Successfully Negotiating the Commercial Real Estate Lease

This is my second article where I give insight into the world of a California commercial real estate broker. A commercial real estate broker leases/buys/sells commercial real estate (“CRE”) for you, the client (tenant/buyer/seller) of CRE space generally defined as office, retail and industrial.

As reminder from last time, there are four main things a good CRE broker does. They: find suitable locations, negotiate the offer, negotiate the lease itself (the many clauses), and are there when the client needs help thereafter with matters like construction, moving, future landlord disputes, terminating a lease early, etc.  The first article I wrote was about finding locations and this one will discuss negotiating the deal.

What makes a broker a good negotiator?  Knowledge and experience are the primary factors.  Most brokers simply don’t have successful negotiating experience and don’t know how to get the information they need to make the deal better for their clients.  They may have negotiated hundreds of deals, but if they didn’t do it correctly then they never learned the art of successful negotiation.  Too many brokers simply want to make a quick commission and move on to the next deal. This is especially true of those that have a quota to meet because they work for a large brokerage. An example of a negotiation I have done will explain this best.

On one large lease deal of about 50,000 sf I was hired to co-represent a tenant along with another broker they had already hired.  They did this primarily because they didn’t have full confidence in the other broker.  After I was hired, I saved over one million dollars and made about 80 lease changes in my client’s favor that were accepted by the landlord.  Why was I able to do this when the other broker wasn’t (even though this broker has been in business a long time)?  Because I had negotiated against this landlord before and knew where his bottom line was for the economics and lease clauses.  I had also worked hard at gathering information from other sources about the landlord. I gathered information about other deals he had made for both the economics and lease clause changes he had given to other tenants.  Finally, I postured that my client might relocate to another project if the landlord wasn’t fair. I went so far as to actually show my client other buildings to lease and/or even buy. This really worked to put some fear into the landlord and cause him to make my client a very good deal.

The size of the deal doesn’t matter and it works for both large and small deals.  Picking the right broker is the key to getting your best deal. You can never do as good, or even come close, if you try and negotiate the deal without a good broker.

Next time we will discuss successfully negotiating the clauses of the lease and what goes into that.  Most brokers and even attorneys don’t usually do this right; find out why.

If you have questions about any of the above topics or have any CRE needs please contact David Massie at david@djmcre.com or 805-217-0791.

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