Sacramento’s Emerging Boulevard – Broadway

When I moved from Manhattan Beach to Sacramento in 1991, my new bride and I arrived behind the wheel of a Uhaul at 9:00 PM.  We had a 800 S.F. rental lined up on Harkness in Land Park.  We had no keys to the place, so we had to call the owner.  He staggered out of his car about an hour later speaking incoherently.

We got into the place and decided to grab a bite to eat.  At 10:00 PM there was literally nothing open other than a Burger King.  When we got back to the place with our Whopper, Fries and matching crowns, my wife Joanne stared at me in disbelief, started to cry, and then said, “I can’t do this.  I cannot live here.”  Well that was then, and besides the divorce (which was percolating from that first bite of the Whopper) there are probably 50 new restaurants in the Core (Downtown and Midtown) that did not exist.

And  in case you didn’t notice, the Broadway Corridor is not-so-sneakily emerging as the next popular destination in Sacramento.  Broadway has always been a destination for many going to Tower Theater, Tower Cafe and several ethnically diverse restaurants including, Mexican, Chinese, Thai, and Ethiopian cuisine.  One restaurant trail blazer on Broadway is Bill Taylor who opened Willie’s Burger in 1991- and later – Flat Iron on Broadway.

The Broadway Renaissance has been awakened with several notable developments from the east to west:

Selland’s Cafe and Bike Dog Brewery at 9th and Broadway.  Selland’s opened up in early 2017, and since then, there has always been a line to order up lunch or dinner.  Selland’s features a special dinner for two with a bottle of wine for $25.  If you get tired of the wine you can go checkout Bike Dog next door for your favorite brew!

Selland’s and Bike Dog Brewing rounding out the west end of Broadway

Broadway’s Redux  by Indie Capital, a niche developer that develops smaller infill residential projects, is building a few homes along the north of Broadway between 9th and Riverside.  They also just closed on some additional land in the vicinity.

Indie Capital’s Broadway Redux at 1015 Broadway

Noah’s Bagel with Pete’s Coffee, Sour Dough Bread Co. and Chipotle is currently being developed next to Willies Burgers on 16th and Broadway.  For several decades the northeast corner of 16th and Broadway was a parking lot that served as parking for Tower Records (Now Dimple Records).

Hoppy Brewing and the Real Pie Company at 24th and Broadway.  The Hoppy is moving from 65th and Folsom and they should be open any day now!  The Real Pie Company is already open, but the sign on the door said Open Wednesday!

Real Pie Company and Hoppy Brewing moving to 24th and Broadway

The Mills A residential development project at 5th and Broadway.  The Mill’s Development is situated on the former Setzer Lumber Mill.  Homes range from around 750 Square feet to about 2,000 S.F.

401 Broadway Then there is the resurrected Developer, Sotiris Kolokotronis in partnership with Grupe, who is planning to build a four story 59 unit apartment project  https://bit.ly/2JOua5n .  Grupe acquired this site several years ago, and now the market is ready for it; rents have risen to support new apartments and houses.

So, if you are looking for some good food or a contemporary place to live close to Downtown, Land Park with easy parking and great access, then you need take a look at Broadway!  If you are looking to buy or sell or lease real estate – or you just need a little market insight – call or email me at (916)761-1202 or tom@baconcre.com.

Calpers HQ - Sacramento CA

Go Green or Go Home

Go Green or Go Home!   Being from California, going Green is not longer optional. From 1978 for residential – and 1980 for non-residential – the EPA has gradually accelerated the energy regulations around new construction. These regulations are Title 24. The Code for all the regulations is Title 24 http://www.energy.ca.gov/title24/

The original intent of Title 24 was to conserve energy, but not to save money. As the years have gone by, the Code has evolved to dramatically increase the cost of construction. Why does California need Standards? Energy savings comes to mind, and for commercial buildings (office, industrial, tech etc,) the two biggest components for energy consumption (potential savings) are HVAC and Lighting.

