I received a call yesterday from a friend who was putting together budget numbers to roll-out his young tech business.  Although he’s been doing ground work for his company for a few years, Todd was nearing the point of rolling-out his company and executing on his business plan. Todd asked for my help in developing numbers for everything from office rent, voice & data infrastructure, right through monthly rent for water coolers and coffee service.

Todd’s call echoed the handful of calls that I receive each year from entrepreneurs for similar help.  It got me thinking about my greater role as a professional service provider and the responsibility it entails.  Specifically, I’m a commercial real estate broker.  But from a greater perspective, I’m an advisor, a coach, and a cheerleader to my clients; a responsibility that a person in my position cannot to take to lightly.

CARMEN’s typical customer, if there is one, is a privately held small to medium sized business.  Often times, these are young and rapidly growing companies’ resources are already stretched and can ill afford to reallocate its staff to duties they’re unqualified to perform. In many ways, I’m well suited to advise these businesses in the respect that “I’ve been there and done that”.  I’ve been a self employed business owner since starting my tenant representation firm, Indianapolis based Carmen Commercial Real Estate Services, in 1993.  My firm, which helps businesses to locate suitable office and industrial space, negotiate leases, set-up facilities and manage facility leases, has served many types and size organizations.

A few weeks ago, I received a call from Bruce Kidd, a Director at the Indiana Economic Development Corporation. Bruce asked me to consider writing an article for an economic development magazine IEDC publishes each year called INBiz. The purpose of the article is to provide businesses managers with useful information to set-up a facility and to manage their facility leases.  I’m grateful to Bruce and the IEDC for giving me an opportunity to put on paper much of the knowledge I’ve been passing on to growing young businesses for years.  I’ll keep you posted on my progress and when to expect INBiz to be published.

As a follow-up to last week’s post regarding the merger of Jones Lang LaSalle with the Staubach Company, the appeal of exclusive tenant representation is that a client needing space is assured that the advisor is focused strictly upon meeting their needs. In exclusive "boutique" tenant representation firms, such as Carmen Commercial Real Estate Services, there are no conflicts of interest that arise when a real estate company offers leasing and management services. The practice of representing both Tenants and Landlords undermines any promise made to serve the tenant.

Exclusive tenant representation professionals understand fully the regional and local leasing trends because the very nature of their practice keeps them active and alert to the deals and relocations that define the space market. They are not saddled with the burden of serving on several full-service teams or helping a landlord market his building.

Finally, one last thought on Tenant Representation:  the most successful business relocations are rooted in tenant representation relationships that function as partnerships, not merely "agreements." With a single, dedicated focus and by not representing landlords, exclusive tenant representation firms offer the best opportunity for a company to secure the most productive and beneficial occupancy solution and lease negotiation.

After a long hiatus, I’m once again posting to my blog. This month, two of the most prominent commercial real estate companies, Jones Lang LaSalle and Staubach Company, merged.  This merger itself is not unusual, as it seems to follow the trend in the commercial real estate industry of consolidation to take advantage of expanded customer bases, expanded services, not to mention the benefit that often accompanies such consolidations, lower operating overhead through the alignment of duplicate services.  What I believe is most notable about the Staubach / Jones Lang LaSalle merger is the obvious differences in the operating models of these firms.  Staubach operated primarily as a tenant-representation firm throughout North America. Jones Lang LaSalle offered an array of "full services" around the world.

Staubach was a tenant representation stalwart that held firm to the idea that the best way to service tenants was to do so without the conflicts caused by managing and listing property.  The “Tenant Only” business model makes a very compelling case, which proved very successful for Staubach.  I too have subscribed to the “Tenant Only” model since forming my firm in 1993, Carmen Commercial Real Estate Services.  Now, as Staubach Company transitions into the larger “full-service” entity, I suspect that many of the clients represented by the firm, and there are many, must be considering what this merger will mean to them.

