Conflict in Tenant Advisory

Years ago, I was a partner at The Staubach Company, one of the industry’s most prominent tenant-only advisory firms.  The Staubach Company was a highly ethical business, full of skilled tenant advisors.  One of the firm’s core value propositions was that its advisory services were free of conflict.  The conflict narrative is powerful in how it seemingly separates the conflict-free advisor from most other brokerage firms which serve both occupiers and landlords.  Tenant-only firms often differentiate themselves with statements like, “…when you hire us, you never have to be concerned that we’re beholden to a landlord who pays us millions of dollars each year in fees”;  or “…we fight harder for you because we’re not concerned about our relationship with the landlord”.  To the unknowing audience, these statements can make it seem that all so-called “full-service” firms (those with diverse practices) are incapable of providing ethical, conflict-free occupier advisory services.  When you consider the spectrum of tenant-only firms is very small, as a sales tactic, this is a brilliant approach in that it significantly narrows the competitive landscape, making it more probably the tenant-only firm will be hired. 
 
But as with most marketing approaches, the argument for tenant-only firms is more fiction than reality.  For starters, there are numerous types of conflict.  The conflict tenant-only firms want you to focus on is the one in which the full-service firm may be advising the landlord, as well as representing the interests of the tenant - - - so called “Dual Agency”.  It’s important to note that within most full-service brokerage firms, practice groups consist of brokers who focus mostly on advising clients on one side of the table.  For example, those in the landlord practice group are generally not doing a lot of tenant advisory work, and those who advise tenants don’t usually represent landlords.  In any case, the provision of services, when properly engaged, is the subject of a working agreement which delineates the fiduciary obligations of the advisor (regardless of which side of the table she sits on).  What’s more, the Dual Agency conflict has been the subject of much industry regulation, including disclosure requirements.  In other words, there is a bright light on the potential for Dual Agency related conflict.  What’s less apparent is a type of conflict that is not regulated, one which can ultimately do far more damage than Dual Agency.  This is when the tenant advisor represents 2 companies, each of whom is focused on the same space.  Without disclosure, you’d likely not know that you lost your top-choice space to another tenant who was also advised by your advisor.  Conflict can manifest in a variety of ways, not all of which are apparent.
 
In addition to hyping one form of conflict to the exclusion of others, tenant-only firms often push the conflict narrative because it distracts from some very important deficiencies which are inherent to the tenant-only model.  Good advisory is ultimately about accessing vital data and knowing how to use it.  Negotiating optimal outcomes for the tenant client requires deep knowledge of the market, including market research, information about the capital stack (debt/equity), which tenants are active in the market, the value of transactions being completed in the market, and the motivational profile of each landlord.  Tenant-only firms lack critical resources from which these data sets are gathered and accessed, whereas the best tenant brokers working within full-service firms draw from the various practice groups within the firm to advise their tenant clients.  When you don’t know, you don’t know.  Tenant-only firms try to cobble together the data, but they operate at a significant disadvantage.  These deficiencies can translate to materially less value for the tenant client.  For example, when you don’t know the landlord just completed a transaction in the building for 20% less than the value being offered to you.  Or, when the landlord defaults by failing to fund the tenant improvement allowance due to its failing equity position in the asset, something a broker with access to a capital market practice would have been able to readily identify (and avoid).  To be sure, client exposure caused by the limitations of the tenant-only model is substantially more consequential than the conflict issue on which these firms base their value. 
 
Understanding conflict, in all its manifestations, is important.  But it’s also critical to assess advisors from the perspective of the full scope of services they provide, and to understand how these services are structured and informed.  In other words, look at the full picture and be wary of fear-based selling which strives to cast doubt on the ethics of others, while distracting from full consideration of the essential elements to good advisory.