Back in 1993 when I was a Senior Associate with Marcus and Millichap Corporate Real Estate Services I helped develop and implement a study in conjunction with the Real Estate Section of the University Of California, Irvine Graduate School of Business Management. The purpose of the study was to better understand how companies in Orange County managed their real estate.
The results of the study were more than clear. It revealed that companies tended to delegate their second largest item on the budget to an individual who:
- Had little or no real estate knowledge.
- Had some real estate background but was in not active in the marketplace on a day to day basis.
- Had extensive real estate knowledge but had other corporate or day to day job responsibilities.
Furthermore, the study found that the “worst offenders” were the service-providers who themselves promote their services as the “experts” in their field. Telling their clients it is they who can relieve the client of having to worry about that segment of their business thus leaving the client to spend more time focusing on their core business.
That should make logical sense. Would you go to court without an attorney or even draft contracts yourself? Even if you have a full time CFO or comptroller how many firms readily call on accountants for a minimum of audit compliance? Do you use the services of an outside HR consultant?
Sadly, real estate matters are too often regarded as a necessary evil.
- Figure out what you need.
- Call a broker to show you some space and negotiate the deal.
- Don’t worry about it for another 5 years.
Unfortunately, real estate is a significant part of your company’s structure…maybe…other than your product and personnel…possibly the MOST significant. It’s not just what kind of facility will house your firm but there is a litany of other issues that need to be defined.
- Have you planned for your short and long term growth.
- The economics must meet your present and future fiscal parameters.
- The lease needs to spell out and clearly delineate all the business issue that might impact your firm during your tenancy.
If you’re not one of the 5% of companies that has a full time in-house real estate department you likely need to find a partner who can help you with the planning and administrative segments of real estate management. A commercial broker will typically assist you with the property search and deal negotiations but is that where their services should end?
Even if someone in the firm has the expertise…do they have the time to devote to the details of managing your leases? In fact, some of our most loyal and long term clients are real estate companies. They could easily handle all the tasks mentioned but they understand their time is better spent building and managing their core business.
When you get that bill from the Landlord for some repairs in your suite, did you ever think to run it by your broker to find out if it is a legitimate charge? Have you ever asked your broker to review your yearly operating expense statements? Who is your third eye to take a look at all landlord notices? Your broker gets paid a fee related to your lease, a fee paid by the landlord but the funds come directly from the deal. Therefore it is YOUR money.
This may be a radical way to be look at or rethink the function of a broker but maybe it’s time you should be getting the most value for your buck? Not to mention you use experts to help with other areas of your business. What is different with real estate? Try asking yourself. It could save you a lot of time and money.