Commercial Real Estate Brokerages and Conflicts of Interest

When you hear, see, or read the name “commercial real estate brokerages,” what comes to mind? Someone who works to finds tenants the best deal? Or, someone who works for landlords to find them tenants?

What your answer is will depend on what end of the spectrum you are, but if you are a tenant, you should hopefully see that the two points above can’t exist in the same broker. That is an apparent conflict of interest. Why then do commercial real estate corporate service firms play both sides of the coin like this?

Major commercial real estate firms have made their empires by representing both tenants and landlords. But while they benefit in this arrangement, the tenant consistently is at the short end of the stick. This means that tenants need to be hyper-aware of the professional they choose to represent their real estate transactions and their portfolio. Let’s discuss the conflict, why corporate tenants usually are at the disadvantage, and the evolving legal landscape surrounding the process.

What are Commercial Real Estate Brokerages?

Let’s start with the basics. When Propmodo asked the same question, "what are commercial real estate brokerages," the initial answer already pointed out some red flags that are widely commonplace. 

“Besides representing clients in sales and leasing transactions, they (CRE Brokers) help orchestrate financing for investors, manage properties for owners and occupiers, and provide a number of other consulting services.” -Propmodo

So, this should already sound fishy, in fact it’s the exact conflict of interest that we described earlier.

Many of these firms represent the interests of both tenants and landlords. Of course landlord brokers have a place, and that is to represent the landlord by securing them the highest price. But if you're a tenant, you don't want to work with a firm that represents both sides of the commercial real estate transaction. One of the ways to identify whether your representative also represents landlords is to see whether they advertise property listings on their website. 

How are Conflicted Brokers Conflicted?

Considering that the majority of commercial real estate brokerages cater primarily to landlords as their primary clients, it becomes apparent that landlords wield greater influence in negotiations, often at the expense of tenants.

This skewed dynamic can result in tenants not receiving the most favorable deals, as brokers may prioritize the interests of their landlord clients over the individual needs of tenants. The loyalty towards their largest clients usually creates an imbalance in the negotiation process, as tenants lose out on the best possible terms, concessions, prices and even potentially better suited buildings.

The only way to truly guarantee as a corporate tenant that you’re getting the best deal is by working with a True Tenant Representative. With a fiduciary responsibility to protect solely your interests, you never have to guess whether or not you got the best deal possible. Read: What is a True Tenant Representative and What to Avoid. 

Because landlords also reap advantages from dual agency arrangements as they are not required to contend with competition.

Less Competition = Less Leverage for Tenants

It is important to note that one effective strategy for achieving desired outcomes in negotiations is leveraging the value of your tenancy against multiple offers from different landlords. However, corporate service brokers may overlook this crucial step, resulting in a limited number of properties being presented to you. While your representative's company may not have exclusive agreements with all properties, a True Tenant Rep would likely provide a significantly broader range of options.

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