If you, as the owner, or your asset manager are using leasing agents full-time, then your real estate can never, ever be more than 93% occupied, economically. This statement is predicated on (1) the leasing commissions are at 6%, (2) they are paid upon execution of the lease, and (3) the average lease-term is three years. The magnitude of leasing commission dollars that owners pay has a significant effect on the real estate’s net operating income (NOI), capitalization rate, cash-flow, and, ultimately, value.

Because the amount of money that owners pay for leasing commissions is significant, they should be asking: Am I getting my money’s worth by using leasing agents? Should I lease the space myself? Can I save money if I the lease the space myself?

Because leasing costs are a significant determinant of real estate value, it is critical that owners and responsible fiduciaries examine all their options when it comes to leasing activity. A comprehensive understanding of the leasing process is the best way to analyze those options. My experiences tell me that leasing agents earn their commission when they perform the following functions:

• Provide advice for potential lessee profiles.
• Provide advice for space preparation which should include budgeted costs.
• Have all the market information necessary (in a written report) to make an informed decision for pricing the space.
• Recommend pricing and the reasons behind such. Pricing recommendations should include rent to be paid, deposits, escalations, terms, tenant improvements, common area maintenance costs, renewal options, and any other financial considerations concerning the lease.
• Provide a comprehensive written marketing plan which should minimally include:
Expose the space to their network and their clients (this should be extensive)
Maximize the full potential of the Internet
Design and distribute marketing materials
Design and place advertising
Follow up on all marketing requests
Be available for tours for all prospective lessees
Have an owner-approved reporting procedure that describes the marketing activities
Conduct negotiations (subject to the owner’s directions) with prospective lessees
• Prepare lease documents for execution that comply with all legal and regulatory requirements.
• Explain and ensure that the lease documents are consistent with the business terms agreed to by the owner.

The mathematics of leasing are clear. Leases expire, and lessees move. If there is no leasing activity, space remains vacant. Vacant space provides no income. Leasing activity creates occupancy. Occupied space creates income. If the income that results from leasing activity is more than the expenses for the leasing activity, the owner has NOI. There are two aphoristic facts concerning NOI: (1) It is the numerator in the fraction that determines the property’s capitalization rate and its value. (2) It is the prerequisite to cash flow.

Consequently, a real estate owner has no choice. Leasing activity is a must. The question is, how is it going to get done? With leasing agents, or without leasing agents?

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