Many of the regulations, while innovative, may not pencil for developers. And when things don’t pencil either rents go up or things don’t get built.   For example when planning a tenant space, Title 24 calls for “Light Harvesting” which mandates that all lighting is calibrated to turn off when no one is in a portion of the space. Take it a step further, you have to consider the orbit of the earth; based on the position of the sun (consider the afternoon sun shining on your windows) HVAC and lighting can be adjusted to turn off or throttle down.

You may remember the 2000/2001 energy crisis in California. Since then, the Energy Commission has placed more emphasis on energy consumption. Building components that Title 24 covers is all encompassing – from the envelop – to the guts of the building. The other goals for Title 24 are:

  • Comfort- Efficient buildings are more comfortable for the occupants and the delivery of light, heating and cooling is much more consistent throughout your premises.
  • Economics- In the early years much of Title 24 was a nuisance and big energy saving improvements didn’t really pencil. That has changed dramatically as technology, particularly in Solar, has improved.
  • The Environment
  • Curtailment of greenhouse gases

Many tenants considering new locations will give environmentally friendly, energy efficient buildings “points” in their property selection matrix.  It just feels good, and potential employees and clients take notice.

If you are a tenant looking at moving into a new location that needs significant Tenant Improvements within previously occupied space be aware: If the building you are looking at is older, it is possible that it may not be in compliance with current ADA or Energy codes. So, when the Landlord goes to pull a permit for the construction of the tenant improvements, the City Planning Department could require the Landlord to comply. This can be costly since it adds to the scope of work. Sometimes, as much as a Landlord wants a new tenant, the Landlord may decide to pass on a tenant that requires significant tenant improvements. They will just wait for a tenant that doesn’t need tenant improvements. So, it is better to figure this out in the initial stages of a negotiation rather than waiting until you are about to sign a lease.

Golden 1 Center Arena

When an Office Building Sells, Tenants Pay

Sacramento CA: About a week ago, 621 Capitol Mall sold for $161,000,000. This amounts to $439 per square foot; nearly $100 a square foot more than what Wells Fargo Center sold for 14 months ago. 621 Capitol Mall (aka US Bank Tower) was built in 2008 and is home to Downey Brand, US Bank and Nossaman LLP. KP Public Affairs is moving into 16,000 square feet in March.

This sale is a significant validation for the Sacramento commercial real estate market because the price is significantly higher than the average, and this is Shorenstein’s first purchase in the Sacramento Market. Shorenstein, based in San Francisco,  is one of the country’s most prolific, opportunistic institutional investors.

When an office building sells for a price significantly higher than its assessed value, the Property’s tax basis goes up. In this case, the previous assessed value was $122 million – soon to increase to $161 million.

The tenants are responsible for increases in expenses over and above its Base Year, and this includes property taxes. The Base Year is typically the year a tenant’s lease commences. With this recent sale, the assessed value increases by approximately $40 million. Property taxes are approximately 1.15% so the property tax bill will go up by $460,000 or $1.25 a foot per year. Therefore every tenant in 621 CM will pay 10 cents a foot more in rent to cover this increase in property taxes.

Unless you are a special tenant (special meaning: large, Fortune 100, or the public sector) you are probably going to pay more rent when your building sells. So when looking for a new property, consider the ownership’s goals for the building. For example, if they have owned the building for 3 to five years and the market has appreciated considerably, there is a chance that the owner will sell the building during your lease term. And if it sells for a big number, you are probably going to be picking up a bigger portion of the tax tab.

If you have specific questions about your current lease, the assessed value of the building you are in and what your possible exposure is, I can help.  Please feel free to call me at (916) 761-1202 or email me at tom@baconcre.com.

Aerial Downtown Sacramento

News Break:  Sacramento Office Market Banned for Taking Performance Supplements

For decades, Sacramento has been considered a secondary or tertiary market.  For those who bought-in 3 to 5 years ago, they are now reaping the benefits.  Now that the office market has reached equilibrium, it is only a matter of a couple years until we will see meaningful uptick in construction of speculative office product. 

Before the end of the year the most significant private sector deal was announced. Centene bought Health Net and immediately expanded in the Prospect Park submarket (Highway 50).  But the biggest deal – that was put together through the efforts of multiple public and private sector players including the City of Sacramento, The County and GSEC – is Centene’s projected 1.25 Million expansion into the North Natomas Market. 

