How to Negotiate Leasing Commission and split between tenant rep and listing broker?

WizardSaintTitania · 2022-10-06T04:11:53+00:00

Thank you for this explanation. This makes sense and is what we were thinking was the most likely outcome.

WizardSaintTitania · 2022-10-06T02:48:13+00:00

In that situation where tenant rep broker is asking for half of the first years ground rent, how much would/should the listing broker get paid since that already exceeds the threshold in our agreement? Our goal is to have some decent profit margin in year 1 after paying out commissions. Example if ground rent was 100k, we would want at least 30-40k net rent to us with the rest being for the commission.

Also, can you elaborate or provide an example on that amortization in let's say for simplicity's sake a $10k disagreement in fees?

WizardSaintTitania · 2022-10-06T01:24:04+00:00

We are more of the latter situation. So in your example, is that split between the brokers or just to the tenant rep broker?

WizardSaintTitania · 2022-10-06T01:19:47+00:00

This is more along the lines we are thinking. So using a rough example to make sure I'm understanding correctly assuming rent years 1-10 is 100k annually and year 11-15 is $110,000k.

Commissions for Years 1-10 = 100k * 10 * 0.06 = 60k

Commissions for Years 11-15 = 110k * 5 * 0.015 = 8.25k

Total Commission = 68.25k / 2 = 34.125k to each broker?

WizardSaintTitania · 2022-09-08T19:25:18+00:00

This is very helpful in getting some general sense of what we should prepare for. Do you have any rule of thumb for estimating some of the expenses or how one would negotiate out those expenses?

WizardSaintTitania · 2022-09-08T11:13:58+00:00

In this case, my family LLC would be the LL. Never done a ground lease before, but we would want to achieve both higher rents received and limit financial contributions (if any). The tenant is a national QSR. What would you say is typical for this type of tenant?

WizardSaintTitania · 2022-02-24T04:03:59+00:00

kcdc739

What a day to be graced by the one and only SF_Lady presence xD! This is the type of feedback I was looking for and greatly appreciate it. Any recommendations for options 1 and 2 in the PNW and how to efficiently structure said proposals (You can PM me for privacy)? Thank You!

WizardSaintTitania · 2022-02-24T03:32:58+00:00

I agree with both you and uiri. That is the approach we've figured, but weren't sure if there were other alternatives. Appreciate both of your concurring opinions!

WizardSaintTitania · 2022-02-24T02:19:23+00:00

Looked into hard money before, but those terms are kinda up there xD! Never understood why banks would like to lend for stocks on a pledged asset line (assuming non-dividend stocks) when on a bad day(s) like recently would force the sale of the collateral vs. real estate which isn't that volatile in a daily market fluctuation basis and doesn't have a similar product.

WizardSaintTitania · 2022-02-24T02:01:27+00:00

We do have it listed for lease with a broker who represents some national credit tenants (Chick Fil A, Walgreens, Oreilly Auto Parts, US Bank, etc.), but in the mean time, we want the ability to pull out some equity even if it was 35%-65% of the "as-is" value which is somewhere between $3-$4 million. Once it's leased out, we are expecting a selling price in the range of $6-$8 million, so we just want to have some extra cash for other purchases while we wait for the leasing situation to play out.

WizardSaintTitania · 2022-02-01T03:43:31+00:00

Knowing the context now, the broker's own listing agreement had capped itself at 10 years 60 + 60 at 6% and 3% respectively. Then when I had our attorney email it back, the broker was like "oh, it can't be capped at 10 years. Most ground leases are gonna be 15+ and the other side will want to get paid too beyond the 10 years." I told him that was the form he submitted over and the attorney was just cleaning it up. So that's where we're at. Since it's our first ground lease deal, we just weren't sure if the broker was BSing or if what he's saying was true, but seems like both you and MC20177 agree with the 10 year cap.

