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What are "Roese Rebates"?
"Roese Rebates" are our way of saying "Thank You" to our exclusive clients for entrusting their real estate requirements to Roese Enterprises. In addition to receiving the finest, most personal care and attention in the brokerage industry, we offer to rebate a portion of the net commission we earn on each transaction.
Our rebate structure is based upon the size of the building leased or purchased as follows:
| Buildings 25,000 square feet to 50,000 square feet: | | 5% |
| Buildings 50,001 square feet to 100,000 square feet: | | 10% |
| Buildings in excess of 100,000 square fee: | | 15% |
What is a "tenant-rep" broker?
A "Tenant-Rep" broker (short for tenant representative broker) is a broker who has made the commitment to represent only tenants or buyers in real estate transactions. Why make this commitment? Because it is impossible for any individual to take on the role of a dual agent (where a broker represents two competing parties) and still provide the best service possible to both parties.
However, many brokers take on this role every day. At its most benign even the most qualified broker is reduced to nothing more than a lapdog paper carrier, passing terms and conditions from one party to another. He or she cannot fully represent either party without alienating the other.
At its most damaging and common occurrence, the broker covertly does the work of the seller or landlord while attempting to maintain the illusion that he or she is impartial. It is no mere coincidence that the area of dual-agency is so heavily monitored by the Department of Real Estate and one of the greatest sources of litigation each year.
Our stand is clear. When it comes time to negotiate we represent the buyer or tenant.
What is the difference between a "Triple Net" lease and a "Gross" lease?
TThe abbreviated answer to this question is: surprisingly little. But as they say, "The Devil's in the Details."
At the most basic analysis the differences appear to be rather stark: under a triple-net lease the tenant pays for all property taxes, property insurance and property maintenance directly. With a gross lease the landlord pays for these items.
The first instinct of every tenant then is to opt for a gross lease. But just because a landlord is paying for these expenses directly does not mean you are getting a better deal: you can bet that every penny of those expenses has been incorporated into the higher gross rental rate you will be paying.
What is the biggest single risk to a gross lease? In our experience it concerns the difference in motivation to perform necessary maintenance during the life of a lease. Even if a landlord is generally cooperative, how can you assure that they will provide you the timely service you require when an emergency occurs? Consider a water main breaking on a Saturday afternoon, flooding your office and warehouse? While your primary motivation will be how to prevent further damage from occurring, your landlord's primary concern may be to first determine who bears the responsibility for the damage.
The final downside to gross leases concerns the provision whereby any increases in property taxes above the first year are passed directly on to the tenant. Note, however, that gross leases do not typically apply the same rule to decreases in taxes.
This broker has listened to numerous landlords extol the advantages of this situation: they can establish an artificially high tax level, perhaps going so far as to report to the tax agencies artificially high construction work, only to petition for lower taxes after a lease has been signed. This artificially increases profits for the landlord because they are not required to refund to the tenant any reduction in taxes.
When one realizes the limited gains and the downfalls of a gross lease a triple-net lease begins to look much more attractive. However, triple-net leases have their drawbacks as well.
The first concerns latent defects in older buildings. Remember that same landlord who is attempting to pinch pennies by keeping maintenance as low as possible? Over a period of years or decades this results in a building that is like a time bomb: it's not a matter of "if " but "when" it's going to start to fail. Will it be the roof, plumbing, air-conditioning? It's difficult to predict.
Think back to that broken water main in the previous example. Now consider that it occurs on your first day of the lease and you've failed to negotiate any warranty period into the lease. If you have a triple-net lease it's 100% your problem, even if it was caused by decades of poor maintenance and neglect. A landlord's lack of maintenance - or lack of oversight where prior tenants were responsible for maintenance - results in a very large repair bill for you.
Simply leasing new buildings does not entirely sidestep this situation. How many new roofs show serious defects the first time it rains? How many truck courts fail in the early years of their use? How many air-conditioning systems prove to be inadequate with the first heat wave? Just one is too many if you have to pay for it.
