To Broker Or Not To Broker?
The Commercial Real Estate brokerage community has caught on to the wave of coworking and the workspace-as-a-service industry as a whole. What does this mean for coworking operators? More annoying phone calls and emails!
With this massive influx of interest from the commercial real estate community many operators are now faced with the question: to broker or not to broker? To me the answer is an obvious one. If someone is offering to provide you with market insights, data research, and assistance with proposal and lease negotiations—for free—you should be willing to hear them out.
So why is there even a decision to make? Why are several large coworking businesses recommending you to avoid brokers entirely? The reason is MOST BROKERS HAVE MISALIGNED INTERESTS. I once witnessed a coworking operator pass up on a fantastic short-term deal that really made sense for their financial situation to take a 5 year lease because their broker told them it made more sense (it didn’t).
For this very reason I have developed a short list of “Bad Broker Characteristics” to help coworking operators steer clear of consultants that may not have their client’s best interests in mind.
- You feel the broker is steering you towards a certain property, lease structure or transaction type. You need to be in control and understand all of the options available to you in the market, because ultimately this is your real estate decision. It is the job of your broker to provide relevant and current data, market expertise, negotiation assistance, and creative thinking based on real world experiences to assure your business is set up for success.
- The broker is pushing you to move too fast. It could be that the broker is trying to get paid quickly since most brokers are paid commission only. (It’s worth noting though that they could also be looking out for you if an option may only be on the market for so long).
- The broker doesn’t pay attention to details. If your broker isn’t digging deep into the finer points of your lease give him or her the boot. Commercial leases are riddled with caveats that are often overlooked by a cursory review. It’s the attorney’s job to point out any legal ramifications within a lease, but they will not stick their neck out and speak to “business related” items that can only be learned from years of transaction history. They need to be advising you on how to achieve maximum flexibility.
- The broker doesn’t want you to talk to the owner of the building. With traditional office tenants there is almost never a dialogue with building ownership. In the coworking industry though it is often helpful to establish a dialogue with the owner as they are the ultimate decision makers. Open dialogue with the property owner could allow you the opportunity to better explain your business, goals, aspirations and expectations for the future. All of this information could persuade the owner to underwrite your business more favorably; which may, in turn, lead to a better deal. Ask your broker to introduce you to the owner, so your broker understands the intent of your conversation and has assurance that they will be protected by you if the Owner tries to do a deal directly with you. It could be the difference between an okay deal and a great deal.
- Your broker doesn’t really “get it” when it comes to making sure your real estate empowers your coworking operation. Just because your broker has heard of coworking doesn’t mean they know you MUST have separately metered utilities for 24/7 access or that in some historic buildings the density needed for coworking can overload floorplates for fire code compliance. You need someone who understands all of the nuances that you will need to account for… a true coworking expert.
- The data you are getting is useless. Your broker should be providing you with lease comp information, latest market activity, and he should be very aware of the existing coworking landscape in each market you want to explore opportunities in.
A great broker will assist you in crafting a detailed short-term and long-term real estate strategy that allows for maximum flexibility and will take into account your financial situation, the market, and your target customers (“Members”).
So to broker or not to broker? Subjectively, I believe having the right broker will elevate your ability to leverage your real estate making decisions into your business. That does not mean you should hire the first guy who cold calls you. Conduct interviews with brokers and make sure what they offer and understand aligns with what you are trying to accomplish. You will be able to weed out the bad from the good after a short conversation with a broker who is clueless about coworking. Make sure to ask your broker if they have experience or understanding of the joint ventures that are taking place in the industry. If they haven’t heard of this or if they steer you away from exploring these opportunities, find someone else.