Not using a broker could cost you your business and maybe even your house. The same goes for using the wrong broker.
Let’s get the most important objection out of the way—you do not pay the broker, the landlord does. Yes, you can argue that you can extract the value of the broker fee by not using the broker because there is no such thing as a “free lunch”, but this gamble is rarely going to turn out in your favor unless you ARE a broker, or have negotiated enough leases to learn the process and really want to do it yourself.
Let’s start at the beginning:
What does a GOOD broker do in your search for a Coworking Space location?
- Understand your business model and helps you to identify requirements for your space
- Has access to listed spaces and spaces that are not yet on the market
- Weeds out spaces that are listed, but won’t work for your business model
- Looks for pitfalls in a lease
- Helps you navigate the lease-signing process and complete the due diligence process –
- Identifying and getting quotes from general contractors
- Ensuring the space is zoned for your specific use
- Knowing what city/building code implications you’ll have for your business
- Understands what is typical/standard in your particular market as it relates to TI (tenant improvement) allowances, free rent periods, etc.
- Tries to help you avoid signing a personal guarantee
- Helps you through the process of qualifying for a lease
- Introducing you to banks if you need a line of credit
- Helping you understand personal finance requirements
- Helping you assess a space with an objective eye
- Gives you data about potential neighborhoods and specific locations
- Lastly, helping you understand the likely transition of a neighborhood over the next few years based on trends, other leases getting signed, etc.
In conclusion, brokers help you to navigate your search process, the lease process, and really help you to limit your downside.
What are the “watch outs” in a broker relationship?
- First of all, brokers generally have a compensation structure that is weighed highly toward commission. That means they have to close a certain number of deals in a year to make their target income. Therefore, they calculate the ROI of the deal they are doing with you and at some point, they need to get a deal done even if it’s not the best deal for you. It’s easy to blame the players for this but it’s a structural issue. It’s how the system works and they have to manage it.
- If your broker thinks you are going to sign one lease in the next five years, their incentive to work with you and spend a lot of time on your lease is lower. They don’t see repeat business and they have to close deals to feed their families.
- In addition to, there are only a few broker groups today that have an explicit focus on coworking/flexible office. They are listed below and we will try to update this list as more come online. Brokers that don’t have experience working with coworking clients many not understand the unique business model. The typical company looking for commercial office space has a budget for space that is a small percentage of their revenue and their costs. In this business, rent can be up to 40-50% of a location’s revenue. A coworking space’s success is almost singularly driven by its lease. While there are many other factors that an operator layers on to create a successful space, 90% of the success is the lease. Most brokers do not understand the business model and therefore may not successfully weed out all of the “bad deals.”
Identifying a GOOD broker to help you find your flexible workspace
The flexible workspace model is unique. Your location and your lease are critical to your business success in a way that is not typical of most commercial real estate tenants. You want to make sure that you find a broker who is an advisor that truly understands your business model and how to effectively facilitate your site selection process from start to finish. His/her primary goal must be to put you into the best situation possible.
Here are some early questions I’d ask a potential broker to evaluate their fit:
- What shared workspace experience do you have?
- Have you worked with any other operators of flexible workspace?
- What specific resources will you utilize to help me with my search?
Ideally, your broker will have a clear understanding of the flexible workspace industry both locally and nationally. Locally he/she should understand all of the players and competition as well as the market demand for your use. Nationally he/she should understand all of the trends and best practices as well as a network of flexible workspace expert advisors he/she would co-broker with in other markets.
Overall, your best fit is a broker that has placed other operators in space and has experience communicating your value proposition to landlords and protecting your unique needs. And you want a broker that understands the types of resources that are relevant to your business such as local market demographics, the competitive landscape, other providers coming to market, self-employment growth, etc.
My preview-list of critically important “don’t forgets” are:
- Do not lose sight as to how important your location is- no matter the deal structure! Location, location, location must be your first focus. A landlord who is willing to offer you an incredible deal might not always be the best space. If you are committing to invest a significant amount of operational and marketing capital into a location, it better be a great one.
- Do not automatically assume you have to personally guaranty anything. If that’s the case, you are likely working with the wrong landlord and/or wrong broker.
In the best case scenario, your broker will have a real passion for the flexible workspace industry and be committed to helping position you for success.
- Ryan Hoopes, Colliers International’s Flexible Workspace Advisory Services
In conclusion, when you’re ready to start talking with a broker, consider first contacting firms that specialize in flexible office space. At least have a conversation with them before you agree to work with your brother-in-law’s best friend from college who happens to be a broker.
Ryan J. Hoopes
Senior Associate | Dallas
Flexible Workspace Advisory Services
Direct +1 214 217 1244 | Mobile 1 214 519 1330
Main +1 214 692 1100 | Fax +1 214 217 4944
Tom L. Sutherland
Colliers International | Dallas
Direct+ 1 972 759 7878
Cell +1 214 704 7851
Listen for more on Episode #51 of the Everything coworking Podcast: listen here.