IntelligentCRE

“If you’ve been playing poker for half an hour and you don’t know who the patsy at the table is—you are the patsy” – Warren Buffett.

I was recently engaged by a local (Minneapolis) company to extract additional saving from a lease proposal in which my client (the tenant) had negotiated as far as he could. The landlord said it was his best and final offer, take it or leave it. My client happened to be a former real estate attorney at one of the area’s larger law firms, and had a backup plan: a professional tenant representative waiting in the wings.

After getting the landlord to agree to significant improvements beyond his “best and final”, my client provided this colorful quote: “You can know your way around a lease, where all of the commas and parenthesis go, but without a competitive building and leverage, the landlord will tell you that he is taking you seriously, but he really isn’t. I am pissed-off with a smile on my face. The landlord would have screwed me back in November. And you earned the same fee had you represented us from the beginning” – Client Company General Counsel and Former Real Estate Attorney.

It is conventional that a tenant representative be engaged from the beginning, before commencement of negotiations, and for the landlord to compensate the tenant representative (“procuring broker” in lingo) a market commission. Instead, being the shrewd businessman-attorney that he is, my client opted to engage tenant representation after negotiating what he thought he could achieve. The landlord was baffled when I informed him that I was representing the tenant. “There is no commission in this for you, and your client has already negotiated a tight lease” he barked. But I am no patsy, nor is my client. Knowing the landlord wouldn’t take the tenant-negotiated deal off the table, and that there was no procuring brokerage commission, I had an agreement with my client: To share the economic savings I achieved over the life of the lease, and discount it back at a reasonable rate.

Like introducing your big brother to the playground bully, my client gained perceived power (read this article, it’s good!) by the mere fact that negotiations were to be professional-on-professional. But I wasn’t going to stop there. Having parallel negotiations is what any good tenant rep would do. And I was bent on creating an environment in which landlords compete for their tenancy. Needless to say, we found another building of genuine interested to my client, set the table for an arm-wrestling match, and let them go at it.

In the end my client saved a bundle; I made the equivalent of a market commission, and the landlord earned a tenant. My client could have spared the time and emotions he invested in the process by engaging me in the beginning. By the smile on his face, I think he enjoyed ride.

Rory Johnson 6/28/2007

rory@intelligentcre.com