Brokers Who Serve Two Masters

Dual representation brokerage is the real estate brokerage industry's "Elephant in the Room".

Dual agency occurs when one real estate company represents both the tenant and the landlord in a lease transaction. Sometimes it is one individual on both sides; other times it is two individuals within the same firm.

No one serves two masters.

Every year tens of thousands of businesses are misled by brokers whose true loyalty is to the landlord. This costly mistake translates to higher rent, more overhead and less profits. Yet, like an elephant in the room, many business tenants negotiating a lease ignore the elephant and allow a major component of their future impacted by people whose loyalties lie across the negotiating table – the dual rep broker and his true client, the landlord.

Recently, a professional services firm that occupied 15,000 square feet of office space was approached by its building’s listing broker and his landlord. This dual-loyalty broker and his landlord client said all the right things to the tenant, focusing on the great relationship they had shared over the past ten years. They told the firm not to hire an outside broker to represent the tenant’s interests and offered the tenant “a below market deal.” The dual-agency broker promised the tenant that it would save the cost of a commission, and that savings would be reflected in reduced rent.

The tenant was contacted by our office, and happened to ask if we could review the landlord’s “wonderful terms”, based on our recent experience in the building and in the surrounding area.

What happened next shocked the tenant: we showed them that the deal was below the belt, not below the market. The proposed rent was actually $4 per foot higher per year than recent new deals we had finalized in the same building. In addition, the landlord wasn’t going to change the tenant’s base year for operating expenses. In the proposed deal, they would pay an extra $.40 per square foot per month in expenses, and that increase would have continued for another ten years had we not reviewed the deal. The tenant was offended by the deception attempted by the landlord and the landlord’s broker. We moved them out of the building to higher quality space in a better building and saved them almost $2 million dollars.

Although the commercial real estate market has been trying to hold the lid on this dirty little secret for decades – it’s called conflict of interest – a growing group of tenants are having an epiphany. These savvy tenants are realizing that in the world of big commercial brokerage houses, the house wins, and in this case the house is always the landlord, because that is where the money is!

The landlord’s goals and objectives clearly conflict with the tenant’s. Next to payroll, “rent” is the highest expenses for most companies. Rent is defined as base rent plus all the additional occupancy costs landlords impose upon tenants during their lease term, including operating expense pass-throughs, real estate taxes, parking charges, amortized tenant improvements, and much more.

Landlords are in the business of leasing and operating office buildings: they are pros at it. They know every trick in the book. And their soldiers are the landlord brokers.

How does a broker who has a listing on a building, and a fiduciary responsibility and contractual obligation to the landlord, fairly and adequately also represent the tenant? The answer is, no matter how much marketing spin they might use to justify it, they can’t.

An unsuspecting tenant doesn’t stand a chance when standing alone against a dual agency broker and his landlord. Commercial tenants aren’t in the real estate business. Their focus and experience lies in whatever it is they do to maximize their own profits and maximize expenses. However, one sure way to minimize expenses is to hire a specialized tenant representation firm and level the playing field when negotiating an expansion, renewal, relocation, contraction or purchase. An exclusive tenant rep firm – like Don Cox Company – only represents space users, never landlords.

Let’s look at another example: A tenant was renegotiating his firm’s lease directly with the landlord and the landlord’s broker. Without a tenant representative in his corner, the tenant was at a disadvantage. Don Cox Company stepped in and reviewed all the correspondence as well as the existing lease. The landlord was threatening to re-measure the space per BOMA 1996 standards. This would have increased the tenant’s core factor by more than 7%. However, we pointed out that the tenant had a favorable extension option which they hadn’t exercised yet, and the lease was specific: the landlord had no right to re-measure the space. We helped the tenant go to arbitration, and saved them $1,000,000 in rent – money that would not have been saved had they used a dual representation brokers server landlords in securing additional listings or management contracts, from the landlords, or to market their success to other potential landlords.

When Don opened this firm over 25 years ago, everyone worked for landlords. We made our money by filling landlords' buildings with new tenants and retaining tenants on lease renewals. It wasn't until the mid 1980s that exclusive tenant representation started to emerge as a realistic business model accepted by corporate users.

A tenant broker wants to do a good job, develop a long-term relationship with the client based on trust, and win referrals to other tenants in their market in the process.

The choice is yours! Let's send the elephant packing!

