In the last Tenant Tactics we discussed some of the many opportunities afforded by today’s topsy-turvy economy as it related to leasing commercial real estate. Landlords are more aggressive in many ways. They openly discuss and accept creative extensions to leases or reconfiguration of spaces. In addition, many are renegotiating renewals much sooner than the typical three to six months prior to termination and offering aggressive rents or additional concessions along the way.
Last month I was privileged to be asked to sit on a panel at the monthly NAIOP meeting. NAIOP is the leading organization for developers, owners and related professionals in office, industrial and mixed-use real estate. I sat on the panel with Perry Schoenfeld of LBA and moderated by David Wensley of the law firm of Allen Matkins et al. While in some ways I felt like a hen in a fox house, representing the tenants’ perspective in a room filled with landlords, it was most interesting hearing about lease restructuring from the landlords’ side. Interestingly, much of the rhetoric paralleled the framework outlined in our last Tenant Tactics.
On the other hand, I did observe one interesting point. There was a level of frustration on the part of some landlords that the tenants “asked for the moon and didn’t understand the process.” Should they be surprised? For the most part, most all lease discussions landlords have with tenants are through their broker who interfaces with the tenant’s broker. Restructuring is much different.
In the case of renewals, tenants often try to negotiate on their own believing “we’ve been a good tenant so the landlord will give us a good deal.” The landlord starts by offering their view of fair market value. Tenants will usually at least make a call to a broker or surf the NET just to get an idea of market conditions so they have a base from which to negotiate. Unfortunately it remains the professional with all the tools against the weekend player.
That scenario has changed dramatically in the past ten years in that most professional landlords prefer to have brokers represent the tenant during renegotiations in that:
- Negotiations tend to go smoother
- Tenants feel they are getting a better deal by being represented
- Landlords find paying the broker fees saves as much as 16% on their cash flow considering should the tenant move out they would not only have to pay a fee to a new broker but also have to assume the cost of down time and additional tenant improvement costs
However, today’s economy creates a unique situation where negotiations are based not solely on fair market value for which most brokers are equipped to provide market information but rather complex negotiations which significantly include a mix of the tenants’ business planning, multifarious lease restructuring issues AND fair market value.
While landlords have no issue dealing with tenants directly on renewals if the tenant is not represented, they find it frustrating when addressing today’s more complicated issues. It was not surprising at the reaction I got when I raised the point at the panel discussion that tenants are not real estate people and therefore certainly do not understand completely the finer points of real estate. I noted a 1993 survey I had helped develop for the UCI Graduate School of Business which clearly concluded that while real estate is the second largest line item on the budget, most all companies often shift their real estate management (other than actually located premises) to individuals within the company who are not involved in real estate on a day to day and continual basis. These individuals are often good negotiators in their personal sphere of influence so they therefore believe whole heartedly that the skills are transferable. The reality is that for the most part they manage the real estate process particularly when it comes to acquisition of real estate but their brokers primarily do the negotiations with the landlord.
Conversely, in the case of creative restructuring it gets a bit more intricate. On the tenant’s side there too often is little help that is available to them. The choice is, other than moving forward on their own would be to engage an attorney or possibly the broker who initially represented them in the transaction. Typically there is no commission on such transactions. Most brokers and landlords look at commissions as a onetime fee for completing an initial lease or renewal. Brokers may likely turn down this type of assignment unless an additional fee is paid. Few brokers have our philosophy that commissions are in actuality a retainer for future services provided throughout the term and that service should be continual through the leasehold or engagement.
The best of both worlds is to engage a broker to address the real estate issues and a good attorney to review the legal portion. About half of the transactions we have completed in the past 8-10 months involved some sort of a restructure. Different times call for different approaches. If you are considering restructuring you need to engage outside advisors. You and the landlord will appreciate the process and the result will be a win-win for all parties.
Guest Post by our Orange County, Ca Member
About the Author
Lease Negotiations , Office Relocation , Office Space Negotiations , Orange County Office Space , Tenant Representation
I made a short presentation yesterday for our Office Business Center Association International (OBCAI) Local Member Network on Social Media and how to get started. It was an overview and among the sites I visited was Wikipedia. As I am sure most of you know, "Wikipedia is a free encyclopedia, written collaboratively by its readers. It is a special type of website designed to make collaboration easy, called a wiki." Since this was a group of executive suite operators, I thought it would be interesting to look up the definition of "Executive Suite" according to Wikipedia. Here is what I found:
"Executive Suite is a 1954 MGM drama film depicting the transfer of power in a corporation in trouble." No mention of a form of office space.
Needless to say, the industry has some work to do in improving name recognition. Is it an Executive Suite or a Service Office, an Office Business Center or a Ready to use Office? Actually, it is all of the above, but the public needs more constancy, especially in the age of Internet searches. What are they going to be looking for and how do providers make sure they get found?
