leasing to a medical professional tenant

[Courtney Duong]

Hi all,

We (are still newbies) manage a small retail center in Cypress, TX.  Last week we had a tenant rep broker reached out to us asking if we will pay a 4% commission if his client signs a 10 years lease (they already looked at the space 2 weeks ago).  His client is a Dermatology multi-location group looking to expand.   My questions are:

What is the leasing commission landlords normally pay tenant rep broker?  I heard that it is around 3-4 % but just want to confirm.  We don't have a broker on our side.

With a medical professional tenant, how much in TI do landlords normally give?  I heard that it's pretty heavy but what is the average in term of $/SF?

How is leasing commission paid?  Can we negotiate so that we only pay a certain % of tenant rep broker's commission at lease signing and the rest ongoing (like monthly payment after tenant pays us over the first few years, or a certain % again after every 1 or 2 years)?  

Medical office tenants are strong so I am not sure how flexible tenant rep broker is when it comes to negotiating their commission and how it is paid.  We definitely would love to have them as our tenants so I want to position myself accordingly when it comes to negotiating with them.

Thanks in advance for any input/advice.

[Greg Dickerson]

Originally posted by @Courtney Duong:

Hi all,

We (are still newbies) manage a small retail center in Cypress, TX.  Last week we had a tenant rep broker reached out to us asking if we will pay a 4% commission if his client signs a 10 years lease (they already looked at the space 2 weeks ago).  His client is a Dermatology multi-location group looking to expand.   My questions are:

What is the leasing commission landlords normally pay tenant rep broker?  I heard that it is around 3-4 % but just want to confirm.  We don't have a broker on our side.

With a medical professional tenant, how much in TI do landlords normally give?  I heard that it's pretty heavy but what is the average in term of $/SF?

How is leasing commission paid?  Can we negotiate so that we only pay a certain % of tenant rep broker's commission at lease signing and the rest ongoing (like monthly payment after tenant pays us over the first few years, or a certain % again after every 1 or 2 years)?  

Medical office tenants are strong so I am not sure how flexible tenant rep broker is when it comes to negotiating their commission and how it is paid.  We definitely would love to have them as our tenants so I want to position myself accordingly when it comes to negotiating with them.

Thanks in advance for any input/advice.

Everything is negotiable. It all depends on your location, supply and demand in your marketplace, and your ability to negotiate. Keep in mind the commission is based on the gross amount of the lease and can be paid out all at once, when the tenant signed the lease puts up deposit and takes possession of the space or 1/2 upon possession and half when they pay the first months rent.

T.I. is also negotiable and is mitigated or offset by the lease rate. The more T.I. allowance the more you can ask for rent and vise versa.

Make sure to get a commercial real estate attorney to review and or draft the lease for you. There’s a lot of considerations in a commercial lease like pass through expenses, CAM, system maintenance etc.