By Jason Hughes
These are extraordinary times. Almost by the hour, it seems like life as we know it shifts. And obviously we’re all scared and concerned for everyone’s well-being.
While the government, healthcare systems and all of us individually are working to protect ourselves from the virus, there is another crisis that needs fending off: business cash-flow and survival.
The calamity of what is becoming a cease-and-desist virus protective measure risks putting thousands upon thousands of companies—and all of their respective workforce of millions of employees—out of business. As we’re seeing daily in the press, companies are laying off employees far and wide. That is one cost that business leaders can directly control.
But what about long-term lease obligations? At some point in the next 90 days, every company is going to begin looking at their real estate lease cost, particularly those that have reduced their workforce and find themselves swimming in excess space overnight.
Contrary to popular belief, even to those within the commercial real estate industry, lease obligations are negotiable. There are dozens of avenues to pursue for rent relief—and the best avenue depends on your circumstance.
The vast majority of commercial real estate brokerage companies exist to serve building owners. Ninety-plus percent of their point of view, agenda and services revolve around fee generation opportunities driven by supporting and advocating for landlord needs, including property management, leasing, financing, buying and selling. They’re known as dual agencies—as they represent both landlords and tenants.
Times like what we’re currently experiencing make the enormous conflict of interest even more glaring than normal. When companies need rent relief through lease restructuring, lease terminations, lease contractions, and so on, how do brokerage companies who serve landlords at the same time fight to cut a tenant’s rental obligations?
Make no mistake—companies that pay rent as tenants are the lifeblood of the nation. But landlords are some of the wealthiest, deep-pocketed institutional investors on the planet. Before anyone gets concerned about what will landlords do with less cash-flow than expected, I can tell you they’re not going to lay off thousands of employees.
Instead, they will renegotiate their bank loans or take a less-than-anticipated return on their investment. But if any other kind of company doesn’t survive, the ripple effect runs through the households of your friends, neighbors, relatives and yourself. Landlords, and their dual-agent brokerage company helpers, just make less money. I’d say the sacrifice is worth it.
I have fought in multiple states to change the laws about dual agency. No different than the legal industry, the commercial real estate industry should not be allowed to represent opposing parties. How is it that lawyers are not allowed to represent opposing parties over a $100,000 issue, but dual agents can represent opposing parties in multi-million-dollar transactions?
What’s even worse today is that the biggest brokerage firms in the United States have affiliated businesses that develop commercial real estate, own commercial real estate and co-invest in it. Indeed, brokerage firms have become the landlords. It is simply crazy, and business leaders should wake up to the peril they put their company in when engaging in such outdated practices.
It shocks me every time when I hear about a sophisticated tenant hiring a full-service landlord brokerage firm. How could people be so naive to really believe in the “Chinese wall,” which is an ancient expression. Using a full-service brokerage firm to represent a tenant is just as archaic.
If you’re a company looking to maximize its real estate savings while minimizing its commitment and risk, amid this pandemic, call a good tenant-only commercial real estate company and find out how to minimize your occupancy expenses in this challenging time.
Jason Hughes is the chairman and CEO of Hughes Marino, a San Diego-based commercial real estate firm exclusively representing tenants and buyers.
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