Thursday, July 2, 2009

Commercial Retail Tenants Poorly Represented

It's a sad fact of the commercial real estate world that small retail users of space and for that matter also small office space users don't get good representation or they get none at all. Economics play a big factor in this. If a business owner needs 1,000 square feet of retail space for a new venture and he wants to have a 2 year lease at a rate of $1.50 per month, the compensation for the work is too small for the effort. A commercial leasing agent is looking at gross commissions in the range of $1,000-$2,000. Yes, that is not small potatoes. And yet, when compared to the work of finding the space (think no MLS, lots of sign calls, hitting commercial marketing meetings), setting up appointments to show the space (few small spaces with lockboxes, setting up appointments with landlord reps), a month of lease negotiation, attorney review time, city approval (heaven forbid a conditional use permit process), touring of architects and contractors, and then dealing with huge costs of starting up a business - that may dissuade the hopeful retail operator from actually signing the lease... I could go on and on... Many leasing agents don't see the economic benefit of allocating the time and effort. The realty then tends to be budding business entrepreneurs driving themselves around and calling on signs in the areas they think they should be. Many times not considering other areas that very well may support their business model better. Then calling landlord reps directly - who of course have their fiduciary duty to their main client - the landlord. The prospective tenant then signs whatever lease proposal hits the table. It's not equitable by any means. Solutions are grim - the best would be to hire a leasing agent - not by the commissions expected on a landlord sided fee offering - on a flat fee agreement sufficient enough to warrant the work. Few bootstrap business people want to fork out that kind of fee. OK - that's my gripe for the day - based on a commercial tenant who called me yesterday finally realizing the gravity of the lease document they signed years ago.

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