The only way to work through these issues is to negotiate appropriate terms into the lease that properly reflect the circumstances. No building and no tenant are exactly alike. Having the experience to insist on the appropriated exclusions and warranties during the negotiation of leases may be the single most important task a broker undertakes for his clients.
The final area which is a concern for both triple-net leases and gross leases concerns how to minimize the impact of property taxes skyrocketing in the event the property is sold. This is of most concern when leasing an older building that may have the benefit of being taxed under Proposition 13 protection. Proposition 13 provided a one-time reduction in property taxes to property taxes. However, if the property is ever sold it is reassessed based on the new sales price.
Particularly in Southern California the increase in property value over a period of years or decades can be astronomical. One month you're paying what you consider to be a reasonable tax amount; the next month it doubles, triples or worse. Unfortunately, there is rarely a means to achieve a result that shields a tenant from such an increase.
Almost without exclusion property owners are unwilling to grant "Prop. 13 protection" to tenants because they know that in the event they do decide to sell, the buyer will directly reduce the price they are willing to pay by the Prop. 13 protection granted. Gross leases do not protect tenants in any way since any increases to property taxes are passed directly onto the tenant.
For historians out there, it helps to understand the origins of triple net leases. Prior to the 1920's most leases were some form of gross leases, derived from the type of leases commonly associated with residential real estate. However, with the advent of larger companies making significant investments into their facilities a problem occurred: owners were not maintaining their leased premises' adequately. Even worse, should the owner default on the payment of the property insurance or taxes the property could be subject to foreclosure.
Foreclosure jeopardizes the entire lease contract since the lease is always signed subsequent to the loan agreements and no lender will accept a loan without first obtaining first priority in the chain of title. To help offset this risk tenants began requiring that as many operational expenses - taxes, insurance and maintenance -- be paid directly by the tenant.
Never underestimate the ability of a disreputable landlord to skimp as much as possible during the course of a lease in order to maximize their profits. The term "slumlord" is not the exclusive domain of residential property owners.
So in the final analysis, should you push for a triple-net lease or a gross lease? The answer is that it depends on your unique need. We can analyze your specific situation and help you to determine which route may be best for your particular needs. Just contact us here.
How much time should I allow to plan and execute my next move?
There's a saying that perhaps best encapsulates the primary principle here: "Those who fail to plan, plan to fail". Starting with this basic premise, the exact recipe for success differs for each company.
As the size and complexity of a pending transaction increases, so should the lead time. At minimum, a market analysis should be performed approximately 12 months in advance. Many ask "Why such a lead time -- won't prices and available buildings be different by the time our requirement actually arrives?"
Of course the answer is yes. However, having sufficient lead time helps to more clearly define how much time will be necessary to locate the ideal building. It also gets a jump on landlords who typically want to renegotiate a lease starting 6 months prior to a lease termination. Much of how a company engages its present landlord --and more importantly -- how seriously the landlord will negotiate with that tenant depend on a tenant's thorough knowledge of the market.
Isn't it possible for my company to save money by representing itself in real estate transaction?
The myth generally runs something like this: "An owner who has not yet hired a broker is going to approach our company. As an inducement for my company to lease or purchase the property this owner will pass on the benefit of the saved brokerage fees to our company."
The problem is that it is a myth -- urban legend. Why? Three simple reasons:
| 1. | The most expensive part of any real estate investment comes during periods of vacancy. Not only must an owner now pay all the operating expenses for the property; they must do so out of their pocket. As a result, most landlord/owners are intelligent enough to engage a broker as early as possible in the process -- usually months before it actually comes available. A commission paid to a brokerage firm is a small price compared to the loss of cash flow during vacancy. So months before this owner has come to your door they've already committed themselves to pay a commission. Strike number one. |
| 2. | What if the owner has not yet selected a broker? In the rough-and-tumble world of negotiations, what owner would simply hand over the full financial benefit of a saved brokerage fee to a tenant or buyer? Strike number two. |
| 3. | Who's to say that the "deal" being offered to your company is any deal at all? In lieu of hiring a professional to assist you, how will you place yourself on the same playing field and be able to negotiate your best deal possible? Strike number three. |
Let's assume, however, that you pass all these three of these tests. Don't you still have to ask yourself one more question: "Why would a particular owner be willing to cut you such a "deal". Isn't it more likely that they are willing to do you this favor because they hold some piece of knowledge about the property that makes it worth less than the price they are asking?