Rolling into the End of 2017, the overall Sacramento Office Market had just recorded three positive quarters of net absorption.  While the 1st quarter was negative 138,000 square feet, the 2nd quarter was positive at 158,000 square feet, the 3rd quarter at 644,000 square feet and the 4th quarter at 106,000 square feet. Net Absorption is defined as: The net change in occupied space over a given period of time.   The biggest submarket winner is Highway 50 at positive 208,000 square feet.  2nd place was the Natomas submarket at 141,000 square feet and rounding out the top 3 is the Roseville Rocklin market at 74,000. 

New construction:  For 2017, we had 670,000 of office space under construction.  It was not long ago that less than 20,000 square feet was under construction.  The majority of this new construction is pre-leased; for example in Roseville Adventist Health is building 242,000 square feet, Kaiser is building 194,000 square feet and in Sacramento Dignity Health is building 68,000 square feet.  The biggest and most notable speculative project is The Ice Blocks development at 16th and R Street in Midtown Sacramento. The Ice Blocks Development is definitely raising the bar for Sacramento by delivering an awesome urban infill project that includes several cutting edge retailers and market rate housing.   First tenants will be moving in around May.  Heller Pacific is the developer who has added to the Midtown vibe with developments like MAARS located at 20th and J Street.

The overall vacancy factor for office space inched closer to single digits (10.3%) and the central business district is currently hovering around 9.1% (it was 8.6% going into the 4th quarter, but we saw negative absorption of 95,000 S.F.)  Markets with the lowest vacancy factor are:  Midtown and East Sacramento (about 5% combined), Folsom at 7%, Roseville and Rocklin at about 8% (which by the way was sitting at over 15% just three years ago. 

Overall Market Rents at the end of the 2017 averaged about $1.80 per square foot.  The CBD asking rent was at approximately $2.90 for class A space and the overall average asking rent is $2.45.  So, when you are looking at buildings in and around downtown with rents below $2.00 and in some cases lower that $1.65 these properties could be a great value for tenants and value add investors.  Midtown Sacramento is another market with huge upside as properties are renovated and rents increase. 

Sales in the Sacramento region really accelerated in 2017, particularly for class A properties.  In the CBD, three Class A properties in excess of 50,000 s.f. with an average price per square foot of $224 per S.F. Comparatively, in 2016, 400 Capitol Mall and 520 Capitol Mall sold for $343 and $340 PSF respectively.  For additional insight into “who owns what” take a look at: https://sacramentobacon.com/who-owns-sacramento/

And in the first week of January, 621 Capitol Mall sold for about $420 a foot.  Institutional Investor Shorenstein was the buyer, and this purchase is its first buy in Sacramento.  This is national news that adds to Sacramento’s momentum on the national and international stage. 

In South Natomas, the submarket immediately north of downtown,  the Evergreen Company paid $55MM ($174 a foot) for Natomas Corporate Center (2485 and 2495 Natomas Park Drive).  This is a bargain for the iconic project. 

2018 should be another very positive year with continued growth in Healthcare, Insurance, Education, Energy and Technology.  Who knows where our next new companies will come from, but I bet we will begin to see a steady increase of migration from the Bay Area combined with organic growth. 

 

Who Owns Sacramento?

Sacramento is on the radar of the world’s investment community. With Properties selling for $600 to over $1,000 a square foot in top tier markets like San Francisco, Sacramento’s class A office properties selling for $250 to $425 a foot seem like a pretty good value. In the last 5 years, several of Sacramento’s CBD office buildings have sold. Most recently, 400 Capitol Mall sold to Starwood for about $340 per square foot. Some other notable buildings in Sacramento’s CBD that are owned by out of town entities include:

