Traditional real estate commissions, based on a percentage ofrental income or sale value of a transaction, work very well whenbrokers represent landlords, sublandlords, and sellers. In those instances, their objectives and those of theirbrokers, are completely aligned. The higher the price, thehigher the commission. See...that works perfectly!

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But, what about the tenant representative broker and thecorporate advisor, whose job is to protect the interests of thetenant or buyer? In this case, the primary objective of thetenant representative broker is very often to reduce occupancycosts. In most cases, tenant representative brokers are paidcommissions based on the same percentage of rent standard as brokers representing landlords and sellers...the higher the price,the higher the commission!

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Does that work? Is that right? Don't traditionalcommissions based on percentages put the tenantrepresentative broker in a position of being in conflict withhis / her own client? Moreover, since most commissionsare paid by the landlord, even those payable to the tenantrepresentative broker, doesn't that pose additional conflicts forthe tenant and tenant representative broker relationship? Afterall, doesn't being the one who pays the tenant representativebroker give the landlord undue influence over the how thetenant representative broker might perform on behalf of his /her client?

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In many instances, commissions paid to tenant representativescan be substantial. Despite the ability to mitigate thepotential for conflicts of interest, tenants are very oftenhesitant to accept the responsibility of cutting a checkfor large sums, especially when they haven't done so inprevious transactions.

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Rent and other financial components are not the only points ofcommercial real estate transactions that tenant representativebrokers address. Given that fact, how can they charge for thetrue value they create in a manner that is both aligned with theobjectives of their tenants and will result in fair compensation tothem? Any thoughts?

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Real Estate Strategies Corporation is a respected corporateadvisory and transaction services firm that providesthought-leadership, decision-making, planning, project management,and transaction execution services to financial and seniorexecutives at management team-led public, private, and portfoliocompanies, and not-for-profit organizations. Under theleadership of its award-winning CEO, Andrew B. Zezas, RealStrat’sclients engage the firm when acquiring, disposing, renegotiating,or enhancing occupied leased or owned real estate in New Jersey,Pennsylvania, New York, Connecticut, and throughout NorthAmerica. By creating and executing Business DRIVENReal Estate Solutions and identifying hidden Opportunities,RealStrat drives greater operational and financial performance insupport of its clients’ stakeholder objectives, M&Arequirements, and exit strategies.

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In the current economic environment, RealStrat’s efforts arefocused on uncovering, capturing, and re-purposing hidden liquidityand minimizing risk in its clients’ leased and owned realestate. The firm provides counsel as to competitive advantagestrategies in preparation for the eventual economic recovery. Visit www.RealStrat.com.

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Acquire new ideas about commercial real estate at RealStrat’sblog at www.CorporateAdvisor.wordpress.com. FollowRealStrat and Andrew Zezas at http://www.Twitter.com/RealStrat.

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Check out The Executive’s Guide to Understanding CorporateReal Estate Transactions.

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Where is Andrew Zezas?

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Copyright Real Estate StrategiesCorporation 2010. All Rights Reserved.

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