November 28, 2020  
 
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Dealing with Commercial Real Estate Brokers

Written by Brent Pace for Gaebler Ventures

Entrepreneurs leasing their first real estate space can use the help of expert brokers. Commercial real estate brokers know the market well, and can provide advice to make sure you get the best deal. This article explains how to pick the right broker for the job.

Choosing a real estate broker to help you with your office and retail space needs shouldn't be too difficult a process.
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But for an entrepreneur who is leasing his first space, or entering a new market, it can be hard to know which broker to use and what it's like to use a commercial real estate broker. In this column we'll discuss a few things to think about as you select and work with a commercial real estate broker.

Locating A Brokerage Firm

If you are looking for space in the United States, there are a few huge national brokerage firms that will be wherever you are. These include CB Richard Ellis, Cushman & Wakefield, Grubb & Ellis, and Coldwell Banker Commercial (among others). There are also many respected local brokerages working in markets specific to you. For instance, the San Francisco Bay Area has Cornish & Carey Commercial which operates as a local firm but has a large presence in the market.

Finding A Broker / Size Fit

One of the key components of picking the actual broker you want to work with deals with project size. Some brokers specialize in large deals (25,000 square feet or more), and won't be motivated to work with you. If you are looking for a small space (5,000 square feet or less) you will probably want to work with a junior broker who specializes in small spaces. That way your space is a meaningful piece of his or her work and you can motivate them to get it done.

Broker Compensation

Don't worry about the hiring process. As a tenant looking for space, the broker will cost you nothing. Your future Landlord pays the bill to the broker as a service for bringing you to their building. So relax and enjoy this service.

You should be aware, however that the broker is paid based on the value of your lease. That's right, the bigger and more expensive your lease is the more your broker gets paid. Typically the pay is 5% of the net value of your lease (meaning operating expenses are excluded). This means you should pay close attention to make sure your broker doesn't negotiate you into a space that is too large or too expensive for your needs.

You should also be aware that the cost of the broker is paid for in the value of your lease. In other words, you don't pay for the broker but you do. The value of your lease over the next three years will compensate the Landlord for the commission he paid to your broker.

Both Sides Are Represented

Your Landlord will also be represented with a broker, many times the leasing agent for the Landlord is a licensed broker and will negotiate on the Landlord's behalf. Either way, just know that the two people conducting the main part of the negotiation will probably both step aside as the lease is signed.

Stay Involved

As negotiations continue, stay actively involved in the process. The broker usually receives his commission 50% at lease signing and 50% when you move into the space. A saying in the industry is that your broker will disappear before the ink dries. So make sure you are happy with what gets signed because the time from signing until when you move in you will be on your own.

Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.

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Negotiating a Lease for your Business


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