Closing The Deal With A Rebate

Illustration of a cash rebate

Do some major commercial deals in New York City represent a coming trend for tenant brokers across the country?

With no set rules, the task of figuring broker and rep commissions on commercial deals is left to the negotiators at the table.  In deals both large and not so large, brokers, tenant’s reps and landlord reps often look to the value of the lease, using that number first in the calculations for commissions.  But outside of that common first step, a deal can take any specific structure, from simple to complex to downright exotic.

When higher-end deals are negotiated, sometimes surprising commission split structures appear. In primary markets, where competition over space and tenants is fierce and the inventory is unique, the surprises can be striking.

How striking? How about rebates?

It may be tough to believe, but the good old-fashioned rebate is seeing use in some of the top-end deals in New York City. Laura Kusisto’s piece in the New York Times spells out the where (150,000 sq. ft and up), why (competition and major tenant leverage) and who (tenant’s brokers getting, landlord’s giving).

As rents rose during the boom years, a growing number of the city’s largest tenants began negotiating deals with their brokers to rebate a portion of their commissions. While it’s rarely publicly discussed, this practice continued following the bust and today big tenant brokers may give as much as 50% of their commissions back, according to multiple real-estate executives.

Typically they’ll do this by applying the commission towards a lower rent or the cost of building interior space. “Here’s the stealth reality: If you represent a major tenant, the landlords are perfectly willing to pay a full fee. But tenants will say, ‘If you’re going to make $20 million, I want you to credit or rebate 50% of the fee,'” says Robert Freedman, chairman of Colliers International’s tri-state office.

Read the entire article here.


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