How to Choose an Industrial Real Estate Broker

The person listing a building generally represents the owner, and that job is to get the owner's deal done. A tenant-side industrial real estate broker represents the occupier. Both can be honest and capable, but their duties run to different clients. Ask directly, and ask whether the firm also represents landlords in your market.

State law sets a baseline. In Illinois, the Real Estate License Act says licensees are considered to be representing the consumer they are working with as a designated agent, unless there is a written agreement between the sponsoring broker and the consumer providing for a different relationship. The Act's duties for a licensee representing a client include performing the terms of the brokerage agreement, promoting the client's best interest, and timely presenting offers. Other states have their own rules. Read your agreement and ask your attorney how they apply.

A firm that lists buildings can argue that it has better market knowledge, and a tenant-only firm can argue that it has no competing owner relationship. Decide which matters more to you, and get any potential conflict disclosed in writing, including how it would be handled if a client wants a building the firm has listed.

Industrial decisions turn on specifics that do not come up in an office search. A strong candidate should be able to discuss your operation before discussing any listing. Give each broker a brief and see what comes back.

• ✓Do they ask how product moves through your building before proposing square footage?
• ✓Can they explain the difference between stated clear height and usable storage height for your racks?
• ✓Do they ask about pallet positions, trailers, door counts and truck turning?
• ✓Do they raise power, sprinklers, floor loads and zoning early, and say who should verify each one?
• ✓Can they explain how the repair, capital item, environmental and surrender clauses affect your cost?
• ✓Have they closed tenant-side industrial work? Ask for examples they are free to discuss and references you can call.
• ✓Do they admit what they do not know, and point you to an engineer, attorney or fire official?

Be wary of precise-sounding claims that come with no support. A broker who promises a rent figure before seeing your needs, or who says a building will work for your storage without an engineer's review, is telling you something about how they will handle later decisions.

Search breadth affects your leverage. Listed availabilities are only part of what might work, and a search should also look for subleases and owners who might respond to a requirement. Ask how the broker will find options and how you will compare them.

• How do you find options beyond those on a listing service?
• How will you create competition among landlords, and when in the process?
• How do you compare proposals: on rent, or on total occupancy cost over the term?
• What does your schedule look like, working back from our lease expiration or move date?
• When do zoning, fire protection and building reviews happen in that schedule?
• Who will actually tour with us and negotiate, and how much of the work will they do personally?
• How do you work with our attorney, engineer, insurance broker and CPA?

The last questions matter more than a polished presentation. Meet the person who will do the work, not just the person who wins the assignment.

Illinois Realtors' consumer guide to agency says that, no later than entering a brokerage agreement, you should be advised of the designated agency relationship, your designated agents, and what the company will be paid along with its policy on paying other firms. Rules vary by state, so ask for this in writing wherever you are.

In many tenant deals, the landlord pays the commission under its agreement with brokers, but do not assume that without reading your documents. Read your representation agreement carefully and have your attorney review it.

• ✓Is the agreement exclusive, and does it cover a geography, a building type or just this one requirement?
• ✓How long does it last, and how can either side end it for poor performance?
• ✓What is the commission, who pays it, and what do we owe if the landlord does not pay?
• ✓Is there a tail period after termination, and which deals does it cover?
• ✓Does the agreement address renewals, expansions, purchases or subleases?
• ✓If a commission is due, could a lien affect the property or our deal?

That final point has a real legal basis in Illinois. The Commercial Real Estate Broker Lien Act gives a broker a lien, in some circumstances, in the amount due under a written instrument, including one signed by a prospective buyer or tenant. Ask your attorney how this could apply to your transaction.

You can also verify licenses. The Illinois Department of Financial and Professional Regulation offers a license look-up, and other states run similar services.

1. Write a one-page brief covering your operation, location limits, schedule and deal-breakers.
2. Interview at least two brokers, preferably with the person who runs your operations in the room.
3. Ask each to walk through what could go wrong with your search, and who would verify what.
4. Call references from tenants, especially those who had a difficult building or a landlord dispute.
5. Review the representation agreement with your attorney before signing.
6. Pick the person whose questions were best, whose conflicts are clearest, and whose schedule makes sense.

Listen for the questions they ask you. A broker who wants to understand your freight and your floor before naming a building is showing you how the search will go.

Tenant Advisory Group is a Chicago-based tenant-rep and buyer-rep brokerage founded in July 2008 by Bill Himmelstein, CNE, and it also works nationally across office, clinical and industrial space. We represent occupiers, not landlords or sellers of investment property. The firm reports more than $1.5B in transactions, more than 500 transactions, and more than $350M saved for clients.

An industrial engagement starts with how your operation works. From there we build a requirement, search broadly, create competition, compare options on total cost and fit, and negotiate the lease or purchase alongside your attorney and technical advisors. Those professionals decide the engineering, legal and code questions, and we make sure the answers reach the deal. Use the same questions above on us.