In August of 2017 JLL (Jones Lang Lasalle) took over as the national contractor for USPS real estate services. CBRE will still be responsible for completing renewals already in process at the beginning of the JLL contract but, starting August 19th, all new renewal negotiations will be initiated by JLL exclusively. JLL will also be responsible for managing lessor maintenance notices and enforcement. For now, they will continue to work with EMCOR, but they may ultimately bring this function in-house.
What does this change mean for lessors?
According to the USPS Facilities Department, lessors should not notice much difference. JLL’s responsibilities are almost exactly the same as CBRE’s and JLL’s instructions are to cover its costs and profit by collecting commissions directly from lessors. So be prepared to deal with the commission issue with virtually every renewal. AUSPL has made a “freedom of information act” request for a copy of the contract and we will alert lessors if we see significant changes. But for now, assume JLL outbid CBRE for this contract hoping to make substantial profits at the expense of lessors.
Where does AUSPL stand on the commission issue?
The AUSPL Board of Directors has unanimously opposed the USPS practice of asking lessors to pay commissions to third party brokers from the inception of the original CBRE contract and our position is unchanged. We do not object to the Postal Service hiring outside agents to process renewals, but asking lessors to pay the cost is simply unfair. USPS argues it is standard industry practice for tenants to hire brokers to negotiate renewals with the expectation that the landlord will pay a commission. This practice is common in multi-tenant office buildings and sometimes when there is a new lease in a new location. AUSPL believes that landlord payment of renewal commissions on free standing, single occupant buildings is extremely unusual, especially where the initial lease was negotiated directly between the building owner and tenant.
What you should know before starting renewal negotiations with the USPS or its third-party agent.
- USPS has the legal right to retain an agent to negotiate their interests at time of renewal.
- It is USPS policy to pay “fair market” lease rates on all leased facilities.
- You are under NO legal or contractual obligation to pay a commission to CBRE or JLL.
- JLL and CBRE are legally obligated to present ALL good faith renewal offers from lessors to their client (USPS), whether or not the offer includes a commission.
- The USPS has stated in the past that it does not consider commissions a factor when making a final renewal decision.
A few good tips for getting through the renewal process:
• Keep it professional. The renewal process is a business transaction that will go much more smoothly if you present your position clearly and back up your assessment of “fair market value” with facts. Do your homework and be ready to make a strong case in support of the proposed renewal lease rate. Present the information in a businesslike manner, without unnecessary drama, but, if you know your offer is a good one, don’t be afraid to be firm with your offer. Remember, if you present the Postal Service with a fair renewal offer, it is very likely they will ultimately accept it. Their agents will negotiate hard for lower rents and may even try to intimidate you but the fact is, in most cases, all other options available to the Postal Service will cost much more than staying in your building at a fair lease rate.
• Do not be quick to make ultimatums. Negotiate in good faith and keep lines of communication open. You may exchange 4, 5, or more offers with JLL before finally coming to an agreement. Ideally, you should try to conduct all negotiations through written communication. Having things in writing can help avoid misunderstandings and ensures that there is a record of the statements made during the negotiation process.
• STRONGLY resist negotiating option rates that were approved on renewals after 2010. In almost all cases, CBRE negotiated very modest increases that will cover increased maintenance, and insurance costs. We are seeing cases where agents attempt to further lower rates that have already been agreed to as “fair market”. If JLL uses this tactic on renewals where there are already options negotiated after 2010, report it to AUSPL so that we can alert the USPS Facilities Department.
• Consider bringing deferred maintenance issues into the renewal negotiation. After a fair market renewal price is established, consider offering improvements to the building in return for increased rent. Parking lot repair, painting, energy upgrades, and HVAC upgrades are just a few examples of improvements the Postal Service might consider. The Postal Service and lessors both benefit by addressing deferred maintenance and upgrade issues at time of renewal.
• JLL agents are pros and they will be tough negotiators. If you become uncomfortable representing yourself, seek help from a qualified consultant. Call AUSPL for a reference if you don’t know where to find one, and be sure to consider the consulting fees part of your costs to be covered in the renewal rate. Remember, to be successful in the long run, you must recover all of your costs plus a fair return on your investment.
The Bottom Line
JLL will be negotiating all renewals and they will press lessors hard for commission payments. You are under no legal or contractual obligation to pay commissions or transaction fees. JLL’s only obligation is to the Postal Service. In the event you see value to their services and decide to offer compensation, make sure you recover the cost over the lease term.
Lessors have partnered with the Postal Service for decades, providing quality facilities at extremely competitive rates. Rents to all lessors make up less than two tenths of 1 percent of USPS expenses so the Postal Service will not be able to solve its financial problems by transferring overhead costs to lessors. Be a good partner, be professional, and expect the same treatment from the United States Postal Service.