On one hand, many businesses engage a commercial real estate brokerage firm because of the firm’s principles and operating model.  However, over time relationships are built upon confidence and trust that customers have in the individual commercial brokers that are actually providing the service.  Nevertheless, the underlying principle remains: I’ve convinced businesses to utilize my services because I’m free from the conflicts of interest that accompany full-service brokerage firms. Subsequently, if I’m absorbed into an entity that provides a wide array of services, some of which conflict with the services that I have previously provided to customers, I have to believe that my clients might be justified in having concerns that my firm’s business model no longer reflects, in fact, may contradict the basis by which I was hired to represent them.

When you, as a business owner or manager, hire a commercial real estate broker to represent your business in its search and negotiation for office or warehouse space, the above question: “What do you need” is often the first question you’re asked by the commercial broker.  Needless to say, the question is often received with surprise and perplex.  More often then not, the commercial tenant doesn’t know their needs as it pertains to office space.  Further, the business may have naively hired the broker to help them identify space needs.

During my 23 years of leasing all types of commercial real estate, but specifically Indianapolis office space and Indianapolis warehouse space, as well as representing tenants throughout the US, it is not uncommon that business owners and managers are not aware of their specific needs for commercial space. Additionally, many businesses have hired a broker to help them uncover some important questions about their future office space.  Ironically, commercial real estate brokers, including me, are not equipped to uncover these needs, unless of course, the broker was trained in space planning and design.

When my clients lease Indianapolis office space or warehouse space, unless they have a very clear understanding of their needs, I will recommend their hiring a commercial space planner and / or designer to help with a needs assessment.  In fact, this step has become so important, my firm, CARMEN Commercial Real Estate Services, as a service to its clients, has a project manager and designer on staff to guide clients through a programming process and needs assessment.  Until the business’ needs are identified and clearly defined, I cannot effectively perform my work.

As a further note on this subject, you should beware of the commercial real estate broker that feels compelled to first ask its client:  “What do you need?”  You have to ask yourself if this is a professional that is willing to do all of the ground work that is necessary to understanding your business and its needs.  Or worse, is this broker more focused on getting your business to a closing, as opposed to providing your business with a valuable service.

Visit our project management post.

“Tenant Representation”, as it has become known, is actually a term to describe the Tenant and Buyer Agency, which is the role a real estate broker takes when they act on the behalf of the business or individuals by providing its client with expertise, conducting communication with a seller or landlord and its respective agents, and providing its client with resources not readily available to most businesses.  But most importantly, the Buyer / Tenant Agent acts in the BEST INTEREST of its clients and has a fiduciary responsibility to its clients.

The above concept of representing buyers and / or tenants is in contrast to the role of a Listing Agent, which in theory represents property Sellers and / or Landlords, whereas the agent has the same fiduciary responsibility to its Seller and Landlord clients.

Real estate brokers that specialize in Tenant / Buyer Representation became more common in the mid 1980’s when a growing awareness occurred among buyers of residential and commercial property of the conflicts of interest that exists in real estate brokerage, which is when a broker represents a property owner in its efforts to sell or lease property, while also representing buyers or tenants.  Simply put: How can a real estate broker represent the best interests of a property buyer or tenant, while also representing the best interests of the seller or Landlord.  The answer is obvious, it can’t.

The concept of Buyer / Tenant Representation was further advanced by a few highly visible class action law suits brought against large brokerage companies for breach of fiduciary responsibilities, while representing both sides of real estate transactions. 

Remarkably, the real estate industry’s response to the market’s awareness of the conflict of interest, and the representative legal complaints against brokerage firms, was not to separate its representation groups to prevent such conflicts, but rather, to develop legal documentation that would allow firms to continue with a “business as usual” mentality.   The only solution that seems to solve the issue in the best interest of the customer is separation of business units that represent Buyers and Tenants, from those that represent building owners.  In the purest form, firms would exclusively represent Buyers / Tenants or firms would represent Sellers and Landlords exclusively, which was the model for establishing my firm, Carmen Commercial Real Estate Services, in 1993.

 Other News
The Indianapolis Business Journal reported reported today that vacancy for Indianapois office space located in the suburban market increased by 0.5% during Q3 - 2007 to 18% , whereas, the vacancy in the CBD decreased by 0.2% to 15.5%.  The citywide vacancy for Indianapolis office space increased by a net of 0.2% to 17% overall.  Full Story