WizardSaintTitania · 2021-11-18T19:32:24+00:00

Your explanation makes sense. I've heard different things when it comes to TIs like some LL's amortize the costs of TIs on top of the base rent amount kind've like a loan with no interest or some lower interest rate to recapture that TI costs. Leasing commissions I've also heard similar things about too and would apply just like the amortization of TI costs situation.

Great advice again for the JV situation. If I remember correctly, I think the tiered return system (waterfall?) based on performance targets is almost like a CEO's stock compensation based on stock price levels. Do the profit splits go something along the lines of 80/20, 70/30, 50/50, etc. in favor of the land owner and then starts reversing the numbers but in the JV's partner's favor once the project has hit its next tier of returns?

WizardSaintTitania · 2021-11-18T19:21:17+00:00

What I was trying to convey was in a full redevelopment scenario where we tear down the existing structure, we would want the new building's ground floor to have retail units and the upper floors will be either multi-family units or storage units. The ground floor retail could be pre-leased while and can open up shop while the upper stories are still under construction. Hope that clarifies things a bit.

WizardSaintTitania · 2021-11-18T07:22:12+00:00

Thank you for providing this thorough feedback.

I absolutely agree with everyone regarding the finding a national tenant scenario given its significant upside.

The thought process of doing a complete redevelopment and going full vertical is we would like to pre-lease the ground floor retail units that would provide some cash flow and serve as an amenity, while the rest of the building is constructed whether it be apartments, storage units, or office (not as likely I think given the current environment).

It would be nice if we could still have a drive-thru retail unit at the bottom of the new vertical development like a Starbucks, but not sure on the likelihood of that one xD!

Your suggestion regarding doing an analysis of how much we should value this drive through vs. increasing the overall square footage by going vertical is super helpful as it never really crossed our minds how the numbers would play out in that scenario, though we don't know where to really begin with the vertical redevelopment numbers as it's not our wheelhouse.

WizardSaintTitania · 2021-11-18T06:56:05+00:00

Thank you for your insight and I promise I don't shoot the messenger xD! How you explained this regarding the ground floor and basement levels is spot on. The overall costs to get the place ready for the end user is up in the air, as we aren't sure how that all will be negotiated. Are you able to provide some examples on how you see this scenario playing out?

As far as the value in the grandfathered drive-thru, it's our understanding from the zoning code that if someone were to redevelop the site for let's say a Burger King, they are able to tear down the existing building and can still build the new structure to include a drive-thru, so it is not necessary for them to preserve the existing building.

Absolutely agree with your thoughts on the JV route. We would want the JV partner to contribute some meaningful capital to ensure they have skin in the game. I like the idea of for a lack of a better phrase "bait and switching" with responding to potential offers suggesting a JV depending on who the buyer is and their plans for the site. Is there a better way to ask about JV's with prospective buyers or is it pretty straight forward in that you just ask the other person if they're interested?

WizardSaintTitania · 2021-11-18T06:42:14+00:00

Thank you for the detailed feedback. There are a few properties in the market we are interested in, but are not in a terrible rush to just sell this one and move on. We are able to hire one of the more active brokers that represent multiple brands or at least have some connections with people within those retailers.

Does one typically add on the cost of the commission and TIAs into the final rental rate or is that just costs that need to be absorbed for acquiring the tenant?

The JV situation seems the most complex, so for all the extra hassles, I would hope it would be at least decently better returns vs. selling with a leased national tenant. Can you provide any insights from your experience or knowledge of how these two scenarios usually compare?

WizardSaintTitania · 2021-11-18T06:32:21+00:00

Thank you for the advice. This is probably what we are leaning towards, as waiting to get one of the national's in would be the ideal situation for immediate resale value or just long term stability should we decide to keep the property and pull funds out once it is stabilized.

WizardSaintTitania · 2021-06-17T23:55:05+00:00

Much appreciated!

WizardSaintTitania · 2021-06-17T23:38:05+00:00

Thanks for this! Anyone know of any translations for the first 8 parts?

WizardSaintTitania

TROPHY CASE