The biggest challenge, though, in trying to prove that tenants suffer from this conflict of interest is that every commercial lease is unique. Say a tenant signed a lease in building A, which happened to be represented by the full service firm that was also assisting him in finding space. Later that tenant found out there as comparable space in Building X—an office that was not represented by the firm--at $3 per square foot less than Building A.

Did he get rooked?

Not necessarily, says Peter Smirniotopoulos, founder and principal of petersgroup consulting and an adjunct professor of Real Estate at George Washington University.

"It very possible the rep was doing a great job and A with the right building for the tenant's needs while X didn't fit all of the parameters of the project. Also the base rent might be lower but that is not the only component of a lease, which is also subject to negotiations." Concessions and TIs are a big part of the mix, all of which contribute the final rent the tenant will pay.

All that said, Smirniotopoulos, who teaches Foundations of Real Estate Law in GWSB's MBA program, does believe there is a possibility that hypothetical tenant might not have gotten the best deal, or at least not as good a deal as he would have using a tenant-only rep.

That was the subject of a recently-released study he conducted entitled "Conflicts of Interest in Commercial Real Estate Transactions: Who Represents the Tenant?"

The report was commissioned by the Boston-based Cresa, a tenant-only brokerage firm that approached George Washington University with the assignment. The findings, Smirniotopoulos insists, were the result of independent scholarly analysis and Cresa had no influence in the work.

"I told them we would follow where the research took us," he says. Cresa's backing is typical of university research, he adds. "Almost all academic research is funded by one entity."

The bottom line conclusion from Smirniotopoulos' research is that the marketplace for broker services really isn't a level playing field but rather favors the landlords over tenants.

Specifically, he found:

• The US commercial leasing market lacks transparency and is characterized by asymmetric information—that is, more information flowing to landlords—and therefore skewing outcomes.

• Data regarding market characteristics is almost exclusively idiosyncratic to specific full-service firms, which tout the superiority of their Research Departments as a market differentiator.

• There is neither a centralized source nor an industry standard methodology for obtaining, tracking, and reporting critical data. "Contrast this with the Multiple Listing Service (MLS) in the residential sales market, which provides generally accessible and uniformly collected and reported data on residential sales and homes offered for sale," he writes.

• The brokerage community is loosely organized and conflicts of interest issue has not been addressed in any systematic way. Also, Smirniotopoulos writes, the "industry has openly opposed legislative and regulatory reform efforts seeking to improve the quality of representation provided to tenants through mandatory disclosure of conflicts of interest in dual agency situations."

***

Come back tomorrow when we present the full-service brokerage community's rebuttal.