  • 980 9th Street (Park Tower) Bought by Hines in 2017 for about $220 a foot.  This building is probably worth $300 a foot today particularly when you consider the great parking capacity and Class A quality.
  • 300 Capitol Mall, aka the Emerald Tower is owned by Sterling Investments out of New York. Home to the Department of Insurance and the State Controller. The Asset manager is Hines.
  • The Senator Hotel office building, located across the Street from the State Capitol was acquired in 2015 by Swift out of San Francisco for $198 a foot. When they bought the building it was about 40% vacant. Currently the building is about 8% vacant.
  • 621 Capitol Mall, aka The US Bank Tower, was Developed by David Taylor Enterprises and the Lewis Trust out of the UK. The Property sits on a City block across the Street from the Golden 1 Arena. In January 2018, Shorenstein bought the building for over $420 per square foot.  This purchase doesn’t include the half block next to this building that could be developed into a hotel, office building or how about Condos like the ones planned 10 years ago?
  • 501 J Street was bought by Kaiser and the 200,000 s.f. building is going through a considerable (complete) renovation. Kaiser will be occupying the building by the end of 2017.
  • 1325 J Street is owned by Princeton Holdings out of New York. The 2014 acquisition was part of a 5 property portfolio and 1325 J was valued at approximately $305 per square foot.
  • 801 K Street sold to GPT Property Trust out of Maryland for about $235 a foot in early 2016. The Renaissance Tower sits on a multi-level parking structure just 2 blocks from the east entrance of the Golden 1 Arena or DOCO (Downtown Commons).
  • 770 L Street was picked up in August 2013 for about $178 per square foot by AMP Capital out of Australia. Shortly after acquisition the State of Ca leased up about 25,000 s.f. Then shortly thereafter, the Golden One Arena was announced, located just just two blocks from 770 L Street. College Hoops commentator Dick Vitale exclaimed, “Serendipity Baby!” Rumor has it the building is in contract with an institutional buyer.
  • 915 L Street is owned by Government Properties Trust located in Massachusetts. Predominately occupied by the State of California (Finance).
  • 925 L Street San Francisco based Soma-Capital Partners bought 925 L Street in November 2017 for $278 a foot.  Home to the Legislative Counsel.

While we haven’t seen a lot of capitol flowing in from China or other international investment circles, it shouldn’t be too long before we see the international capitol flow quicken and surge. For additional commentary on Sacramento’s CBD, check out the article here: It’s Just a Matter of Time .

It’s Just a Matter of Time

I attended a Panel Discussion Moderated by Randy Getz of CBRE at the Sutter Club in Downtown Sacramento this week.  Chuck Trainor, Managing Partner of Trainor Fairbrook, introduced David Taylor.  David Taylor humbly recounted his first development projects. Taylor has arguably had the most impact on Sacramento’s Skyline, developing The Sheraton, 1201K Street, 1215 K Street, Sacramento City Hall, 621 Capitol Mall.  But David doesn’t just build buildings; he creates a sense of place.

David highlighted some interesting facts that illustrate how far Sacramento has come.   Notable points include:

  • In 2015 Bloomberg ranked Sacramento #6 as the most affordable fun city.
  • Before counting the expense of the arena, in the recent past, over one billion dollars has been spent downtown on new developments, of which 58% are privately funded.
  • Since 2014, 25 properties have traded hands valued at over $538 million.
  • Of 900 people surveyed, 1/3 say they would like to live downtown, and 2/3 of the millennials surveyed want to be in the Grid.

Following Taylor’s introduction, a diverse group of panelists came up on stage.  The panelists included:  Denton Kelley, Partner with LDK Ventures, oversees the Railyard Development; Sandy Sharon, SVP and Area Manager for Kaiser; Ron Vrilakas, a prolific Central City Architect; and finally Ali Youseffi, Vice President of CFY Development.   Randy Getz led an insightful and interactive discussion with an audience of about 150 commercial real estate experts.  Each panelist shed light on their optimistic view of downtown Sacramento’s future and the developments that they have been involved with.

Downtown Sacramento is the Ultimate Corporate Campus

What surfaced from all the comments is that the game – and the players – have changed.  Downtown’s value proposition has risen (Sacramento Delivers, Private Sector Grows), with an abundance of new amenities including health clubs, bars and restaurants.    And all the development would not be sustainable without the good paying Jobs being created downtown (Kaiser Hospital took down 18 acres in the Railyard for a future hospital and they bought 501 J for a new medical office building.)

