What Questions Should I Ask My Commercial Real Estate Agent?
The tenant representation process is often new for most business owners, and the questions you ask your commercial real estate broker can define whether or not your search is successful.
Finding the right commercial broker for you and your business is absolutely crucial to your finding and negotiating the best deal possible.
After all - you want your new venture to be successful, correct?
Unfortunately, many business owners end up taking the wrong approach and try to find and negotiate for space on their own - a big no no in this industry due to the massive learning curve of information.
So, if you’re taking the right approach and hiring representation, what questions should you ask when interviewing potential tenant rep brokers?
Questions You Should Ask Your Broker:
1. What geographic locations do you specialize in?
As a small business owner, you want a tenant representative that knows the neighborhoods you’d like to be in like the back of their hand. If a broker specializes in a geographic area, such as a particular city, town, neighborhood, or corridor, chances are good that they have relationships with other brokers and property owners in the area. Having these connections will help them put any and all potential opportunities in front of you during your search.
2. How long have you been a commercial real estate broker?
Experience matters with every kind of professional service there is - it doesn’t matter whether you’re talking to a commercial real estate agent or a doctor. Knowing that your potential representative has a vast amount of experience in their chosen field is critical to their ability to best negotiate on your behalf. If the broker is new to the industry or hasn’t completed many transactions, that’s sure sign that you shouldn’t be working with them.
3. What kind of businesses do you usually represent?
There are many different types of businesses and each have their own unique set of needs. For example, an accounting firm will have vastly different space needs than a mechanic shop. A broker who focuses on accounting firms may not realize the difference between a roll-up door and a loading dock - both potential space needs for a mechanical tenant. You want to make sure that the commercial broker you’re working with has a vast amount of experience working with similar businesses to yours. Don’t be afraid to ask for references, either!
4. What type of commercial real estate do you specialize in?
Not all commercial real estate is the same. Like I mentioned in the question above regarding business types, real estate types can be very different. You won’t want an industrial broker working to find you office space if you’re an attorney - you’re going to want a broker that specializes in office space. Real estate brokers can also be more boutique, like The Cauble Group, which services office, retail, and industrial properties within a specific neighborhood or neighborhoods. If a broker specializes in one product type, like retail, they could focus on multiple different market locations.
5. Can you provide references from other businesses you’ve represented?
This question is one of my favorites. If a broker is unwilling to provide at least three references, you should take that as a red flag. However, this hurdle should be easy for them to jump over. Speaking with previous clients will give you a good idea of how their search went and how that agent was able to go to bat for them and their business.
6. Where is the market right now for tenant improvement allowances and rent abatement?
When working with a tenant rep broker, you want to be sure that they are well-versed on the current state of the market and what landlords are currently offering to attract new deals to their buildings. Tenant improvement allowances, which help a new business build out the interior of the space they’re leasing, and rent abatement, which gives the new business a period of time to occupy the space before rent payments begin, are one of the primary negotiation points during lease negotiations. Your broker must be an expert on the market and know how to get you the best deal.
7. How long will this search take?
This question is often overlooked and never asked, but you absolutely must ask it. Knowing how long a search should take will help set expectations for both you and your broker. If you don’t know that it typically takes 6 months to find the exact type of space you need in your market, you could get frustrated and decide to no longer work with a perfectly good agent. You should also ask for a timeline from your broker as to when you should expect to see a first round of sites, tours, etc.
8. What do you charge for your services?
Most tenant rep services are not charged to the tenant they are representing. Much like residential real estate where you didn’t pay your agent to help you find a home, you won’t (or shouldn’t) be responsible for paying your representative. All the more reason to have one! The landlord is responsible for paying any fees associated with your broker’s service, which encourages them to help you find the right space as quickly as possible since they don’t get paid until the deal is done. There are some services a commercial broker may provide that they would charge you for, such as a one-off lease review or market research, but it’s not too common.
9. Is leasing or purchasing a better move for my business at the moment?
Not every business should be leasing space. And not every business should be buying space, either! However, depending on your current market situation, a broker could show you how purchasing a building could be far more affordable and beneficial to you in the long-run. If you can get a good deal on leasing, though, it’s certainly worth holding the cash you would’ve used as a down payment close to your chest so you can pour fuel on the fire that is your business.
10. Where do you see the market going right now?
Stretching your business’ financial capabilities and signing a lease that would overextend the company would be a very poor decision if we’re headed into a recession. However, your market could be much more tenant-friendly, which means that you’ll have more leverage as you go to bat against landlords during negotiations. Either way, knowing where the market stands before starting your search will help you understand why or why not landlords are willing to enter a little give-and-take.
11. How long of a lease term should I expect?
The standards for length of a lease term can vary in every market. Sometimes in a down market, landlords want longer terms to be sure that they won’t have to release the space again anytime soon. Depending on your business type and how much money you’ll need to invest in the space, you may want a longer term. However, if you’re unsure of your concept or how your needs could change, you may want to consider a coworking space or a shorter-term lease.
12. What happens if I break a lease?
You may want to get your business up and going now, but what happens if we see a major downturn in the economy or if your business model shifts? You’ll either outgrow, downsize, or shut down altogether - but you’re still committed to a legally binding agreement. Your representative can walk you through different ways of mitigating this risk, such as subleasing, lease buyouts, etc.
13. What do I need to prepare before we start the search?
Before you even begin looking for space, there are several items you should have on-hand so that you may move quickly if you find yourself competing for a particular space. These documents could include a business plan, marketing and branding materials, tax returns, profit & loss statements, balance sheets, credit reports, and more. Anything you can give your broker will help them better pitch you and your business to a prospective landlord.
About The Author:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors as a board member for the Real Estate Investors of Nashville. Learn more at www.TylerCauble.com