Guest contributor Woody Coley is back with his perspective on advancements in brokerage.
Brokerage, be it residential or commercial, has occasionally been referenced irreverently as the world’s second oldest profession. Since the beginning of time, the client/broker experiences have been bittersweet. The client says, “Could I have done this by myself?” and the broker says, “The client was so indecisive that my time and experience was under-rewarded.” If the client cannot brag at the neighbor’s cocktail party about incredulous rental concessions extracted from the landlord or a turnkey build-out, then the broker’s results are generally considered pedestrian. If the client did not choose the first building toured, then the client is referenced as tedious.
Peel back the onion and the opportunity for brokers to guide a tenant thought the real estate selection process is far broader than tours, rent negotiations, and tenant improvement allowances. There was a day when those with less than dean’s list grades headed off to obtain a real estate license. Today, the best brokers have had years in diverse roles that may include development, institutional management, leasing, and asset underwriting. Let’s compare the difference between the old school broker (OSB) and today’s professional corporate advisor (PCA).
The difference between OSBs and PCAs
OSBs spend more time negotiating their fee with the landlord that time spent on your lease. In the first meeting with the client, they attempt to rapidly quantify the square footage of the client, push to an approved RFP, and get into the market touring space, and trading on rents. Speed to lease execution drives their profitability, so they tend to rush everything. They do not attend meetings with architects, they lean heavily on the lawyer to outline elements of the lease needing attention, and they are rarely on site the day the tenant actually relocated. If you are lucky, you get a spreadsheet showing how the deal terms were modified during the lease negotiations.
Peel back the onion and the opportunity for brokers to guide a tenant thought the real estate selection process is far broader than tours, rent negotiations, and tenant improvement allowances.
The journey with the PCA is far different. The first meeting is about listening, how is the company positioned to be successful, to compete, and what is the vision for the role that real estate should play in its success. That vision may speak to location, to design, to cost metrics, and to employee retention and recruitment. The PCA uses this as a compass for all actions and recommendations.
A team is assembled to fully deliver on the vision. Desired outcomes are defined. The PCA does some feasibility work to confirm that the objectives are reasonable and achievable in the market.
A new emphasis on workplace standards
With a PCA, workplace standards are discussed, with an emphasis on the changing ratios of “we” vs. “me” space. A broad list of properties that may meet the brand, economic, and functional needs are identified and refined before engaging the client for tours. Key business terms are identified based on their relative importance to the client. Commute distances from employee home to alternative locations are evaluated. The operational systems of alternative buildings are compared: HVAC systems, elevator speeds and interval times, ceiling heights, amenities, parking ratios, floor loads, etc. Who are the neighboring tenants? Will they enhance the clients’ brand? All of this happens before a landlord is even sent an RFP. And nothing goes forward without a client review at each step of the process to authorize forward steps.
As information is received from the landlord, the PCA prepares analyses from both the client and the landlord’s perspective. If the landlord realizes how much cash flow they will lose if they do not land the client, they will be more aggressive in their pricing and legal concessions. Project economics include improved efficiencies from new space standards, distinct depreciation for modular office systems vs. constructed interiors, moving expenses, operating expenses, and rents. For CFOs, financial analysis is expressed in EBITDA and EPS impact rather than per square foot. The most sophisticated brokers understand the landlord’s underlying debt structures.
Simply stated, if a professional corporate advisor has excelled, then the client vision is converted into a strategy, data is then converted into knowledge, knowledge into leverage, and leverage into value.
As negotiator, the PCA must understand where the leverage rests in each transaction. In many sub-markets, occupancies are improving, other terms may actually benefit the client than rent concessions. Flexibility on expansion and contraction, signage, reserved parking spaces, caps on operating pass throughs, and speed to market may be just as valuable. In some cases, a recommendation to stay in place can even be more compelling than a relocation if the future terms are refined and further customized to the client’s business status.
In either case, the legal document gets attention from the PCA because the business language in the lease is as important as the legal language. Only a lawyer can modify a lease, but a lawyer can benefit from broker inputs on subtle economic topics like operating expense caps, holdover provisions, property management specifications, and shell vs. tenant improvement definitions.
The PCA does not stop at business terms, they are in meetings with the architect and contractor sharing lessons learned, assisting with value engineering, and ensuring an effective design at costs that do not slip during construction. Even branding ideas are incorporated to allow the rental space to amplify the company vision and image. The PCA is even there on move day to welcome the client, and share in the excitement of a new corporate address.
A good PCA will convert your vision into strategy
When the dust settles, there is a performance measurement discussion: how did the final solution measure up to the vision and client’s objectives? Did the broker organize the process to save the client time, help them make sound decisions, and leverage their tenancy in negotiations? A value added summary and a lease abstract, sharing future critical dates, and expense calculations completes a job well done.
Simply stated, if a professional corporate advisor has excelled, then the client vision is converted into a strategy, data is then converted into knowledge, knowledge into leverage, and leverage into value. At the cocktail party, the client says “my broker led every aspect of our real estate decision process, capturing our vision, then managing architects, lawyers, finance, and IT to deliver a workplace which will make our company more profitable, and our employees happier and more productive.”