With this momentum, it is just a matter of time until companies like Facebook, Salesforce or Linkedin establish a presence in Downtown Sacramento.  Just this week the Bay Area Tech Company, Support Pay, announced it was moving into Sacramento.  SupportPay expects to grow in Sacramento, in a big way.

As David Taylor said in closing, Downtown Sacramento is the Ultimate Corporate Campus with everything right there for employees to work and play.  It’s just a matter of time.

Sawyer

Sacramento’s Big Man is just getting started.

How About Those Sacramento Kings?  The Kings won last night without their Big Man, Cousins.  Frankly, they looked like a whole new team, with contributions from everyone, with six players in double digits.  Willie Cauley-Stein had a career high 29 points.

Would the Downtown market be on such a winning streak without its Big Man? I don’t think so. Property is selling in the Midtown and Downtown Markets (THE CORE) for prices that are justified by increased demand for housing in Core, the Arena (The Big Man) and a multitude of other developments. Believe it or not, the demand for properties is going to increase and sustain itself, so long as the trend for migration into the Core continues. Another factor bolstering values is the replacement cost for commercial properties has increased by over 30% in the last 5 years. This is due to increased labor and material costs.

When the Arena was announced, overnight, property values in the vicinity of the site went up at least 25%. Buildings like 555 Capitol Mall, 501 J Street, The Travelers Hotel Office building and the former Greyhound Bus Station are just a few examples. For Sacramento, the Arena changes everything; consider this blog post comparing The Golden 1 Arena to San Diego’s Petco Park: For Sacramento, The Arena is the Cake

Midtown hasn’t needed the Arena to take off. For many years rents have been suppressed in this market, and as new developments come on line, the rents will be commensurate with Midtown’s value proposition and Vibe. All the new residential development, coupled with the new Sutter Hospital and the Ice Blocks are a few of the projects making it happen.

Below are a three comparable sales that demonstrate the viability of Commercial Property in the Core.

Sale #1: 831 L Street. This site consists of a 27,200 s.f. parcel with a 44,000 s.f. building with over 50 parking stalls on the site. The price was 5,000,000 which amounts to about $113 foot for the building and a land value of about $184 a foot. I see this property having two lives, one for the next 5 to 10 years as a leased building.  In its next life, the property will make way for a new development that maximizes the site.

Sale #2: 910-930 K Street. These vacant buildings sat on the market for at least 5 years, and sold about 2 years ago.  Total site consists of 20,909 s.f of land with 31,600 S.F. of buildings. PRICE: $5,300,000, that pegs the underlying land value at $250 a square foot and $167 a foot for the vacant buildings. To put this in perspective, just one block away 770 L Street, a 169,000 square foot (90% occupied) class A office building sold for $173 a foot before the Arena was announced.

Sale #3: 2020 I Street. This 9,500 S.F. building sold for $2,802,500 ($295 / SF). This building is home to Trumpette, a specialty childrens clothing store. The property sits on a relatively large lot with great parking. Wouldn’t be surprised to see some “alley activation” here.

The sales listed above are notable examples of properties that have sold at exceptional values, values that reflect where the Core is heading. This doesn’t mean that a property worth a $100 a foot is going to immediately sell for $150 a foot, but it certainly builds a solid case for optimism and positive momentum.

Golden 1 Center Arena

Sacramento’s Golden One Arena Makes Almost Everything Better

The Sacramento Kings staying in Sacramento was great, but the Golden One Arena and its profound ripple effect  is the biggest game changer since the Gold Rush. Other cities (San Diego, Denver, San Francisco, etc.) have developed new arenas and the impact on their economies have been great. However, in relative terms, Sacramento’s Arena will probably turn out to  be far more significant.  We have already seen an appreciable uptick in investment activities. Hotel development is happening with more to come, office buildings are selling and Landlords are feeling pretty good.  For  both retail and office tenants (and this is where the “almost” comes in) the future is complicated; On one hand you have an evolving Core with added amenities, then on the other, you have spiking rents and diminished choices.

