What is reasonable for a 10-year term commercial lease commission?

Question

Hello everyone.

I am looking for a commercial broker to lease my property. This is my first time. The lease value for this 10 year term is going to between 1.5 - 2 million. The commission rate the broker proposed is 6% for year 1-5 and 4% for year 6-10. My partner tried to negotiate with the broker for a rate of 4% for year 1-5 and 2.5% for year 6-10. But the broker said it wont' work, cause it is not enough to motivate the outside broker to bring clients over and the broker said my partner's request is unreasonable below the market value. Can anyone please provide the guideline what is the reasonable for 10 year term commercial lease commission with lease value between 1.5 to 2 millions?

Joel Owens · Answer

Leasing brokers don't get out of bed for 4% total.

Break it down.

If you have 100k rent say for 10 years primary lease term that is 1 million to keep simple at 4% that is 40,000 but if other leasing broker that is 20,000 and BEFORE that leasing broker splits with their brokerage. They are hardly making anything for such work on a deal. That is why leasing brokers like new develop deals where national tenant paying 40 to 60 bucks a foot in rent value for 200k plus a year in rent.

A bigger question is WHEN the leasing fee is DUE. If you are not dealing with a national tenant the tenant could never open, go dark in 1 year, etc. Then you would have that leasing expense all over again.

We actually sometimes like to pay the leasing brokers more so they push our site harder than others.

If you have an A location and A parcel shape then typically lots of tenants fight for the site to lease it or buy it and leasing broker has to do less work for fee involved and rent per foot higher most times. If you have a B to C site with irregular or small parcel shape then tenants tend to pick 2 to 3 sites in an area and pit landlords against each other to see who will give the tenant the best terms they desire on a lease. The leasing broker has to work a crap ton for their fee to get them to your site over others.

If you decide all you can get is a higher risk small to no credit tenant then you may want to only start paying the fee once open and first months rent received on time and have a clause if the tenant goes bankrupt or closes the fee is no longer owed to leasing broker. The first fee paid is an installment to leasing broker with more over time. Leasing broker will fight that and say they want fee today but bad deal for you if crap tenant. Broker will say you get to decide if you want high risk tenant that is on you to which I typically say bring me another better tenant then if you want your full fee upfront when they open and start paying.

You do not want to keep having to pay attorney fees, tenant improvements costs, and leasing fees every time a tenant last a few years and goes dark. If it's Starbucks though I know I am getting paid for full primary lease term and even if they close the place they will pay rent to me so I am okay giving the full fee to leasing broker once they are open and operating.

No legal advice given.

Julie Greene · Answer

Market fee in Buffalo NY on a 10 year lease would be 5% across the entire term.

What is reasonable for a 10-year term commercial lease commission?

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