How Pedal is not like ❌ old school brokerages: Part 2

✨ Welcome to a four part series we’re calling “What makes Pedal so unique and effective in the retail real estate industry.” Otherwise known as “Why we need our own TV show pronto.”  ✨

Today we’re discussing point #1: 

Our business model is not reliant on lease commissions or equity in our clients’ businesses.

Have you ever spent 23 minutes trying to get the attention of a bartender on a busy Saturday night at a nightclub? Have you stood on your tip toes and tried waving cash? Have you wondered if maybe they don’t see you because you’re only five feet tall, or because you’ve never been able to dress cool like you’re at a club in your 20s even when you’re clearly at a club in your 20s? Like that one Halloween in college when you tried to dress like a Greek nymph but actually looked like the Little Caesar’s pizza guy? Is that why this bartender won’t look at me? Because I look like an idiot?

👆That right there is what it feels like to be a new retailer at Club Retail Real Estate. Competing for attention in a crowded, loud space is awful, especially when the attention you need is standing between you and your goals. 

The biggest obstacle preventing new and small retailers from getting the attention and service they need is the old school brokerage commission system. The commission system is the bartender looking for Greek nymphs. The indie retailers? Pizza, Pizza, my friend. 

Here’s how the old school brokerage model works…

• Clients (landlords and tenants) don’t pay anything when they hire a broker – instead, brokers are compensated with a commission IF a lease is signed for a space.

• Most of the time, landlord brokers pay both parties’ commissions as an inducement to the tenant to lease their space. (The tenant repays that commission – and then some –  in rent over the term of the lease).

• Commissions are calculated as a percentage (usually 6% split 50/50 between landlord and tenant broker) of the total rent over the term of the lease.


So what’s the big problem? Well, there are two biggies.

Problem #1: Seriously misaligned incentives between broker and retailer

There’s a fundamental financial misalignment because the more a retailer pays in rent, the higher a brokers’ commission. Yes, you read that right - the person you hired to negotiate your rent to be as low as possible makes less money when they are successful in doing just that. The fact that most indie retailers are looking for relatively smaller spaces with shorter lease terms means lower commissions and less incentive.

There’s also time pressure. Since old school brokers don’t get paid unless and until you sign a lease – they are incentivized to spend as little time as possible on each deal to maximize their profitability. So if you aren’t already a commercial real estate expert, time pressure means you are less likely to get the extra attention you need to truly understand your options and commitments.

Problem #2: Important transactions that do not offer commissions 

If you’re a retailer coming to the end of your lease and you want help negotiating parts of your renewal…

Or if you’re interested in a six-month pop up…

Or if you’re planning to sell your business and need help with the lease assignment…

Or if your space is inside a hotel and you need a license agreement…

Can an old school broker help you? Sure. Are they willing to spend hours helping you prepare a strategy and handle communications with your landlord when they won’t be paid for that work? In most cases, no money = no worky.

Here’s what we do at Pedal instead…

Our clients pay us for our services. Such a simple solution… one that is standard in almost every industry, including most of the other professionals involved in getting to a signed lease (lawyers, contractors, architects etc.), and yet it is totally radical for brokers. 

All of our first-timers start in the Dream Space Accelerator where they get fully prepared to transact for a flat fee. Other accelerators are “free” or very low cost, because the organizer takes equity in the participating businesses. To us in this context, that would feel deeply icky. We want people to make smart business decisions for themselves… not because we have an ownership stake in their business or because they need our money. Plus, if someone is offering services with the expectation that you’ll be the next Sweetgreen, you’re SOL if that’s not your goal.

Our brokerage services are also fee-based, so we aren’t dealing with the same conflicting incentives as old school brokers. Flat monthly fees mean that Pedal Retailers have our full attention no matter how much time they take to sign a lease. At this point, commissions on completed deals are still part of our compensation, but the monthly fees allow us to support clients without putting pressure on them to sign deals quickly, or even sign them at all. 

For all of the other real estate related issues that arise throughout a retailer’s brick and mortar life, we offer hourly consulting. No commission? No problem. We work alongside our clients to protect their business interests and set them up for long term success, like their own personal real estate department.

Speaking of which…

Big, regional and national retailers manage their real estate business – expansions, lease administration, renewals, exits – just fine under the old school system. That’s because they’ve got a real estate department. Maybe that department is just two people…but that’s two people whose jobs are 100% focused on real estate. Last time I checked, small business owners are 1000% focused on 1,457,801 things other than real estate. 

So there you have it.