950 W Bannock St., Ste. #530 Boise, ID  |  208.333.7050

“I am going to represent you.”

Lately I have wondered what a client seeking office or industrial space thinks when we say that. “Represent” can mean different things to different people; inevitably a client’s expectation is colored by his or her past experiences. Has the person been represented in a commercial real estate transaction before? What services did the agent provide? How was the relationship with the agent? How smooth was the process? In the end, how did he or she feel?

Real estate agents approach the process of securing a new lease or renewing an existing lease with various mindsets. Their differing priorities and goals affect the amount of time and the level of service they invest in their relationships with clients.

That leaves tenants with an unclear understanding of what they should expect from a commercial real estate broker who says, “I am going to represent you.”

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Here’s an important question you may not have thought to ask: How is my commercial real estate agent getting paid? It applies to agents representing both the landlord and, in our case, the tenant.

I have been in this profession for over 40 years and rarely have I heard a commercial broker or agent give a detailed explanation of how we are compensated, how the fees are calculated, or when we are paid. 

At the same time I am not sure how often if ever we brokers and agents take the time to explain fiduciary obligations to our clients.  Who exactly do we work for?  Are the tenants interested in knowing?  Do the commercial agents want to explain or would they prefer it to be a little mystery?  Maybe keep it a little hazy? Here is a brief primer on the process.

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At Tenant Realty Advisors we work with many local companies that occupy office, industrial and retail spaces.  We also work with sophisticated national corporate occupiers. These corporations tend to have an advantage over smaller companies when it comes to real estate: With their full-time, in-house real estate teams, they bring to the table a consistent, powerful combination of process and predictability.

The best leases capitalize on that process and predictability. There must be a clear and consistent process by which to seek, evaluate and secure real estate, and this process must result in predictable future outcomes as they relate to both the financial and flexibility aspects of a long-term lease.  

Of course, most local companies don’t have the luxury of an in-house real estate team whose full-time job it is to plan for and secure favorable leases. But we here at TRA can bring the sophistication of corporate level representation to hand with our local clients as they approach real estate transactions. 

Here is some of what we have learned from the big nationals.

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Imagine sitting down to negotiate a lease for office space in a new building. Beside you is the real estate agent representing your company. Across the table is the building’ s landlord, accompanied by his or her real estate agent. The catch? The two agents are colleagues — they work for the same firm.

This situation, while common in Boise, could involve a significant conflict of interest. 

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A commercial lease negotiation involves both business terms and legal terms.  A savvy tenant will have both a tenant representative and an attorney negotiating these terms on their behalf. After numerous back and forths, the various items up for negotiation usually end up in some type of compromise that reasonably works for both parties.  But what would you say is often the last, most contentious clause remaining to be negotiated in a deal?  Believe it or not, it is often the language related to signage!  Tenant’s want lots of signage and Landlord’s typically want minimal, if any, signage.  All too often I see signage rights granted at the expense of important financial and flexibility terms in the lease.

We all know that visibility is important to retailers, but office tenants also place a high priority on the availability of visible signage for their new locations.  This can be doubly true for service office tenants such as dentists, insurance agents and financial service firms.  Signs offer numerous benefits to an office tenant, from ease of finding the front door, to creating a brand identity, and even to creating the impression that a building belongs to the tenant with the most prominent sign.  

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Change is hard but, as Bob Dylan lamented, it is inevitable.  Such is the case with tenant improvement allowances.  Free rent, low rates, flexible terms and generous tenant improvement allowances have all been on the table since 2009. But as the market heats up and vacancy rates fall, tenants are finding they are losing leverage and deals are getting more favorable for landlords.  

Free rent, under market rent and short, flexible lease terms have fallen by the wayside in most locations.  One aspect of a deal that has always seemed guaranteed is the tenant improvement allowance.  A new tenant to a building has long been able to count on the landlord paying for most, if not all, of the remodel needed to suit the incoming tenant.  Whether it is carpet and paint, the addition of a few walls or a complete gut job, tenants have enjoyed not having to pay for construction projects.  On a new build out from shell, landlords have traditionally offered generous allowances, usually enough to cover the full build out.  However, times have changed: Vacancy rates have fallen, rents are rising and landlords are looking for the best deals….for them. That means tenants can no longer assume landlords will be anxious to pay for building improvements.

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2016 has kicked off with a bang here in Boise with a variety of larger deals/moves. While most of the absorption consists of existing local tenants expanding and taking more space as opposed to new tenants moving into the area, the net effect has been a decrease in vacancy and a continued upward push on rents in good locations.  

Downtown Boise continues to experience a growth explosion. There are no fewer than five cranes in the air today, which may be a “personal best” for our Downtown. There are three hotels being built and two multi-family apartment or residential condo projects under construction. Three of the five cranes are at work on corporate headquarters for two companies: Simplot (320,000 SF) and Clearwater Analytics (105,000 SF in City Center Plaza). These two tenants will be vacating other office space downtown. 

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