I was walking through Times Square and saw that Sunglass Hut has a self-serve machine that lets you buy your sunglasses 24 hours a day, whether the store is open or not.
Intrigued, I asked the manager, Steven, how many sales they’ve made with the machine. He said, “17 pairs have been sold since they installed the kiosk last August.” These are not $15 glasses, they’re expensive and even with a great return policy, who can buy glasses without trying them on first to see how they look and feel? Obviously 17 people can.
Nobody wants to be “sold” anything, so it’s natural to fear and avoid a salesperson if you’re afraid of being duped or think you’ll save money doing it yourself – I get it.
In residential real estate in NYC, I understand that renters do it themselves because they don’t want to pay a broker’s fee. It doesn’t work that way in commercial space and I decided to detail the top six myths of finding office space in NYC. Let’s see if you were aware of the following:
1. The commission is paid by the landlord, not you.
MYTH: Office seekers are either totally unaware of this, equating commercial to residential leasing, or think they’ll use this as leverage when negotiating with a landlord by saving the landlord the cost of the commission.
FACT: The commission is built into the price per square foot. While the landlord might give you a “perceived” concession – you’re missing out on over 20 other negotiating points (see #5), not including “standard” lease terms.
2. Subleasing an office is the most vulnerable position you can be in.
MYTH: I’m getting a great deal because someone has too much space.
FACT: Subtenants get evicted every day because the rent they were paying went into the sublandlord’s pocket and the landlord didn’t get paid. How do you know that the person you’re paying rent to, is actually paying his rent? Using a broker, you can avoid having your business interrupted, being embarrassed in front of customers and having to scramble for somewhere else to move into on very short notice (and losing their security deposit.) How? By having a sublease with terms that keep you in the loop in the case of your sublandlord’s default.
3. Knowledge is power and leverage when negotiating a lease.
MYTH: I don’t need a broker. I found the space myself and I’ll have my attorney review the lease.
FACT: An attorney should review the lease provisions to protect you legally and minimize your financial exposure. Your attorney does not know what the market rates are for the building you’re interested in, the rates on the block, the concessions available from the landlord or other rent-driven data (ask them, they’ll agree.)
Your broker provides the insight to put in the best offer possible and ask for all possible concessions in your best interest.
4. The landlord has their own broker who is going to represent you.
MYTH: If I use the landlord’s broker, I’ll get the best deal since they have the inside scoop and know exactly what to ask for.
FACT: The landlord’s broker’s loyalty is to the landlord and owner. Their job is to rent out the building’s space every day. Will they favor someone they are hired to represent every day or you, who they’re going to represent once in 5 or 10 years? An exclusive tenant rep broker (not affiliated with the landlord or property manager) has a fiduciary duty to represent only your interests.
5. I’m a great negotiator, I always get amazing terms!
MYTH: I saved $3 per square foot, which is lower than anyone else in the building.
FACT: Each building and space is different, as is each landlord/owner. Here’s some of the terms you can negotiate: Lease commencement, base rent, free rent, tenant improvement allowance (and hard/soft costs), escalations, repairs, renewal option, expansion/contraction, sublease/assignment, non-disturbance, cancellation, HVAC, overtime HVAC, electric charges, electric supply, alterations, freight elevators, supervisory fees, restoration, holdover, security deposit and construction. Which ones are you willing to overlook?
6. Renewing my lease is easier/cheaper than moving.
MYTH: It will cost more to find a new office, renovate it, move everyone and all the services and change our address on everything. We’ll just negotiate with the landlord (we’re on really good terms) and save some time/energy/money.
FACT: The landlord is counting on your inertia, that you won’t move because of the inconvenience. A broker will renegotiate your lease and the landlord will pay the broker. What can the broker negotiate? Lower rent, restarting your escalations, new tenant improvement allowance to refresh your offices (carpet, paint, etc.), restart your real estate tax prorations and even free rent.
HINT: You must start the process at least one year in advance of your renewal date, sometimes two years (depending on the size of the space.) If there’s less than six months to your renewal, the chances of you moving are small and the landlord is less willing to give you concessions.
So there you have it. The inside scoop of what using a broker gives you versus doing it yourself. Can you do it yourself? Certainly, but your results may not be what you expected.