by Jake Wilkinson, NAI Partners.
Top 6 Reasons to Use a Broker for your Commercial Real Estate Transactions
Recently it seems like every time you turn on the television or read a newspaper you hear about another Houston company downsizing and laying off workers. Companies are always trying to figure out ways to cut costs and increase their bottom line, especially in uncertain economic times. Commercial Real Estate can be a substantial investment for businesses in transition that can easily be managed if handled the correct way. We’ve pulled together some ways that you can be sure your company is getting the best deal the current market is offering. Since the most effective way to protect yourself and your commercial real estate investments is to retain an experienced and knowledgeable commercial real estate broker, we wanted to share some of the reasons why:
1. Market uncertainty and inconsistency
Due to the uncertainty in today’s market, now more than ever, there is a growing disconnect in where most think rental rates/sales prices should be and what the rates/prices actually are. As most people who are familiar with the Greater Houston Market know, this is being driven in large part by the downturn in the oil market. Over the past two years there has been a substantial decrease in the price of oil and as we know a large portion of our economy is driven and effected directly by the oil market. This would lead one to believe that quoted rental rates and sales prices should have decreased significantly compared to those seen in 2014, when oil prices were at an all time high. If you take a deeper look at the market, there are multiple factors and effects that contradict this assumption. For instance, if you take a snapshot of the industrial market as a whole, there really hasn’t been a noticeable overall change in pricing. To someone without representation this causes a problem, but a broker who is engaged in the market on a daily basis knows which landlords are willing to negotiate rates and give more concessions and which sellers are needing to get rid of a property while the economy is fluctuating. Each day landlords and sellers are getting more and more aggressive in order to negotiate a transaction, they aren’t however always openly marketing their willingness to get a deal done. A broker who knows the market will be able to provide you with recent comps and market trends in order to guide you towards these deals.
2. Leverage relationships
One of the major benefits to working with a broker, is the relationships and market insight that a broker can offer, chances are your broker has some sort of relationship or has dealt with the landlord/seller and/or the listing broker in the past. Landlords and sellers are going to be much more willing to negotiate with someone they know and trust and who has built a good reputation. On the other hand, Landlords and sellers automatically assume an unbrokered company is inexperienced and less knowledgeable of the market, which may result in them being far less willing to negotiate and give concessions.
3. They know the business
Doing a little homework on different brokerage firms will ensure you’re getting the help you need. Even though finding available property has been made easier with the use of the internet, it’s still important to have someone in your corner who knows the industry, market, and commercial real estate business. The intricacies of a deal, differentiate a bad deal from a great deal. What percent can you expect to cap your yearly operating expenses? What’s an expense stop? How do you know if you’re being charged the correct amount on your year-end expense reconciliation? What are your responsibilities for the HVAC and MEP systems should they need repair? In addition to these questions, it’s important to have someone on your side who understands the hidden business terms in the commercial real estate language, which are often written to benefit only one side of the transaction. Having a trusted advocate on your side through your commercial real estate journey will give you piece of mind and the assurance that your decisions are sound for the future of your company.
4. Save Money
A broker can advise of options available to you that you may have otherwise not know about and offer counsel on money-saving methods. Often times there are ways to negotiate better pricing, extend current leases, or negotiate terms. Maybe your lease isn’t expiring anytime soon, but you know you won’t be looking to lease a new facility and plan to renew when your lease is up… you may think you have limited options and leverage. However, if you are working with the right broker, there may be options you are unaware of. Many times, your broker can find ways of renegotiating your current lease. While not every landlord will consider this, a knowledgeable broker will be able to advise you and determine when landlords would much rather extend your lease and give you some kind of break on your rental rates, rather than potentially have to backfill a vacancy. Keeping a tenant around longer means more money for the landlord in the long-run. If you know you’re going to be leasing a facility for the foreseeable future, you may be able to lock in the current rates or even get them reduced now, before the market increases again.
5. You’re paying for a broker whether you have one on your team or not!
Many companies automatically assume that a broker’s fee will be added onto their rental rate, that if they don’t use a broker, the landlord or seller will just reduce that fee from the price. More often than not, this is not the case. The fee that would have been paid to that company’s broker will usually just be given as a bonus to the landlord’s/seller’s broker. If a seller/landlord does try to add to the price due to your retention of a broker, a good broker will not only negotiate ways to save you that amount AND MORE in other parts of the transaction, but will save you time and focus that should be on building your business.
6. Firm Resources
There is no sole indicator that will accurately predict the future of the commercial real estate market. Many factors go into determining projections and analyzing the current market, which is why top brokerage invest in data analysts, research, marketing, and knowledgeable staff members. When you retain representation you also benefit from the knowledge and resources that support them.
There are many reasons to use a broker in your commercial real estate transactions, but the most important is that it is a broker’s responsibility to advise, contribute and help you achieve your overall business goals.