Why EVERY Business Owner Needs Tenant Representation
Why EVERY Business Owner Needs Tenant Representation
The process of finding a physical space for your business is an exciting step, but it comes with a lot of cost and headaches.
As a business or nonprofit owner, you know how important the physical manifestation of your business is, but it can be extremely daunting to feel out of your depth in regards to how much or what kind of space you need, the best location to maximize your experience and profit, and what you should pay in rent. With every large need there exists an industry set out to meet that need - typically at a price.
Tenant representation firms use industry experience, proven methods, and tested landlord connections to make finding a bespoke physical space for your business as simple, easy, and affordable as possible; and the beauty of using a tenant rep is that, as you’ll find out, the tenant typically pays them nothing.
This commercial real estate tenant representation guide will show you exactly what tenant representation is, why you need it, and how to choose the best tenant rep broker.
What is Tenant Representation
The act of tenant representation is an agreement between a tenant representation firm and someone looking for commercial real estate space to occupy for a certain period of time, typically a business owner, restaurant, or nonprofit who needs a physical space to run their business out of.
The job of the tenant rep is to get the business owner the best space possible for their specific needs while negotiating with the landlord on things like what monthly rent is going to be, who is responsible for utilities, and whether the landlord will improve the space prior to the tenant moving in (tenant improvement allowances).
In addition to site selection, a tenant rep may offer project management for the build out of their clients’ space, insight into what has worked for similar businesses, and analysis and projections for various parts of town. You can think of the tenant rep in the commercial real estate space as a buyer’s agent in the residential space, with a few more responsibilities.
Why Use a Tenant Rep
If you’ve ever bought a house, you know how complicated it can be to find a space on your own through something like Zillow or Redfin. To complicate the matter, commercial real estate leases run the gambit of flavors and embedded stipulations, a few of which are: traditional lease structures, short-term / pop-ups, specialty leasing, ground lease, purchase and build-to-suit. Adding to that contract clauses like tenant improvement agreements, terms of the lease, renewal rates, and you discover the lease process is not built for DIY’ers.
Employing a tenant representation firm gives you access in your search to the tenant rep’s own listings, premier databases of best locations, industry relationships, and even off-market opportunities. This means you don’t have to worry about whether you’re taking all opportunities into consideration. Now how do you know how much or what type of space you need?
They can give you a better idea of how much and what kind of space best suits you by doing a need assessment and balancing that with what they know about the market you are in.
That means you can give them what you’re looking for in vague terms and they can translate that to actual requirements. A tenant rep will translate your desire for “ a space where our team can collaborate and our young clients feel welcome” to an open floor plan space with common areas that maximize employee interaction and an embellished and inviting entranceway with dedicated parking in a trendy, high growth area.
The best tenant reps will even temper your goals to help save you some money.
Having your best interests in mind: The best part is it’s typically the landlord, not the tenant that pays for the tenant rep fee; and this makes sense - a month of vacancy can often cost more than the tenant rep fee to a landlord.
What’s the Timeline for Working with a Tenant Rep
A prospective tenant will typically contract a tenant rep for 3-12 months, similar to a residential purchase agreement. Throughout that time, the tenant rep will determine the client’s needs, research and survey potential spaces, narrow down to the top few, request proposals, and negotiate rent terms with potential landlords.
The agreement the tenant rep and client will sign to work together will looks something like this example, and will be a binding contract for the two parties to work exclusively together during that period.
Throughout this time, the tenant rep will spend time and money finding the ideal space, but the tenant rep does not get paid until the client is in their new space with a signed lease they are happy with.
At the end of the contract period, if the client has not found the perfect space, the contract will end with the option to reinitiate. If before then the client has decided on a great location, the tenant rep will draft the letter of intent, determine and approve tenant improvement allowances, potentially manage the build out of the new space, and coordinate all of the administrative proceedings that need to occur to move in.
How to Hire and Interview a Tenant Rep
It is worth reiterating that the tenant rep does not get paid until the client has signed a lease, or LOI. That doesn’t mean there aren’t intangible costs for a business owner to an unsuccessful search. That’s why we recommend going with someone who:
has their own listings available, so they can readily show you what’s available with detailed insight into how the property might work for you.
has the right relationships with prospective landlords in the area and deep knowledge of what parts of the city are set for expansion in regards to the opportunity to reach your targeted demographic
has experience negotiating on tenants’ behalf with experience as to what a standard lease should look like for their needs. Allowing an expert to assure you the best rent, tenant improvement allowances, and terms frees up time to focus on the business.
Now to get an idea of whether they’re a good fit before you hire them, always ask the prospective tenant rep these three questions:
Do they have experience making trustworthy and reputable deals in the past?
Do they specialize in my industry (office, retail, industrial, etc.)?
What services do you offer in addition to site selection?
What To Keep in Mind after the Deal is closed
By this point, you will hopefully have a good relationship with your tenant representation firm and be happily in your new space. You can still lean on your tenant rep for questions about things like stipulations in your lease agreement, but the real value add (if you picked the right tenant rep) is maintaining that relationship so that when you’re ready to upgrade your space or expand your footprint, you have a trusted contact with a focus on your best interests.
If you are looking for the next step and physical location for your business, check out these listings or see a full guide to Nashville’s best commercial real estate brokerages.
At the end of the day, going with a tenant rep could be the difference between paying what a broker is asking for rent, and what they would actually be willing to accept. With something as important as where your business resides, trusting an expert just makes sense.