Welcome to 2018!
Ten years ago, I won my first piece of business in San Francisco. I still remember the CFO’s face, I still remember her voice, and I still experience the same chills that I experienced the very moment she told us we were the best choice for the assignment. It was an amazing lift — it felt spiritual — I felt like I was floating inches above my seat. I was three years into the commercial real estate business at that point, but those three years were 500 miles away in San Diego where I initially started my career. I had exactly zero deal experience in the international city of San Francisco. This was a HUGE day! I was invincible!
Except… I wasn’t invincible. I am still not invincible. In fact, I am still learning a great deal of new information on every transaction that I am fortunate enough to work on. I am now more than a million square feet into this job, exclusively representing tenants, and I am more certain of my lack of knowledge today than I was in that makeshift tech-startup boardroom a decade ago.
You see, I was “unconsciously incompetent” that day, which means that I did not know what I did not know. There are four stages to mastery, and the first stage is a very bad place to be. How can you master something if you do not even have the knowledge of what needs to be mastered? But man, was I confident. I felt great! Ignorance was bliss.
Since then, I have had the luxury of negotiating dozens of transactions that could be easily defined as highly complicated, confrontational, exhaustively challenging, or personally emotional for my clients. The saying: “A smooth sea never made a skillful sailor” is an appropriate quote in my industry. You simply cannot know how to navigate certain lease clauses or handle specific confrontational moments until you have dealt with them as the lead broker while everyone is looking to you for answers.
Commercial real estate is a “learn on the job” sort of a job, and if there is one piece of advice I can share with you today, it is this: Hire a broker who has already learned on the job as opposed to hiring a broker that will use your transaction as one of their early learning opportunities.
I’m sure this statement leads to questions: How do I even begin to hire a broker? How do I cut through the noise of a pitch? How do I discover and uncover actual skills? How can I feel comfortable at the end of the process that I even asked the proper questions? If I don’t have experience leasing office space, how can I ask the types of questions that differentiate — the type that only the top flight brokers can answer?
I have thought a lot about this over the past decade. I have been in hundreds of pitches, I have answered thousands of questions, and I have noticed that rarely have the best questions been asked. So, in an effort to educate office tenants who need to hire a broker, and my professional peers who seek to be hired by the office tenants, I have compiled a list of questions that office tenants should ask office brokers during a pitch presentation. If you ask these questions, and the broker you are interviewing can provide accurate answers, then you are in good hands. But if they cannot, you might consider interviewing another broker, perhaps considering one that authored a thought provoking piece on how to hire a broker that kept your attention all the way through to the very end!
So, let’s get to it: Here are my top 20 questions that you should ask in a pitch interview. I understand that this list is long, but if expertise is what you seek, and if you want a broker with a strong moral compass, then these questions will quickly eliminate the inexperienced and/or unethical brokers while highlighting those brokers who can truly guide you down your path to success. Good luck!
1. Can you show me the math on how an increase in rental payments creates an increase in property value?
2. What I should expect in base building operating expense passthroughs across the life of the lease?
3. What do attornment and subordination mean?
4. What are the various ways that we can negotiate assignment and subletting rights, including the risks associated with profit sharing, recapture, and what allows a landlord to reject a sublease?
5. What is the correlation in a negotiation between base rent, abated rent, TI allowance and delivery condition?
6. What is the best path for making sure that what we do in the space fits into the zoning for the office?
7. How can a company use a lease negotiation to make sure they don’t face increased construction costs should pricing soar after executing a lease?
8. Can you walk me through a load factor calculation and show me how much money I will be spending across the life of the lease due to the increase in square footage over the usable measurement?
9. What language must be included when negotiating an option to extend?
10. What are the three different ownership types and how their specific motivations dictate how you will structure a negotiation on my behalf?
11. How might a delivery delay at a new location cost me financially at my previous location and what are the potential consequences of Consequential Damages?
12. What is the difference between a Security Deposit, a Letter of Credit, a Personal Guarantee, Pre-Paid Rent, and a Parent Company Guarantee, and in which ways will different types of Landlords structure their protection?
13. Can you please share with me two different times you have helped a client make a smart real estate decision despite the fact that the decision may have cost you financially via a lower commission?
14. What are some of the ways in which an unethical broker could take advantage of me and my company during the real estate effort in order to better their own financial position?
15. What are the advantages and disadvantages for my company relative to hiring a broker from a small firm versus a big firm?
16. What service lines or additional expertise do you or your company provide as a part of your offering?
17. How many transactions have you been the lead broker on in the past five years, as opposed to a part of the team? Will you be the lead broker on my transaction? If so, how many clients do you have right now and what amount of time will you be able to spend working on my company’s effort?
18. Can you give me two examples of times in your career in which a deal has been all but dead, but you were able to find a solution to the problem in order to get the job done?
19. What kind of a relationship do you have with the various landlords with whom we might be negotiating with?
20. Can you tell me about three clients that have needed space similar to what we need related to square footage, build out and location, and can you tell me how each process went and what did and did not work?
21. (Bonus Question) Can you walk me through how you will protect me against challenges in the areas such as ADA compliance, wheelchair accessibility, Title 24 upgrades and costs, fire life safety, and density restrictions due to existing concerns?
As always, please feel free to reach out for a conversation, or if I can answer any questions you might have. I welcome the opportunity to review your real estate position and advise you on an intelligent path moving forward.
Senior Managing Director, Newmark Knight Frank
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How to Hire a Top Flight Commercial Real Estate Broker: 21 Questions to Success, Based on Hundreds… was originally published in Tom Poser on Medium, where people are continuing the conversation by highlighting and responding to this story.