When compared to other cities, the reason why The Sacramento Arena project is more significant in relative terms is because Cities like San Diego and San Francisco already had a lot going for them: international destinations, corporate support, and natural beauty.

For this discussion, let’s take a look at San Diego and the impact of Petco Park. The total project cost about $450,000,000. Petco Park was competed in 2004. Since then, there has been over a $2 billion in development around Petco Park. The development consisted of 3,500 residential units, 957 Hotel Rooms, and 610,000 square feet of office space. Since 2004, the assessed value of real estate tripled. Petco Park created 19,200 jobs.

But the Boom in San Diego is like adding an extra layer of frosting on an already amazing chocolate cake. For Sacramento, the Golden One Arena is the cake. The Arena combined with the potential expansion of the convention center is going to change our whole community. There will be more hotel rooms, restaurants and housing. The tax revenues are going to increase commensurately, and the City of Sacramento will realize a solid return on its investment. According to the San Diego Business Journal, the City realized an annual return of 7.6%.

By 2021 I predict that we will see the addition or renovation of 1,000 hotel rooms (The Sawyer adds 250 rooms and there are rumors of about 300 rooms near the Tower Bridge in West Sacramento.)

The CBD office market will tighten considerably, and there probably won’t be more than 500,000 square feet added to the inventory in the next 5 years.  There are several sites, but the cost of construction requires rents the market is not quite ready for.  Plus we need more tenant demand in the private sector.  Certainly Kaiser Hospital Helps.

The Arena (like Bacon) makes everything better.  If you are looking to make a move in the office sector (whether you are looking to develop buy or you need to renegotiate your lease or find a new location) Please contact me at (916) 761-1202.  tbacon@kiddermathews.com.

Sacramento’s CORE: Par, Birdie, Eagle. Albatross next?

Sacramento’s Core (Midtown and Downtown) is not very sneaky. In fact the whole world has taken notice.  One thing I didn’t now about Core is this:  Core recently took up golf, and in 2015 made the PGA Tour.    In a matter of months, Core has risen to the top of the money list!  At the  2016 Player’s Championship, Core was interviewed after a remarkable 3rd Round, and he shed some light on his success.

Reporter:  So Core, how do you feel about your round today?

Core:  Well, I gotta tell you, I don’t think I can hit the ball much better.  The first day, I played alright, but I was still working out the kinks, you know, past few years have been tough.

Reporter:  I noticed that.  Your first round you scraped it around and managed to keep yourself in the hunt.  But then you really turned it on.  What do you attribute to your resiliency and significant bounce back?

Core:  Well before I picked up my new coach….

Reporter:  Your new coach?

Core:  You know, they call him (pause) The Golden One.  (smiling) I call him GO.

Reporter:  How could I forget?  He has been a big part of your rise to the top of the money list, huh?

Core:  No doubt.  I was making progress with my trainer, HDR, and my previous coach, Trend..  But when GO showed up, things really started to click.

Reporter: So what do you see for the final round tomorrow?

Core:  I can’t imagine going as low as I did today, heck, I only had 16 putts.  But I feel pretty good. I am looking forward to solid final round.

Reporter:  Thanks, Core.  Good Luck Tomorrow!

With the exception of some notable deals, like the sale of the Wells Fargo Center, it doesn’t take a brain surgeon to note that values are up in Midtown and Downtown.  In looking at the statistics (Costar) for 2014 through 2016 here are the basics:

Commercial (non residential) properties sold for an average of $99 a square foot in 2014, $151 in 2015, and in 2016 the average price per square foot increased to $205 a foot.

Multifamily properties sold for an average of $95,000 per unit in 2014 with a GRM of 10.92. In 2015 the price per units edged up to $116,000 per unit with the GRM jumping to 13.15. In 2016 the Price per unit increased to $150,000 per unit with a GRM of 13.32.