Follow me on TwitterExecutive Suites , Office Space
Seattle, Wa, September 9, 2009 – OfficeFinder, one of the leading on-line resources for assistance and information on locating office space, has recently expanded their website to provide information and links to the best restaurants to have a business lunch. OfficeFinder is a network of professionals who assist businesses in finding and negotiating for office space throughout the US, Canada, UK and many international markets. These local professionals, nearly 1,000 strong, have taken part in recommending restaurants that are the best in which to have a business lunch. The criteria are good food, good service and an ambiance that allows business to be done. The restaurants are listed by submarket and are no more than a 20 minute drive from that market. A map of the locations is imbedded for each market. Access to the “Best Restaurants to have a Business Lunch” is available through the “OfficeFinder Local” site is located at www.officefinder.com/Local, which also provides subsections with relevant office space information and resources for each of over 550 markets in the following categories:
- Office Space for Lease
- Office Space for Rent
- Office Space for Sale
- Executive Suites
- Virtual Office Space
- Office Space Services
James Osgood, Founder and President of OfficeFinder, LLC states “Very often business people struggle over where to meet and have a productive business lunch. We thought this would be a good service to provide our visitors and to further demonstrate our local knowledge. We may be an international company, but we are local-centric with high quality boots on the ground. With our large base of nearly 1,000 local office leasing and sales professionals in our network, we were3 able to get off to a good start with over 300 restaurants included.”
OfficeFinder is one of the largest networks of highly qualified experts in office tenant representation working locally in over 550 markets - both large and small. OfficeFinder’s member’s average over 12 years of experience and most have earned professional designations related to assisting office tenants.
In addition, for smaller space requirements or short term needs, OfficeFinder also has a network of Executive Suite (shared offices) Members with over 2,000 locations who can provide immediate access to furnished, wired and staffed offices, team rooms or virtual offices on a flexible basis.
OfficeFinder’s mission is to “Help visitors get the right office space at the right price without a hassle.”
The website is located at www.officefinder.com.
The OfficeFinder Blog is located at blog.officefinder.com.
Best Restaurants , Office Space
You’ve found the perfect office space for lease. It’s in the location you want, it’s the size you need and it has all the basics. But what it’s lacking is personality. Unfortunately, you have a limited start-up budget and that doesn’t include a high-priced decorator.
Not to worry! You can economically spruce up your office space for much less than you might imagine. Here, we’ll look at some great ways to save money and get your office looking like a million bucks!
1. Paint the Walls and Trim
Unless your landlord is against you painting, why not start your decorating by painting the walls (or at least the molding, door frames, window sills, etc.)? Just head down to your nearest home improvement “big box” store and nose around the paint department.
Don’t be shy, though – ask if they have any leftover cans of paint that weren’t purchased by consumers. (Many times, people decide at the last minute they don’t want a color; therefore, the can is immediately put on a clearance rack. There’s nothing wrong with it – it’s just less expensive and may not be the color you originally thought you’d use!) This can save tons of cash.
2. Buy Throw Rugs
Sure, you might not want to pay for wall-to-wall carpeting, but you can always purchase a couple of inexpensive (but attractive) throw rugs. Even if your office space already has carpeting, a throw rug here or there will add a needed splash of color and texture to your new surroundings.
3. Look on the Internet for Unique Office Furniture
Many people give away for free or reduced rates unique furniture that could be ideal for your office space. Consider investing in an older desk or unmatched (but interesting) chairs. One caveat, though – don’t be turned off just because a wooden table has a nick or stain. With some sanding and a little varnish, you can most likely turn it into a beautiful antique!
4. Haunt the Dollar Store
Now, your local dollar store may often carry items that are, at best, “kitschy”, but that doesn’t mean there won’t be occasional “scores”. Once a week, check out the dollar store items. Sometimes, office furniture and accessory manufacturers sell items to dollar stores that are amazing – and you can get them for next-to-nothing.
Ten or twenty dollars could net you some in-boxes, pencil holders, calendars, white boards and more. Again, your office space will look like you spent a great deal of time and money on it… but you’ll know that you didn’t have to do so.
5. Frame Some Pictures
Although you probably won’t want to decorate your office space walls with family pictures, there’s nothing wrong with framing those pictures you took of the ocean or the woods during your last vacation. Not only will they look attractive, but they’ll make nice conversation pieces. And don’t worry if you’re not the world’s best photographer; most people won’t even notice the composition of the pictures. They’ll simply be riveted by what the pictures represent.
Never forget that you control how your office space for lease looks! Even if you can’t paint or carpet, there are numerous ways to make your home-away-from-home pleasant for you, your colleagues and your clients.
For more information, visit www.OfficeFinder.com.Office Space , Office Space Design