The landlord isn’t offering these up, but odds are that they will more than offset the broker’s fee.

Someone is getting paid! You might as well make them earn it! If you used a broker to find that building the first time, he’s going to get paid on the renewal even if he’s not involved. His commission agreement with the landlord says so. You have the right to hire another firm, but either way, someone is getting paid.

Feel free to go it alone with the landlord. But understand that the landlord negotiates a lot more leases than you do. And without expertise and the ability to execute price discovery, chances are the landlord is doing better than you think.