(Part 1 of a 3 part post)

I read an article today from the Arizona Republic entitled “Citadelle Plaza Makes a Comeback”.  It’s a good story about a newer upscale shopping center in Glendale getting new owners and new energy following a bankruptcy filing in 2008.  A likely victim of the housing and lending crashes.

As I read the article, I started thinking about things I would want to achieve and to protect a client  from if I were representing someone interested in opening a retail shop or renting office space.  In particular, renting space in today’s market, at a good project that’s been troubled, but that appears to be on the rebound.  The latter is  a situation I’m intimately familiar with after managing a couple of struggling and recovering specialty shopping centers in 80’s and 90’s.

First, and most importantly to get the best deal possible, is to have your own experienced, independent representation.  And guess what it’s FREE!  That’s right, the property owner will pay your agent to represent you!  So why doesn’t everyone do that?

Perhaps they think it’s like renting an apartment from a simple two page “standard” lease.  How hard could it be, right?  Others are conditioned to “deal direct” because they’ll save money.  Seems logical that negotiating your own deal directly with the owner or the owner’s agent might land a sweeter deal.

In reality, most landlords aren’t saving money dealing with you direct and therefore aren’t going to pass on any savings.  Plus saving you money isn’t really going to be one of your landlord’s priorities.

Landlords typically have their property listed with a real estate company or are paying someone in-house to do their leasing.  If a listing agreement is in place, then the landlord generally has to pay the listing agent no matter who does the deal.  If there’s someone leasing in-house, then they too are being paid either by salary or commission or a combination of both.

Leases, particularly in shopping centers, are complicated triple-net contracts.  (More on triple-net later).  Unless you’ve managed shopping centers in a past life and understand these forms, then signing one on your own is likely to be an expensive and painful experience.  Doesn’t free competent representation sound pretty good?

What about using the landlord’s agent to represent you?  Let’s say while driving around, you saw a “for lease” sign at a property and called on it yourself.  It happens thousands of times a day.  The extremely nice agent, working for the landlord tells you that he/she will be happy to represent you in getting a lease and you agree.  Do you still think you’ll get the best deal?  In many states this is perfectly legal as long as the arrangement is properly disclosed.  In some states however it’s illegal because there’s a conflict of interest.

Here’s one example why you won’t likely get the best deal.  The landlord tells his agent, (and now your agent), that he’ll give a new tenant 6 months free rent to sign a lease, “but don’t advertise it”.  This agent cannot ethically tell you that you can get 6 months free rent.  Sort of a don’t ask don’t tell situation. On the other hand, your own independent agent with good market knowledge probably knows that every landlord in town will offer you free rent.  A good and knowledgeable neutral agent would automatically be asking for free rent along with any other known market concessions out there.

The list of don’t ask don’t tell secrets is often times big.  New tenants will inevitably end up having left thousands of dollars on the negotiating table using the landlord’s agent or negotiating on their own behalf.

A prospective tenant can avoid this serious pitfall by finding someone you trust in advance of calling on a “for lease” sign yourself.  I encourage you to call on your own if you see a property you’re interested in, but tell the agent up front that you’re represented by another agent.  Then find an agent with strong local, commercial market understanding and expertise in the type of property you’re after.  Interview the agent just like you would if you were to hire someone to work for you.  That is exactly what you’re doing.

Poor representation is probably the biggest lion waiting in the grass.

In my next post we’ll discuss how to avoid more lions when leasing commercial real estate.

To your prosperous business.  Cheers!

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