Using a buyer’s agent is something many associate only with purchasing residential real estate. But as the property market continues its ascendancy buyer’s agents are making their presence felt in a big way across commercial real estate – on the agent side as well as the buyer’s.
“Commercial transactions are no different to residential in that the leasing or sales agent is engaged by the vendor to represent their interests and the buyer’s agent is there for the buyer,” says Reece Coleman, founder and director of buyer’s agency Maker Advisory.
Rising popularity
These days, many commercial buyer’s agencies are finding themselves working with agents as well as clients due to the commercial sector’s growing popularity with investors seeking strong yields.
Tas Costi, co-founder of dedicated commercial buyer’s agency Costi Cohen, has experienced the rising popularity of his service first-hand: in just over a year, the Costi Cohen agency has grown to help clients large and small purchase every type of commercial asset class from apartment blocks through to multi-million-dollar shopping centres. “We service a variety of investors, developers and owner occupiers ranging from large-scale institutional developers through to your mum and dad investors. Our focus is predominantly the metropolitan markets of Sydney, Melbourne and Brisbane, and of course this extends to regional areas as the mandates arise.”
Mr Costi’s team is also dealing more and more with commercial real estate agents as their client pool of commercial investors grows. But like many others in his business, Mr Costi is often forced to explain to both clients and commercial agents exactly what a commercial buyer’s agent does – and what they do not.
“We are only paid by the purchaser – which is the person we represent,” Mr Costi says. “We as buyer’s agents don’t share in the selling agent’s commissions or enter into collaboration agreements with them. Commercial real estate agents are fully retained by their vendors, the owners of the properties they are selling.
“At the same time our buyer’s agency service is becoming more popular with both purchasers and selling agents simply because of the detail and complexity involved in commercial transactions.”
Managing misconceptions
The issue of who is being paid how much and by whom is where one of the biggest misconceptions about commercial buyer’s agents arises, agrees Rethink Investing acquisitions manager Robert Martin. His role at the commercial property buyer’s agency is to work with selling agents, sourcing and negotiating properties that would be suitable for Rethink Investing’s buyer’s agents to present to their potential purchasers. But many of the commercial real estate agents he approaches in the first place – as well as some of RI’s investor clients - often mistakenly believe that a buyer’s agent works in conjunction with the selling agent and is therefore paid by both the agent and buyer. This however should never be the case, Mr Martin says.
“People tend to think we as buyer’s agents are getting money from both sides of the fence which we are not,” Mr Martin says.
“And that’s unfortunately because there have been a handful of agents who have done that and worked in that manner, and it’s tarnished the image of all buyer’s agents in the process.”
Misunderstandings exist on the industry side, too. “When we approach them (commercial real estate agents) with a buyer, the selling agents almost always think we’re going for a conjunction with them when we’re not,” Mr Martin says, adding that thankfully awareness of a buyer’s agent role was on the rise. “Most agents know by now what a buyer’s agent does, but in the commercial field I have been forever explaining what we do.
“I still, for instance, have to put a tagline at the bottom of my marketing emails that explains we are remunerated by our buyers, and that we do not receive or are after any compensation or monies from the selling agent. We have to make this clear so as not to scare off the selling agents - because when I say I have a buyer for this property, they tend to immediately think you want them to share their commission with you which we don’t.”
Reaping the benefits
Benefits of purchasers, lessees and even other agents engaging a commercial buyer’s agent are wrapped up in the knowledge they can impart, Mr Coleman says. “A buyer’s agent has the resources to be fully aware of current selling rates, yields and rental demand in a particular region. It’s one of the reasons a lot of the larger buyer’s agencies now have commercial specialists.”
Inexperienced lessees are among those who have the most to gain from engaging a buyer’s agent who can then act as the tenant’s advocate during commercial lease negotiations Mr Coleman says.
“Many people entering into commercial leases would not be doing so regularly and tend to lack the professionalism to execute a deal correctly. But commercial lease agreements are complex with lists of clauses that can run into dozens of pages compared to residential lease agreements which are more straightforward.
“This is why virtually any tenant and especially anyone leasing their first commercial property needs a buyer’s agent on their side. These are the people who will ensure everything is negotiated in their best interests, manage risks and make sure a lessee doesn’t get themselves into a situation they may want to exit within months but are locked into for up to a year or more.”
For instance, the owners of an international events company who had a disastrous experience with the lease of their former premises recently approached Maker Advisory for assistance in securing their current Sydney headquarters.
“In the first instance the company had acted directly with the landlord,” Mr Coleman said. “But due to their lack of expertise in the area they got themselves into a lease that cost thousands to unwind when the building was sold to a new owner. Then to make matters worse, they found that promises they had been given in relation to their lease agreement had never been documented.”
When the company engaged Mr Coleman to act on their behalf by finding new premises and negotiating the deal, he was able to take charge of striking a fresh - and this time iron-clad - nine-year lease agreement for the company’s current premises.
As for purchasing transactions, Maker Advisory has most recently assisted clients and agents with acquiring commercial properties across Sydney, from Botany, Bondi Junction and Double Bay in the east, to Crows Nest and Mosman on the North Shore to Darlington and Potts Point closer to the inner city.
“A lot of residential property investors have seen the opportunities available with commercial real estate following the effects of covid 19 on the market that sent house prices spiralling,” Mr Coleman said.
“In regard to commercial agents, they can also feel confident that when a buyer’s agent is involved, the buyer has not only been qualified to purchase but has also been given guidance on the nuances of commercial property investing.”