We are seeing two developing trends in corporate real estate these days. First, as part of our tenant representation work we are being asked to seek out and deliver more public incentives to our clients. Historically companies have been very aggressive in seeking out only large concessions or incentives to relocate their business to a particular country or state. Typically these incentives have been oriented only towards major tax reductions.
For instance when a semiconductor company builds a $500M plant, they get various offers from government agencies that reduce their real or personal property tax. States often compete against each other by this method for the benefit of getting a company to relocate there. There are political ramifications, job creation, and corporate shareholder returns to consider. When corporations seek and receive incentives, the public sometimes views it negatively. Corporates routinely share that their image issue is a big issue. While at the same time corporations owe it to their shareholders to lower costs and achieve greater profitability.
TMC has had a long history of dealing with these issues and opportunities available to our clients. We’ve acquired approvals for building signage visible on nearby freeways, dedicated parking access, energy tax credits, TI grants low interest loans, free transit passes and many other incentives. The trend that we are currently seeing is that corporations aren’t only negotiating for large personal and real property tax reductions. They are focusing attention on smaller but also important incentives. Most of our clients try to have a balance between their business issues and the local community. But we are also seeing other corporations be exceptionally aggressive and literally seeking large cash subsidies to open or renew their business in a locale. This is a troubling trend. And yet the conscientious and appropriate trend of corporates investigating available incentives is one we serve our clients on regularly. That is a good trend for all.
A second real estate trend we are finding is the education of CFO’s and Corporate Real Estate Directors about commission. Historically the corporate mantra was “I don’t care anything about the commission. That’s your business.” And to some extent that mindset still exists. We are educating tenants on how 50% of the tenant rep fee is usually going to the large brokerages high costs and overhead. As both principals of our business and service providers, we cut out the excessive 50% waste to the benefit of our clients. And we return that to our clients in a combination of many free services and a discount commission model where we in turn decrease our clients rent stream or increase their TI Allowance. This is an economic efficiency that doesn’t take a lot of explaining. In the end this new model that we have designed benefits our client and their shareholders, and not the brokerage overhead and their shareholders.
We also sometimes see how CFO’s and Corporate Real Estate Directors don’t understand this economic inefficiency. Instead of reducing the 50% brokerage overhead we often find tenants doing things like trying to complete renewals without a tenant representative. Unfortunately when they do this, they have no way of knowing if they are saving the commission, or increasing the landlord’s broker’s fee. What we do know is when they call the landlord without a tenant rep, they instantly lose all negotiation leverage as by not using a tenant rep, they are announcing to the landlord that they won’t be relocating. The tenant rep would be instrumental in getting another alternative and thereby creating real leverage. TMC works at a discount on renewals so as to make them cost effective for our clients.
And finally we are regularly explaining to clients wanting to be part of this commission reduction trend to focus on the excess 50% that goes to the brokerage overhead and shareholders, not the individual service provider’s fee. In our case being the principals and service providers our economic efficiency is a benefit to our client’s bottom line and their shareholders.
Two trends we see regularly these days, and ones we are happy to talk or meet with you on anytime. We take the lead to help our clients take advantage of these trends throughout the U.S.