Incentivizing Broker with Extra Commission to Rent Space Faster

7 Replies

Hi Everyone,

We have a large (25K SF) tenant who currently occupies over 50% of one of our properties and is behind on over 3 months of rent. We will probably demise the space into 5k - 11k SF units going forwards. We want to incentivize our leasing broker to find replacement tenant(s) for the space as fast as possible. She's great but we know she's busy and has many projects. We will save a lot of $ the faster we rent this space out obviously. So we're thinking of giving her some extra commission, like an extra 2% or something, if she can rent at least  half the space by November or December 1st. 

What do you think of this plan? 

Thanks!

I think you should be further along with the tenant that is 3 months behind in rent in negotiation. What are the default provisions of the lease and your remedies to cure? Have you pursued any of these remedies with actions and steps? What has been the response from the tenant?

Do they have a personal guarantee on the lease, a multi-unit corporate guarantee, or single entity guarantee with no personal where they can easily bankrupt the remote entity and walk away?

It's already August. Around November and December companies tend to be wrapping up year end business and are not making moving decisions at the holidays. I don't think the leasing broker controls the speed at which new tenants would go in. At this point you REALLY NEED to assess your current tenant and decide if this is a temporary blip in the road or if they are not going to last long term with a more systemic and continuous problem. 

No legal advice given.

Originally posted by @Joel Owens :

I think you should be further along with the tenant that is 3 months behind in rent in negotiation. What are the default provisions of the lease and your remedies to cure? Have you pursued any of these remedies with actions and steps? What has been the response from the tenant?

Do they have a personal guarantee on the lease, a multi-unit corporate guarantee, or single entity guarantee with no personal where they can easily bankrupt the remote entity and walk away?

It's already August. Around November and December companies tend to be wrapping up year end business and are not making moving decisions at the holidays. I don't think the leasing broker controls the speed at which new tenants would go in. At this point you REALLY NEED to assess your current tenant and decide if this is a temporary blip in the road or if they are not going to last long term with a more systemic and continuous problem. 

No legal advice given.

Thanks for your reply, Joel! We have been actively trying to pursue options but not getting anywhere. He did not sign a personal guarantee (it was a sale-leaseback and we made an oversight on this). He has actually recently said he would sign a personal guarantee for the back-rent owed and the future rent, so that's good, unless he's only agreeing to sign b/c he has no assets left. The current lease ends in March 2019. 

We set up an installment plan of which he paid two installments and then stopped. He says he is struggling, worst period of his life, everything is in his business, etc. He says he has jobs that should be coming in the next two weeks and that he is 100% confident he can get current on the rent in the next few months, but we do not necessarily believe him. In our experience, every tenant we've had who has been this far behind in rent has never recovered. 

The next remedy is to do a lockout and either auction his stuff (mostly some trucks) or reach a settlement with him but that is a major pain for us (tons of doors, we do not live there) and questionable how much money we would get.

The above reasons are why we've concluded that the best way to recover the most amount of money in this situation is to replace him as fast as possible. 

Your comment about people not moving over the holidays is a good point, though troublesome. Our hope was that if we incentivize her now to move as fast as humanly possible, she could get someone interested by October at the latest with a November start date. 

Originally posted by @Kim Hopkins :

Hi Everyone,

We have a large (25K SF) tenant who currently occupies over 50% of one of our properties and is behind on over 3 months of rent. We will probably demise the space into 5k - 11k SF units going forwards. We want to incentivize our leasing broker to find replacement tenant(s) for the space as fast as possible. She's great but we know she's busy and has many projects. We will save a lot of $ the faster we rent this space out obviously. So we're thinking of giving her some extra commission, like an extra 2% or something, if she can rent at least  half the space by November or December 1st. 

What do you think of this plan? 

Thanks!

More commission should be worth spending more time on filling your vacancy. Let your broker know to tell cooperating agents that they are getting an extra 1% when they bring a tenant.

Originally posted by @Eddie LeGrand-Sawyer :
Originally posted by @Kim Hopkins:

Hi Everyone,

We have a large (25K SF) tenant who currently occupies over 50% of one of our properties and is behind on over 3 months of rent. We will probably demise the space into 5k - 11k SF units going forwards. We want to incentivize our leasing broker to find replacement tenant(s) for the space as fast as possible. She's great but we know she's busy and has many projects. We will save a lot of $ the faster we rent this space out obviously. So we're thinking of giving her some extra commission, like an extra 2% or something, if she can rent at least  half the space by November or December 1st. 

What do you think of this plan? 

Thanks!

More commission should be worth spending more time on filling your vacancy. Let your broker know to tell cooperating agents that they are getting an extra 1% when they bring a tenant.

Thanks, Eddie. I'm actually proposing offering MY leasing broker an extra 1-2% to get the lease started sooner than later, say by December 1. You're suggesting that we offer the OUTSIDE leasing brokers an extra 1-2% to bring us a tenant. Think I should do one or both? 

@Kim Hopkins I meant that the extra 2% you are giving to your listing broker can be split equally with an outside broker. That is typically how commission splits work. In some cases, the listing broker may offer the extra 2% to outside brokers which helps with marketing your space to the local brokerage community. If you want to incentivize your space with even more commissions then I am sure that it would generate interest faster.

You need to request the businesses financials to see the health of the business. It can be the business is either being mismanaged but doing well or the business model is dying off or both.

Could the tenant sell the business to an operator with more experience and net worth or bring in a partner that buys so much interest in the company?

Look at Marcus Lemonis with The Profit show.

In case anyone is curious, we ended up offering her a flat $5k bonus to lease up at least half the building by 11/1. We left it up to her if she wants to offer all or part of it to the tenant rep if there is one, or just keep it herself. Yay capitalism! :) Thanks for all the help. Will let you know how it turns out.