For first class tenant representation, call us at 512.478.1711 or visit our website at www.doncox.com

Did you know? Bangalore Commercial Real Estate

Bangalore, India Bangalore and its Commercial Real Estate Marker are unique in many respects. Did You Know… · Bangalore, also known as Bengaluru, is the capital of the Indian state of Karnataka. It has a population of about 5 million and a metropolitan population of 6.5 million, making it India’s third largest city and fifth-largest metropolitan area. · The city is one of India's fastest growing markets and the third-largest hub for high net worth individuals after Mumbai and Delhi. Its per capita income of US$ 6,460 is the highest for any Indian city. · It is home to an impressive array of colleges and research institutions, which explains the second-highest literacy rate amongst the surrounding metropolitan cities in India. · Bangalore is referred to as the “Silicon Valley of India” because of the large number of IT companies in the city, which contributes approximately 38% of India’s US$22 billion IT and software export market. · Biotechnology is an expanding industry in the city. The city of Bangalore accounts for 47% of the 265 biotech companies in India. · The Bangalore Stock Exchange is the largest in South India. It was founded in 1963 and has 595 regional and non-regional companies listed. · Several projects are under construction with the intention to solve some of the problems created by the rapid economic growth. An intra-city rapid rail transport system is expected to be operational by 2011. · The commercial real estate market in Bangalore remains strong. Demand in the CBD is driven by financial institutions and corporate houses, while the IT/ITES sector dominates the SBD. Around 6 million of square feet of office space are currently under various stages of construction in the CBD and the SBD. · It is estimated that annual rental values in the CBD will increase, while those in the SBD will stabilize. The retail commercial sector is also expected to follow a similar growth trend due to Bangalore’s highly paid IT/ITES workers. For more information about commercial real estate in Austin or across the world, contact Don Cox Company at 512.478.1711 or our website at www.doncox.com.

Bangalore Population 6,520,000 Area 269 mi2 Av. Ann. Temp 74.3o F Av. Ann. Rainfall 38.81 Inches Literacy Rate 85.7% India Nation's GDP $4.042 Trillion Real GDP Growth 8.5% Inflation Rate 5.3% Prime Lending Rate 11.8% Unemployment Rate 7.8% Labor Rate 510 Million Exchange Rate 1 INR = $0.02 Rental Rates (US$/Sq Ft/Month) Office Low - High Vacancy CBD New $1.32 - $1.65 5.0% Grade A $1.10 - $1.43 10.0% Grade B $0.77 - $1.10 20.0% Non CBD New $1.10 - $1.32 10.0% Grade A $0.77 - $1.10 17.0% Grade B $0.55 - $0.77 25.0% Retail Low - High Vacancy CBD $1.10 - $4.40 10.0% Industrial Low - High Vacancy Manufactu. $0.22 - $0.55 25.0% For further information on doing business in this market, please contact: Don Cox ITRA/Don Cox Company 512.478.1711

Did you know? Amsterdam's Commercial Real Estate Market

Amsterdam, Netherlands Amsterdam and its Commercial Real Estate Market are unique in many respects. Did You Know… · Amsterdam, located in the province of North Holland, is the largest city in the Netherlands. Although the seat of the government, the Supreme Court, and the parliament are in The Hague, Amsterdam is the official capital of the country. · Amsterdam is one of the most important cities in Europe in which to do business. It is the financial, commercial, and cultural center of the Netherlands, and its geographical location makes it an ideal gateway to European markets. For these and other reasons the city is home to most of the national and international firms in the Netherlands. · Amsterdam is also one of the most planned cities in Europe, with strategically positioned highways, railroads, water canals, and telecommunications links that connect it with the rest of the country and Europe. The city is served by the Amsterdam Schiphol Airport, which handles over 46 million passengers per year, and it is the fourth most active in Europe and tenth in the world. · With limited access to cars in the downtown area and with over 700,000 bicycles, Amsterdam is one of the most bicycle-friendly cities in the world. · Tourism is one of the largest industries in Amsterdam with over 3.5 million visitors per year. The most popular tourist attractions in the city include the Rijksmuseum, Van Gogh Museum, water canals, and the red light district. · The office market is currently very active; absorption and rental rates are increasing while supply is decreasing. Demand for high quality space is very high, but only 17% of the total supply in the city is class A. The South Axis business district is expected to remain as the main supplier of prime space. · During the first half of the year only a small amount of office space was completed; however, the amount expected to be added over the rest of the year is about 890,000 square feet. Approximately 2.4 million square feet will be completed during 2009. · The forecast for Amsterdam’s economy and commercial real estate market is positive. The GDP growth during the rest of the year is expected to continue at 2.8%, the same rate as last year, and the outlook for 2009 is also optimistic, with a decrease in unemployment rate and a rise in foreign direct investment.

Amsterdam City Population 747,000 Metro Population 2.2 million City Area 85 mi2 Metropolitan Area 732 mi2 Av. Annual Temp. 50o F Av. Annual Rainfall 30 inches Real GDP Growth 3.7% Unemployment 8.3% Sweden Population 16.5 million GDP Purchasing PP $529 billion Real GDP Growth 2.8% Inflation 1.8% Long Term Interest Rate 4.0% Labor Force 7.6 million Unemployment Rate 5.0% Literacy Rate 99% Exchange Rate 1€= $1.357 Office Market Information 2Q 2007 (USD/Sq Ft/Month) Rent - Class A Vacancy $3.47 13.3% Total Stock Available Supply 75.3 million sq. ft. 9.98 million sq. ft. Absorption Investment 1.4 million sq. ft. $550 million For further information on doing business in this market, please contact: Don Cox ITRA / Don Cox Company don@doncox.com +1 (512) 478-1711