Commercial Tenant's & Buyer's Bulletin:

April 17, 2009 – Things are looking bad for Landlords with Colorado commercial real estate!   We know this because we are receiving a barrage of broker incentives and “perks” notices.  Here are a few examples of recent announcements received via email:

•  “Brokers, earn an extra $1.00/RSF for any leases signed by May 31, 2009 at the …… Building.”
•  “Brokers, earn a 40” Flat-Screen Plasma TV for any leases executed at the …… Building through June 30, 2009.”
• “Brokers, earn a Free $50.00 Gift Card for attending the Broker Open House at the ……. Building this Friday.   Free lunch will be provided.”
• “Brokers, earn a $1,000 Gift Card of your choice, plus commissions, for any lease signed at the …….. Building by July 31, 2009."

These sorts of incentives – offered to commercial realtors representing office Tenants – generally disappear when the economy strengthens and office vacancy rates dip. The incentives reappear as the economy weakens, office vacancy rates climb and Landlords suffer from significant vacancies. The incentives are typically offered by Landlords at buildings with especially high vacancy rates or special circumstance such as a Landlord wishing to move out of expensive construction financing into longer term financing.

All of these incentives have costs that can negatively impact Tenants.  

As an example, on a 4,000 RSF lease with a five-year lease term, an extra $1.00/RSF commission paid to a Tenant’s broker will cost the Landlord an additional $20,000 above a more typical Tenant’s broker commission.  This money has to come from somewhere and it’s probably going to result in higher lease rates, less free rent or less Tenant Improvement, or TI Allowance provided to the Tenant to build out the space.  The positive side is that these are clear signs that a Landlord is ready to deal!

It’s hard to say how effective these incentives are in encouraging brokers representing commercial Tenants to push a particular building – that offers these incentives – over other viable options in the market.  It is our hope that ethical brokers upholding their fiduciary responsibilities to commercial Tenant clients would not be swayed.   However, these above-market incentives are not uncommon and it makes one wonder why Landlords would offer them if they were ineffective. 

At Guidance, we disclose all such special above-market incentives to our clients – and, in fact – refuse to accept
such inducements.  Instead, we transfer any financial benefit directly to our clients, ususally as free rent.  We believe this is the only ethical and professional approach.

Be sure you benefit from Landlord perks!

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