Land sold for an average of $94 per square foot in 2014. In 2016 the average increased to $131 per square foot.

nwc-11th-and-k

The Ransahoff (11th & K)

This survey is only for properties selling between $1,000,000 to $10,000,000.  The price increases are not surprising given the development of the arena and the trend of people wanting to live in the Midtown and Downtown area.  However, I think you can say that a 50% increase in the price of Multifamily (price per unit) from 2015 to 2016 is more of a spike than a bump.  Notable: the Gross Rent Multiplier (GRM)increased nominally between 2015 and 2016.  This means rents escalated significantly in 2016, nearly in step with the values.

Many of the commercial properties sold (non-residential) in the midtown area were to users.  For quality properties with parking, the prices exceeded the median significantly.

Land sales have picked up considerably as well, and values are up at least 5o% from 2014.

ice-blockexterior-cropped

R Street’s Ice Blocks

For detailed Sales and leasing information including sales comps for 2016,  contact Tom Bacon at 916-761-1202 or tbacon@kiddermathews.com.

Porcupine

Renewal or New Lease? Don’t Go Naked.

How long would a snail survive without its shell; a porcupine without its quills; a skunk without its spray? As a commercial real estate broker representing occupiers in their commercial real estate dealings, I strongly encourage retaining a broker when dealing with a renewal or new lease.

Certainly, you are capable of finding space; there are numerous data providers like Costar and Loopnet. An exceptional broker is your interpreter and guide. An exceptional broker knows which landlords are well capitalized and which landlords are not. An exceptional broker orchestrates your transaction in such a way that you will be assured that you are making the best deal possible, and that you will experience minimal downtime in your business. An exceptional broker anticipates issues and navigates you through the deal process. An exceptional broker knows what a good deal is (if you are unrepresented, you may not know a good deal when you see it, and negotiate too hard, or more likely, you will leave money on the table or forget to address critical lease language issues).

Most important, an exceptional Broker represents you, not the landlord.

Tenant Rep Broker, Generalist or Dual Agent? A broker that represents buildings, represents landlords. There is a different mindset when you represent the Landlord. There is one goal: get the space leased up! In addition, and probably most important, the Landlord’s broker has a fiduciary obligation to the Landlord.

But lets be realistic. In small markets, most brokers cannot make a living just representing users. They are Generalists. They represent buyers, sellers, landlords and tenants. A Generalist has a broad perspective that can come in handy.

Effective January 1, 2015 (SB 1171) new legislation requires brokers and agents to provide extensive disclosures in leasing transactions as to who they represent. The law went so far as to suggest that there is a conflict even when your agent’s firm represents a building (even though your agent is not associated with the building.) Practically speaking if you are looking to pick an agent and you are concerned about a conflict of interest (dual agency) see what properties the agent represents. Frankly, you can ask the agent to disclose what properties they represent. If they don’t represent any buildings you would consider, then I would say that you will be in good hands, so long as the agent is experienced and has the expertise to get the job done.

Brokers that represent only Tenants (Tenant Reps) are very effective and supposedly have no conflicts. Even if an agent (or their firm) represents no buildings, they can still have a conflict. For example, what if the Tenant Rep represents a tenant looking for similar space in the area you are looking? That certainly would be a conflict, particularly in a tight market with limited options.

What if you don’t want to move, you just want to renew your lease? Should you still retain an agent to represent you? Of course! The agent will create a competitive environment that you cannot create on your own. I just finished up a negotiation where the tenant acknowledged there is no way they would have gotten as good a deal on their own, and this is a client that negotiated their previous renewal on their own.

If the Landlord’s agent is doing their job, when the time is right, the agent will approach you about renewing your lease. You may have developed a good relationship with this agent, but the simple fact remains, they represent the landlord. So when the Landlord or its agent approaches you regarding a renewal, let them know you have an agent or you plan on retaining one. In most renewal negotiations, the landlord will happily pay your agent’s fee, in fact it is usually in landlord’s budget. When a landlord pays a commission, that means they finalized a renewal, and the tenant is staying. A commission is always less costly than filling up a vacancy.

There is conflict inherent in the business everywhere. As a broker, the critical tenet is to do the right thing, treat people fairly and look out for the interests of the party you represent. As the Occupier, when hiring an agent, look into the potential conflicts and hire an experienced – and exceptional – agent where the likelihood of conflict is minimized.