Real estate -- particularly commercial real estate -- have storied pasts and uncertain futures. People are generally aware of the traps presented by environmental contamination. Many innocent companies have been destroyed by acquiring the wrong property.
But what about risks that arise from future changes to regulations (such as the Americans With Disabilities Act) or changes to land use? The unexpected cost to bring a property into compliance with new regulations or to be subject to a city's condemnation of a property can be no less tragic.
Hiring a qualified real estate professional is not a guarantee that you will sidestep these issues entirely. But qualified advice increases your odds of making your way through without undue cost and distraction.
When should I appoint a broker to represent my company exclusively?
The short answer is as soon as possible. But if you've read this far you're not interested in short answers are you? You don't just want to know the time -- you want to know how a clock is constructed. Fine.
We've already addressed the benefits of allowing sufficient time to plan for your next real estate transition here. Let's talk about the other benefits of exclusive representation by dispelling a few more myths.
| Myth #1 | "If one broker is good, five must be better."
Surely, if you can have five brokers working for you they will outperform just one, correct? Not in practice.
In real estate control is king. No qualified broker will be willing to invest significant energy into a project for long unless they stand a reasonable chance of collecting a fee for their efforts. Such control comes in the form of an Owner Agency Agreement (when representing a owner) or a Buyer Agency Agreement (when representing a Lessee or Buyer).
A company only willing to make a partial commitment to a broker is going to get their just desserts in return: partial commitment from that broker. Are there exceptions? Yes. Brand-new agents are willing to chase any deal. But do you really wish to jeopardize the success of your all-important transaction to inexperienced exuberance?
Finally, assuming one is able to have a handful of agents running around who don't know their own value and have excess time on their hands there's just one problem: Who's going manage the mess? The answer is you.
You will have to make certain that all of them are kept apprised of every change as it arises. This means the repeating of the same conversation five times over while keeping them all in the dark about multiple agents being involved. Motivations levels tend to drop off to zero once agent's discover that other agents are chasing after the same deal.
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| Myth #2 | "More agents in the field will get the word out better."
Absolutely no myth could be further from the truth. The answer is simple and obvious: without the control mentioned in the previous paragraphs, no agent will share the specific details about your non-exclusive relationship with any other agent or owner. They know that if they do, there is nothing to keep other agents from highjacking that transaction for themselves.
This need for secrecy only forces agents to be generally vague when they talk about their your requirement with anyone for fear that other agents will be able to figure out who the ultimate client is. This only serves as an impediment to solving your requirement as efficiently as possible.
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| Myth #3 | "Having more agents will uncover any 'pocket listings'."
This is a corollary to the previous item. In the old days pocket listings were more prevalent. Owners were not forced to compete against one another as they do today. More real estate was owned by individuals than institutions.
Because of this increased competition and corporate oversight today's modern owners demand accountability and results. This means getting information out to as broad an audience as quickly as possible. The result? As soon as there's even a hint that a property will be available listings are signed and it's escorted into public view. No more "pocket listings".
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So if you select a qualified agent, not only will your process move more efficiently, but you'll save time as well. Last but not least, when you permit Roese Enterprises to exclusive represent your real estate need you qualify for "Roese Rebates".
Why are we so generous? Is it that we have so much money that we can afford to toss out 30% of our fees?
No the answer is far simpler than that. The less time we have to spend tracking down business results in our having more time to do what we do best: analyze the marketplace, provide expert advice to our clients and negotiate transactions successful transitions. Plus, it's awfully fun to write checks to our customers!
If none of the previous examples made sense to you or if you find you just can't help yourself from needing to stay abreast of current market conditions and every rise and fall and shift in the local marketplace then we would like to encourage you that it may be time to consider a transition from your current employment into the world of commercial real estate brokerage. At least this way you'll be directly compensated for your commitment.
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