Charitable Funding from Commercial Leasing
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Understanding Commercial Leasing Commissions and Referral Fees as they relate to charitable funding 

In a previous article, we explained how referral fees work in the context of residential real estate. Referral fees for commercial transactions are handled in a way that is a little less straightforward than for residential. But, the bottom line, dear reader, is that office leasing commissions and the associated referral fees are typically much larger than residential purchase and sale. And therefore, the amount of funding that the client can direct, at no cost to themselves, to their favorite charity is also much larger. 

Calculated on Lease Term (Length) and Cost Per Square Foot (Rental Rate)

Commissions for office, retail, and industrial leases are based on the number of years of the lease and the amount of space leased. Leases for more years and more square feet result in commissions, and the referral fees upon which they are based, that are larger. 

Referral Fees are Negotiated Based on Commission 

Referral Fees, which are always negotiable, are even more negotiable in the commercial part of the industry. Whereas a common residential referral fee is 25% for buyers’ brokers and perhaps even 30% for sellers’, there is more room for negotiation in commercial lease transactions. That’s in part because the commissions in office leasing are so large. It’s also because with a home purchase or sale, from the start, the brokers can pretty accurately estimate what the amount of the expected commission will be. And that full amount will be paid if the transaction is completed. But with leases for office, retail, and industrial space, the commission can not be safely estimated until the length of the lease and the amount of space is known. For example, the commision on a 5  year lease is 1/4 the amount of a 20 year lease for the same size space. But the amount of work is the same. So, generally, it will be rational to agree to a lower referral fee percentage if the lease term is short, than if it is long.  

To give you a sense of commission amounts, here are two examples of commercial leases in Chicago:

  • 15,000 rsf for 15 years yielded a commission of $250,000. 
  • 24,000 rsf for 10 years yielded a commission of $300,000.

As discussed earlier, the lease terms relative to the effort that goes into negotiating them is hard to predict, so referral fees are generally negotiated in advance based on an estimate of the  commission. After the lease terms are finalized and the deal closes, then the referral fee can be adjusted up or down based on the outcome of the deal.  

In the examples provided above, the referral agreement negotiated in advance would have been based on an estimate of the lease terms.

For the 15,000 rsf 15 year lease, a rational referral fee would likely be  25-50% or $62,500-125,000, IMHO.

For the 24,000 rsf 10 year lease, a rational referral fee would likely be 25-50% or  $75,000-150,000. Again, IMHO.

Referral fees are conditioned by the amount that stands to be made by the  broker who gets the referral and the strength of their desire to make that money. The amount that the  broker making the referral would receive is secondary, if not down right incidental.  

After all, if you have the time and energy to represent more clients than you have because you are not working at full capacity, would you be willing to accept a referral that could put into your pocket an unexpected $125,000-150,000, even if it meant that the person giving you the referral would make the same amount, solely from your efforts? I would.

Now, back to the title of this post and what referral fees have to do with charitable funding. That’s where Investing In Communities (IIC) comes into focus.

IIC can transform nearly all commercial real estate transactions involving the services of a real estate broker into free funding for a favorite charity of the commercial tenant’s choice – at no cost to them. That’s right. We’re talking about new funding for charities coming as a result of potentially millions of office, retail, and industrial leases each year around the U.S. That’s on top of potentially some 10 million home purchase and sale transactions, annually..

IIC conducts business via its web-based and free-to-use platform for finding appropriate brokers to consider for your upcoming transaction, while passing on to a charity of your choice 70+% of the referral fee that the broker you choose pays us in return for referring you. The other 30+ helps us to fund numerous other charities.

(312) 955-4900