All Forum Posts by: Mike L.

You are right in the way that you calculated the way brokers are paid.  If the lease is longer than 5 years, sometimes they are paid on a percentage of the second 5 years, as well (such as 4% of the total rents for years 5 through 10).

Most established brokers would not accept if you tried to put in a clause to pay a reduced commission, or some sort of commission contingency.  Their argument is that they will be bringing you tenants, and it is up to you to qualify the tenant and decide if the tenant is a good, strong tenant for you.  You can choose to reject the tenant if you don't think they can make it through the lease.  Some brokers may offer to re-lease at a reduced cost; you could always ask.

One commission structure that we use is half upon lease signing, 25% at the second month of rent payments, and 25% after 6 months of rent payments.

How good your space is will determine what type of broker would be willing to work on it.  Very busy brokers will (or at least SHOULD) only take on assignments that they will actually do work on to lease.  A good broker won't just post it on Loopnet and CoStar.  He (or she) will also call on tenants who he thinks would be a good fit.  If you have a strong "A" location, they could have relationships, and be calling on McDonald's, Taco Bell, Panda Express, etc.   Your chance of those tenants leaving 6 months into the lease are very low.

If your location is more of a "B" location, then you will probably be dealing more with mom and pop independent retailers/restaurants.  You will have to evaluate the tenant's financials carefully, and take a large security deposit if necessary.  Require the tenant to personally guarantee the lease.  Hold a large enough deposit that you can pay the broker in case the the tenant leaves. 

It would be best if the rent and triple net fees are less than 10% of the restaurant's revenues. If they are spending more than 10% on rent and NNN, then they may be in trouble.

That's our guideline here in the Inland Empire area of Southern California.  It may vary in other areas.

Hi Timothy, I just sent you a private message.

It means that the rent is $4.00 per square foot per month, plus an additional $1.10 per square foot per month for triple net (NNN) charges. Triple net charges are property taxes, property insurance, and common area maintenance. The landlord tracks the triple net charges and bills them back to the tenant. $1.10 is an estimate. If, at the end of the year, the actual NNN expenses are different from what the landlord billed the tenant, then they do a reconciliation to either pay back or charge more to the tenant the difference.

So, the tenant has to pay a total of $5.10 per square foot per month total.

Let me know if you still have questions.

How did you come up with the $45k rehab number?  Did you get contractor estimates?  I'm not saying it's wrong; I'm just curious.  Since you say you are gutting everything minus HVAC, that number sounds like it could be a bit low. 

For my answer, I will assume that you are looking to become a broker.  The best way is to learn from an experienced broker.  See if you like what specialty he or she works in (retail, industrial office, etc).  Learn how the senior broker builds a database of contacts, and see how he or she makes cold calls.  Learning how to cold call is a very important part of this business, so it would be beneficial for you to learn how to make those calls.  

Most people hate making calls, so if you can psych yourself up and make lots of calls and set up meetings, then you will be a rock star. It should be your goal to set up meetings where you can bring along your mentor, and then your mentor can close the business. Hopefully you can share in some of the reward if your calling leads to a deal that closes. Deals in CRE take a long time to close so you might get a check when you are already back in the next school year!

Let me know if you have any other questions.

If you work with a local broker, make sure he is a commercial broker with access to post on the listing services, like Loopnet and Costar.  And make sure he has a platinum Loopnet account, which allows everyone to see the listing (non-Platinum members' listings can only be seen by a select few people).  

Make sure the marketing brochure on Loopnet or Craigslist highlights all the positives about the property, with good clear photos and who the neighboring tenants are.  If you are close to a Starbucks or McDonald's, or other national tenant, then make sure you advertise that fact.

It may be difficult to find a broker who will enthusiastically take on the listing, since the space is pretty small, which means a smaller commission.  I think your best bet would be to find a young broker who is new to the business, who is hungry and eager to take on a listing.  He should work for a firm who will provide him with the Loopnet and Costar accounts to property market your property.  Check out the Retail Brokers Network for an affiliate brokerage in your area.  All the firms in RBN specialize in retail real estate.  A good broker will create an attractive marketing package, and proactively reach out to tenants that would be a good fit for your center.  A mediocre broker will just post on Loopnet and wait for the inquiries to come in.

Typically you would go on a listing service and look for sold comps in the area.  Costar is a popular option in some parts of the country; in other areas, other programs have better information.  If you don't have access to Costar then try calling a real estate broker who sells land in the area.  They could probably even tell you off the top of their head.

Hi Oliver, are you looking to wholesale the deal, or are you holding onto it?

I agree with Ganesh's statement.  I work in the retail space, and a common commission is 6% of the lease value for the first five years, and 4% of the lease value for years 5 through 10.

Lease value is the number of years times the annual rent.

In retail, we don't often get paid commission on options or lease renewals.  I know this is different from office space, where brokers often do get paid on renewals.

If the listing agent finds the tenant and double ends the deal, then the commission is sometimes reduced, to 5% for the first 5 years, and 3% for years 5 through 10.

These are just guidelines for a starting point  Everything can be negotiable.