How tenant rep brokers use commercial lease comps to win, negotiate, and close business
From prospecting to pitching to negotiating the deal, lease comps are integral to everything tenant reps do. As clients expect brokers to be experts and use all available tools, brokers increasingly act as consultants as well as deal negotiators. CRE brokers now use commercial lease comps creatively to put themselves ahead of the competition and exceed their clients’ expectations. CompStak interviewed 20 brokers in Atlanta, Chicago, Los Angeles, New York, San Francisco and Washington DC outlining best practices for using commercial lease comps to win, negotiate and close deals. In part one of the series, we covered the use of lease comps in the prospecting process. This week, we study the ways tenant reps use comps when working with clients.
Go to Part I
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Part Two: Working with clients
Preparing to pitch the client
The brokers we interviewed agreed that prospective clients normally want to see market information that is relevant to them, and most of the brokers we spoke to use a combination of comps and market reports to showcase their expertise in the market in the first meeting with the client. Here is their advice:
Use relevant data
Show clients comps from the same building or similar buildings. Lease comps for this particular tenant are preferable, if you have them. Relevant comps include deals that are close in size to the space the tenant is looking to lease.
Use accurate comps
Tenants are expecting to see accurate information. If you’re unsure that a certain detail is correct, you can share partial data, or an aggregation of several comps to show the tenants the prevailing rents and concessions.
Cover your bases
Make sure you understand how much this particular client is paying in rent, who are the other tenants in the same building, and where deals in the same building are made. Lease comps help you pinpoint all of the above.
Use comps to support a plan for the client
You can study relevant comps and find that the client is paying too much compared with the market, or that the current building will not support future expansion. Those insights should be shared with the prospective client in the first meeting. “If there’s a story to tell in the first meeting, for example, they are paying too much, there’s a better chance of getting hired,” said a Los Angeles-based broker.
Although most of the brokers we spoke with use comps in the first meeting, some prefer to wait a bit before they share them with the client. A San Francisco broker said, “Sharing too many comps early on may confuse the tenant. They get hung up on the details of an individual transaction. We use the comps later, and in the first meeting we sell a process. We tell them that a part of our process will be looking at comp data to study the market and negotiate their deal.”
After you’re hired: Identifying the best options for the client
We’ve mentioned that brokers increasingly act as consultants in addition to deal negotiators. Clients have specific goals and expectations, and brokers use commercial lease comps extensively to understand and outline the market options that will allow the clients to achieve their goals within their budgets. Here are some of the tools and methods brokers use to advise their clients.
Building stacking plans
Stacking plans combine information from lease comps in a certain building, and the knowledge that comes from walking the buildings. If your office has dedicated researchers, they will be the ones to stack buildings and they’ll probably enlist your help in the process. However, you may want to keep your own accurate stacks, and update them with recent information as you tour buildings. A stacking plan may be first created when you work with a certain client, but some brokers build them regardless of a current or past deal, as they try to become experts on a building or a group of buildings to secure future business.
Here are some ways to utilize a stacking plan for your client:
1. Finding expansion space for your clients:
Stacking plans are essential when advising office tenants. Not only will clients appreciate seeing them, but they will also deem a broker with a good stacking plan an expert. You should share stacking plans with your clients to understand future availabilities in the building. If the tenant is looking to expand in the same location, a stacking plan will help you identify which floors may become available as other tenants are moving out or downsizing.
2. Understanding the environment for renewal:
Stacking plans also help you and the client understand who is going to have the upper hand at the time of renewal. “If our client is looking to renew in one year and many other leases are expiring that year, the landlord will be inclined to offer better terms to keep those tenants in place. It’s very different if only our client’s lease expires that year and the rest of the building expires two years later,” said a DC broker.
Shopping around for other options
Many times, your clients will prefer to renew or expand in their current location. However, shopping around for other options can present alternatives and assist in the final negotiation. “Even if the tenant is looking to renew, I will still show them comps in other buildings,” said a New York City tenant rep. Lease comps help you understand and lay out other options for a future space, as you’re deciding which spaces to tour. “You don’t want to show a tenant the building they cannot afford,” said an Atlanta broker. However, you need to be careful not to miss out on opportunities because the asking rent is misleadingly high. The final negotiated deal, including rent and concessions, can be quite different from the initial asking rent. Lease comps demonstrate how affordable the building really is. “Buildings advertise their asking rate on the listing, but this is not enough,” said a Chicago-based broker. “CompStak shows us the TI and actual rent and we understand why a deal was done higher or lower. We use comps to build competitive sets and show tenants which buildings are similar to theirs, and what other options they have.”
Building analytical models
Analytical models help point at the client’s best option. For example, a good renewal vs. relocation model takes into account market information from lease comps, expansion options and loss of productivity due to moving, and can establish which option makes more sense for the client. If you build a model, it needs accurate assumptions, and you can use information from lease comps, including starting rent, concessions and escalations, to populate the model. “I know what’s going on in the market, but comps tell me what’s going on in the building to make the model more accurate,” said a New York City broker.
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CompStak Exchange is a free platform for CRE brokers, appraisers and researchers to exchange verified commercial lease comps anonymously. CompStak Enterprise offers unlimited fee-based access to comp information to CRE landlords, lenders and investors.