Finding the right space is not like going to Nordstrom’s

So you think finding the right space is easy? Most all commercial brokers would like you to think that. A vast majority of commercial brokers are employed by firms that specialize in marketing properties for landlords. Their job is to convince potential tenants or buyers that “their” property is the best and that your firm absolutely needs to move in to that space…immediately. Some of those “listing” firms have divisions they refer to as “Corporate Services” or “Tenant Rep Group” but the goal is the same…convince you to relocate. Are they listing agents or tenants’ agents? What’s the old saying about looking and sounding like a duck?? 

Pure tenant brokers will typically spend a lot more time looking at your present needs and helping you to determine exactly what will be best for your firm…even if it means remaining in your existing space Now the fun begins.

If your requirement is 10K-20K+ you may have a bit more flexibility both in the layout of potential spaces but also in the flexibility landlords will have in providing tenant improvement allowances.  Not so for smaller tenants particularly if you are looking at something less than a five year lease.

If you engage a broker and he tells you he will pick you up the next day to go out and look at space…find another broker.

The process at a minimum should take a week or two…did I say minimum? You should start by outlining for your broker EXACTLY what your parameters are…location, number of people you plan to house and standardizing their work area size for each job function. Finally, look at common areas such as kitchens and conference rooms then add both internal circulation (usually 20%-30%) and an average of 15% to cover common areas in the building.With that information, your broker should contact every building that has space in that size range, contact the listing broker to get ACTUAL floor
plans then chose the ones that appear to work for you. Your broker should then preview each of the spaces to confirm the layout…amazing how many of the plans are wrong or out of scale.After discussing the options with your broker you should narrow the choices down to the top 5-6 to tour…tour more spaces and your head will be spinning not to mention wasting a full day looking at space that will never work. After you tour you may want to revisit the top four followed by a decision on which the top four properties are…the best three to get proposals.

Be patient and start early. Too often the brokers’ agendas are not in line with yours. It’s your business and you need to make sure your broker is your trusted adviser and not using you for a payday.

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Can’t Negotiate Emotions-Have Landlords Dug Themselves into a hole?

Moving can be disruptive, painful and most of the time, expensive. If you are a tenant who is within 9-12 months of lease expiration it’s no surprise that you are getting a barrage of e-mails and phone calls from every broker within a 50 mile radius. All want to provide you with information on their listed property which they want to convince you would be absolutely perfect for you to relocate to or maybe you’ve heard from the tenant broker who is sure he/she can find a better space for you even though neither have any idea what the needs of your business are.

Our advice to our clients…”stay where you are.”

There are three main reasons to move. They are: 1) You have too much space 2)  you need more space or 3) the existing space is too expensive. The first two can be determined by a simply space programming matrix while the third is a bit more complicated. The standard formula for balancing revenue to rent is to look at gross revenues whereas rent should represent no more than 5%-7%. Start-ups may run a bit higher the first two years. Unfortunately, emotion sometimes fogs one’s vision.

There are two factors that have accentuation that premise. First, as mentioned earlier, you are probable getting a call a minute from brokers filling your head with information about the “Market” which makes it appear even more so that you may have a better deal out there and no matter what the4 landlord offers it’s too high. In all probability, particularly if you signed a lease pre-2008 then ANY deal would be better. Even your present landlord’s offering will likely be much lower than the pre-2008 basis. But here’s something we are seeing…

When times were bad, many landlords simply turned their backs on tenants when the tenant pleaded for relief. Their position was 1) you signed a lease…it’s a contract or 2) would you expect the landlord to raise the rents in the middle of the term if the market rates went up? Good argument in normal business cycles but what we went through in 2008 was nothing close to normal.

Many landlords worked with their tenants by doing either delayed rents or “Blend and Extends” which in both cases provided the tenant with some immediate relief while keeping the landlord whole. On the other hand, some landlords showed their tenants the sandbox and told them to start pounding 😦 . How unfortunate. Now when the lease is coming up for renewal, despite any aggressive rates being offered emotions set in and the tenants are fleeing.

One landlord we spoke with recently was proud of their 98% occupancy rate. I asked the CEO what he attributed this to and he simply stated that when times were bad we worked with our tenants and they appreciated it then and reflected in a high renewal ratio.

Lessons learned…from a landlord’s perspective you need to know that this is a partnership…can’t have a building be profitable without tenants…so working through especially troubling economic times with your “partner” is critical. Tenants, on the other hand, need to extract emotion from the equation. Things may have been tough for the landlord as well and they may have been under certain constraints that prevented them from modifying your lease. If the space works and the new value is in line with your fiscal plans, don’t let emotion play the big role…set it aside and analyze the options. Staying may be the best option.

Welcome to Tenant Tactics

Over the years we have built a valuable storehouse of valuable information to help commercial real estate tenants deal with the complex ins and outs of planning, implementing and most of all, managing their firm’s real estate holdings.

This information has been distributed first through “snail mail” then fax eventually by e-mail and finally as WEB postings on our home page www.inhousecorp.com. The Tenant Tactics along with the WEB site link to “Tenant University” has become a useful resource for tenants, students of real estate and even landlords who reference the site to better understand what tenants are thinking, needing and expecting in order to best serve their tenants.  However, the goal remains how to better educate tenants on dealing with the complexities of managing the number two line item of most firm;s budget.

We hope you enjoy this format and that the information we provide continues to be valuable to you. Feel free to contact me at jerryn@inhousecorp.com or comment to our new blog.

Our initial motivation both for creating the unique business model for IN/House and eventually publishing the Tenant Tactics came from reviewing the results of a joint study done in 1993 by the UCI Graduate School of Business Management and Marcus and Millichap Corporate Real Estate Advisors. The study clearly found that most all firms without full-time in-house real estate departments left the real estate matters to someone who often had little formal real estate training or if they did, they typically had other corporate responsibilities that to often took them away from focusing of the issues at hand. Brokers were simply reviewed as tour guides to find space and negotiate basic terms. Firms were left to plan their needs, deal with all the other issues attached to facility transactions and most critical, deal with administrative issues during occupancy.

Taking the basic model developed by the in-house real estate departments of Fortune 100 companies, we created a model whereas we would function as our clients’ real estate department, addressing all issues from creating a strategic facility plan, handling all aspects of a potential transaction and being there on call after the transaction is completed to assist when any issues come up. Fees are paid as commissions for the transaction. Although paid by the landlord or through escrow in reality it is the Tenant/Buyer’s money so why not get value for your payment? Fees re receive are viewed as a retainer for services over the term of occupancy rather than a one-time bonus for completing a transaction.