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Tuesday, October 16, 2007

Fargo ND Commercial Real Estate Tips

While the advanced knowledge and techniques made available at this web site are primarily directed at experienced commercial real estate professionals (i.e. brokers,landlords, corporate real estate executives, attorneys, etc.), we recognize that experience is a relative term. As a result, we will not assume that you have a base level of knowledge or expertise.
As landlords and tenants go about the process of negotiating a lease, each of the parties MUST strive to incorporate lease language that will protect them should the other party suddenly exhibit a lack of integrity or the relationship is affected by outside events, such as a fire or other natural disaster. Remember, landlords sell buildings and tenants have changes in personnel. The person across the negotiating table may not be the person you will be dealing with a year down the road.
This is in line with our position that every participant in a commercial real estate leasing transaction needs the FULL toolkit of knowledge and techniques in order to function at maximum effectiveness. No matter your role (i.e. landlord, tenant, broker or attorney), you cannot negotiate effectively unless you know, up front, what will constitute a successful negotiation. This page, and those that follow it, will provide you with specific details about the actual negotiation process.

Leveling The Playing Field in fargo moorhead
Before getting into the meat of the negotiation process, it is important to first acknowledge a few truisms about changes that are occurring in this industry…
- The large brokerage houses no longer exhibit the same control over access to information (i.e. space availability, lease expiration dates etc.) as they have in the past.
- Market knowledge and quality presentation capabilities are now available to everyone, for a price.
- It’s just no longer possible for a broker to merely be a tour guide and effectively compete for a client’s business.
- If you are not familiar with CoStar, their data is now available in many larger metropolitan markets and they are constantly expanding into new markets. Essentially, they provide space availability data for every building in town (i.e. office, industrial and flex space) and the information can be exported to your presentation software along with pictures of the building, floorplans, etc. This is the really powerful stuff that every tenant representation broker dreams of having in his toolkit.

As a result, only brokers who offer true transactional expertise, including in-depth analysis of the lease agreement, will be able to set themselves apart from their peers.

The focus of negotiations in a lease transaction is usually directed toward the issues of base rent and concessions - Let us assure you that there are a host of other important concerns which are often overlooked, misunderstood or under-negotiated, even by sophisticated brokers, tenants and landlords.

Why Transactional Expertise Is Critical
If you are an experienced real estate broker, you have had clients who chose not to engage an attorney to review the lease document! In our experience, 90% of the smaller, regional size tenants either don’t consult an attorney or fail to seek out an attorney with sufficient real estate leasing expertise.
How do we know that? Because they didn’t request prudent modifications to the landlord's Standard Form Lease! Even more disturbing is the fact that in 8 out of 10 cases, a broker represented these same tenants and still, they were offered NO guidance on fundamental issues!
Countless brokers have indicated that they will merely counsel their clients to seek the advice of an attorney. They reject the notion that it is their responsibility to knowledgeably discuss or have expertise in the “other” issues of significance that surround a lease document.
Are these brokers worried about the issue of giving a client legal advice? No! They just don’t enjoy a thorough understanding of the issues and lacking such knowledge, can only suggest that their client seek guidance elsewhere.
Conveniently, brokers are usually required to recommend that clients have an attorney review the lease agreement. Somehow, many have come to feel that this actually relieves them of any obligation or duty to delve more deeply into the business points of the lease. Not So! In today's market place, this is how brokers can offer true value and set themselves apart from their competition!

The Standard Form Lease
If you represent a tenant and the landlord says, "It's our STANDARD lease. Everyone signs it!",


"Standard" does not mean right or fair to the tenant. When you consider the potential negative effect a lease can have on a company's bottom line, this is foolish.
Leases are usually very long, complex and often printed in very small type. For the most part, everyone hates to read them. Big companies, who have their own real estate department, in-house attorneys and multiple business locations, are used to modifying leases to their own standards and landlords are used to negotiating those changes. If your client doesn't fit that profile, you're going to have to do a little work to protect their interests.
- Essentially, a lease is much like a partnership agreement in that it sets out the parameters of a business relationship. When everything goes as planned, most any lease will serve the parties well but the true test occurs when there are hiccups in the relationship.
- If the lease has not been carefully drafted, a hiccup can become a major problem for one or the other of the parties. Tenants often lose sight of the fact that the "Standard Form Lease" represents the landlord's wish list and if not appropriately modified, may not serve their interests when issues arise. On the other hand, a sophisticated tenant will often request changes to the lease that, if not fully understood, can cause unforeseen difficulties for the landlord as well.