Conflict of Interest: The Problem With Being All Things to All People
We’ve talked a lot in the past about the importance of businesses using a tenant representative broker, but wanted to take this opportunity to go a little deeper into why having someone exclusively on your side is so important.
Recently, a transaction was memorialized in one of the major NY publications. A major commercial real estate firm represented an owner in the sale of their building. The same firm also represented the group that bought the building. The same firm also had brokers who were limited partners in the building. And the same firm also had brokers meeting with tenants in the building, pitching their services and saying essentially “don’t worry about it, I’m going to be your un-wavering advocate.”
The idea that you can be all things to all people, in real estate as in life, simply does not work. It’s based on a flawed premise and over time it will fail. And when it inevitably fails, it will be the tenant, not the landlord who gets the short end of the stick.
Occupancy costs generally are the second largest line item, after salaries for most companies. The difference between an ok deal on your lease and a great deal on your lease has huge implications to the health and even the sustainability of a business over time. As a tenant, you deserve an advocate with no agenda other than getting you the best possible space at the best possible terms and conditions. You do not want your broker to be in anyway conflicted about who he or she is fighting for.
This is a big deal, people. Know who is in your corner. Know to whom they have pledged their fiduciary obligation. You deserve to be clear on this very important point.
Is it possible to get a good or even great deal using a broker from a full service firm? Yes. There are some very capable people working at these firms. The problem is that their model is compromised and inevitably, moments arise that challenge a broker’s integrity and fiduciary alliance. As this dynamic plays out in deals if often cost the Tenant money. Sometimes big money.
These moments of compromised integrity happen all the time. Sometimes they are subtle, sometimes not but they are too often the nature of things when to many interests are at play. A senior broker who runs a building says to a junior broker representing a Tenant in the same building, “don’t push so hard on price with this tenant.” Too often, the junior broker backs off and the tenant pays for it. This exchange happens every day and we have seen it play out first hand.
It is laughable for our fictional widow to work with an attorney whose partner represents the other side of the case. Very few people are going to argue that it serves the widow to hire such an attorney. But this is exactly what tenants do every day in working with full service brokers. These firms make huge fees being all things to all people. It serves these firms very well. The problem is, it doesn’t serve the tenant.