Tenant Representation: Pure vs. Mixed
During the past ten years, corporate real estate departments have downsized. The deal process has become more complex. With limited staff, time constraints, rapidly changing technology, and limited knowledge of various geographic areas all of the suitable and available properties cannot be thoroughly investigated and vetted.
The answer to this problem for corporations and their real estate departments was to outsource the project of site selection, analysis, and negotiation to knowledgeable commercial real estate firms — tenant representation.
“Being in the corporate real estate departments of major branded retailers and senior management positions for over 30 years I have come across two different types of tenant representation,” states Ted Pfeifer, Vice President of Retail for Landmark Commercial Realty Inc. “There are pure tenant reps (like me), and then there are mixed tenant reps – usually in large commercial firms.”
Mixed Tenant Representative Brokers
Large firms typically have many agents who serve as mixed tenant representatives. They represent retail and shopping center developers as well as owners who list properties to lease or sell; they act as an unpaid satellite real estate department for their clients. Unfortunately, they do not take into account the number of clients who may compete with one another.
Pure Tenant Representative Brokers
Pure tenant representative brokers, provide exclusivity and loyalty to the client. Unlike mixed tenant representative brokerage firms, the pure tenant representative (individual) and the firm do not represent conflicting interests or competition of similar companies.
Pfeifer indicates that a “pure” tenant rep is usually an independent broker or an agent within a brokerage firm, whose sole business is tenant representation. This “pure“ situation is the one Pfeifer has practiced for many years. “In a ‘mixed’ situation,” Pfeifer says, “the term of a Chinese Wall is often used – as it is difficult to establish and maintain. If a brokerage firm has a plethora of retail clients in the same use area, the wall is not an adequate barrier.”
What do pure tenant representative brokers provide?
- Market analysis –locating where the client should and should not be, starting with a search based on client preferences
- Competition and cannibalization studies
- A detailed list of all possible locations and their characteristics including properties listed by other brokerage firms, those not publicly on the market but are still available and targeted site inquiries
- Preliminary costs of the properties, by sale or lease
- A comprehensive cost breakdown of all costs and brokerage fees that will be paid by the respective parties of any transaction, and the brokerage fee being charged to the seller/ lessor by the tenant representative broker (*tenant representative brokerage fees are typically paid by the seller or lessor, not by the client)
If structured well, Pfeifer believes these two types of tenant representation can work for commercial clients, but the expectations and rules should be clearly defined in writing.
Pfeifer also suggests that before a client selects a tenant rep broker, they should submit a questionnaire to that prospective broker. He believes clients should be informed (in writing) when using any tenant representative. It is important that you have answers to many questions before moving forward.
- Do I have the loyalty and confidentially of my tenant representative?
- If a large brokerage firm represents similar companies, either by use or land size requirements, am I at the top of the list when it comes to site selections? Or do they have larger clients, with more units, who take priority?
- Am I seeing ALL the site possibilities, not just the firm’s listed properties or sites connected to their preferred owners or developers?
- Am I being steered to properties more beneficial to the brokerage’s firm, due to favored fees or business relationships with shopping center owners and/or developers?
- Does the tenant representative or their firm have any ownership interest in the suggested properties presented?
Ted Pfeifer provides consultation and services to retail and/or business considering the South Central Pennsylvania region. If you would like to discuss your project in more detail, please give him a call.