I am honored to accept the role of inaugural Executive Director for The Associate for Commercial Tenants (www.ACTrealestate.org).
The Commercial Real Estate Industry Has A Landlord Bias
You don’t believe the industry has bias? Let’s take a look at how the commercial real estate market works.
Imagine that you and I enter into a negotiated partnership. You tell me that you like things to be win/win. Then I read the agreement.
In this example, I will be the landlord with the upper hand and you can be the tenant.
- I can sell my position in our partnership to anyone at any time, and I get to keep all the profit.
- You can’t sell your position without my approval, I get to charge you a fee for considering such a request and if you do sell, I get somewhere between 50% and 100% of your profit.
- We are going to share and divide up responsibility for managing the business of our partnership, but I get to charge a management fee and you don’t.
- You can’t relocate during our partnership, but I can choose to relocate you if I get a chance to make more money. (relocation provision).
- I will need to review your financial statements now and again every year, and I may require an unlimited personal or corporate guarantee. You don’t get to see my financials, and my financial exposure to this partnership is strictly limited.
- As the cost of operating our partnership increases, you pay all of that (Base Year).
- I may, from time to time, change the terms of our agreement and charge you more (right to re-measure the space).
- The amount that you pay goes up every year and can never go down.
- If you want to alter any part of our agreement, you will have to pay me to consider your request.
- I am actually not responsible for anything that happens in our partnership, you agree not to sue me and you agree to indemnify me against all acts. You, however, are fully responsible for everything that happens in our partnership.
- When I choose to sell my stake in our partnership, taxes will increase dramatically, and you will have to pay all of that.
I could go on, but I think I have made my point. The status quo commercial real estate industry and the typical norms and forms of the industry are loaded with landlord bias. This bias exists because the would-be advocates for corporate America in commercial real estate negotiations are all too often the landlord’s agents or property investors themselves. How’s this- imagine taking the court for the final game of the NCAA Championship and you notice that the referee, under his black and white stripes is wearing the other team’s jersey. Yeah, that’s what we are talking about.
Am I wrong? Tell me what I am missing. Let’s start a conversation corporate America.
ACTrealestate.org is here to bring change to the commercial real estate industry. Our simple goal is to level the playing field in commercial real estate and to advocate for the interests of corporate America in the commercial real estate services industry.
Join the conversation.
The Association for Commercial Tenants