Real Estate Strategy Review

Real Estate and Business Strategy is a big topic and we can blog about this at length. However, we feel it’s good to reach back to the blog archives and share some of our past posts. These are refreshers, or new data for first time visitors. However you take it, it’s great information.   Audit Your Lease http://www.reworkplace.com/make-resolution-audit-lease/ In theory a lease is a static collection of agreements. But in practice a lease is fluid and filled with opportunities for landlords to improve their bottom lines, whether by honest error or creative application. Astonishingly, about 50% of leases professionally audited have errors, costing tenants billions of dollars. Twice paid utilities, improperly calculated base operating years, square footage miscalculations, inflated escalation calculations, padded management fees… the list goes on and the odds are you are paying more rent than you should be. Ten Lease Terms http://www.reworkplace.com/ten-lease-terms-every-tenant-know-plain-english/ I work in this industry based on two facts. First, a person can do nothing without real estate. Second, good real estate can make a positive difference in the human condition. Real estate has held treasures, inspired accomplishments, and supported discoveries ever since the cave was adapted as shelter. No two pieces of real estate are the same, and our assumptions about it are evolving faster than we have ever imagined. The Landlord’s Deal Bag http://www.reworkplace.com/trick-1-landlords-deal-bag-tenant-improvement-allowance/ The landlord offers a tenant improvement (TI) allowance of $25/sf for an office lease. He says you keep any excess funds. Sound tempting? You feel you will at least get what you need. You may even receive some extra cash for moving expenses and office equipment purchases. Plus, it’s OTP (other people’s money). Top 10... read more
The Future Commercial Real Estate Market

The Future Commercial Real Estate Market

All markets change – it’s the nature of the construct. While volatile markets can be frustrating and potentially hazardous, we can hardly be angry at a thing for acting according to its nature. Conversely, we should be upset with our selves for not having the wisdom to plan for a volatile market. One of the most important aspects of business real estate strategy is to negotiate flexible agreements that allow your business to weather the unpredictability of the fast paced market your company competes in. RE Workplace summary of major market reports that have been published for a mid year status update: Commercial Business Districts Growth and absorption seems to be at its highest rate in major commercial business districts – specifically commercial business districts with easily accessible public transportation. As mentioned before, business like electricity or a river, will find the path of least resistance. In this case, easy access to transportation is a huge factor in today’s commercial real estate market. Locations without ease of access will naturally suffer a lack of talent. Suburban Sprawl Meanwhile, in the southern US, the suburbs are filling up at an accelerated rate because of business migration and the fact that large blocks of inexpensive space are readily available with motivated landlords. That means an increase in traffic congestion in a region that has not adequately planned for the increase in auto commuters – which is inversely proportional quality of life ratings. Economic Growth The economy is on an obvious upswing. However, there are other, social and technological factors that are affecting commercial real estate. Businesses are not scooping up additional... read more
The Future Commercial Real Estate Market

The Future Commercial Real Estate Market

All markets change – it’s the nature of the construct. While volatile markets can be frustrating and potentially hazardous, we can hardly be angry at a thing for acting according to its nature. Conversely, we should be upset with our selves for not having the wisdom to plan for a volatile market. One of the most important aspects of business real estate strategy is to negotiate flexible agreements that allow your business to weather the unpredictability of the fast paced market your company competes in. RE Workplace summary of major market reports that have been published for a mid year status update: Commercial Business Districts Growth and absorption seems to be at its highest rate in major commercial business districts – specifically commercial business districts with easily accessible public transportation. As mentioned before, business like electricity or a river, will find the path of least resistance. In this case, easy access to transportation is a huge factor in today’s commercial real estate market. Locations without ease of access will naturally suffer a lack of talent. Suburban Sprawl Meanwhile, in the southern US, the suburbs are filling up at an accelerated rate because of business migration and the fact that large blocks of inexpensive space are readily available with motivated landlords. That means an increase in traffic congestion in a region that has not adequately planned for the increase in auto commuters – which is inversely proportional quality of life ratings. Economic Growth The economy is on an obvious upswing. However, there are other, social and technological factors that are affecting commercial real estate. Businesses are not scooping up additional... read more

Flex Space

Business follows the path of least resistance – like electricity or a river; it will find a way to get where it’s going. You business environment, the real estate you choose for your employees and clients, can provide resistance to business. Employees are Clients There are many and varying philosophical views on the worker-employer relationship, but a one in particular is rising in popularity – that employees are customers, transacting skills and expertise, knowledge for resources – rather than servants that get the job done with whatever tools are laying about. Suddenly the need for a flowing and productive work environment is clear and apparent – bad lighting, cramped conditions, interruptions, network connectivity issues, and a whole slew of intangible or unpredictable factors can hinder your business’s productivity. The economy and talent will follow the path of least resistance, the best route for business. Flexibility, agility in real estate decision-making processes, is becoming a major force in today’s corporate culture. This applies to what every commercial tenant does – anyone with business real estate has to consider what tools, changes or additions to their real estate strategy can be set-up and influenced by flexibility. What is flex space? Flex space for business is a growing trend – in limited markets. However, those limited markets (about 8 cities in the United States) account for 80% of flex space available and is one of the fastest growing lessee categories. Imagine an office you only paid for when you used it. Flex business spaces come in many flavors, shapes and sizes – that includes features and furnishings as well. Right here in... read more
Measuring the Measure: Part II

Measuring the Measure: Part II

(click here for part one) Once you have the rentable square feet you can begin to understand the economics of a solution. Rent including operating costs, is quoted on a rentable and/or a useable square foot basis and all other costs can be reduced to those categories as well. Once you are clearly seeing costs, you can then begin to compare options to one another logically. For example, a classic approach to quoting rent and tenant improvement allowances is to say: I will rent you space at $30.00 per rentable square foot annually and provide you a tenant improvement allowance of $30.00 per useable square foot. Once you realize that the two measurements are not the same and useable is always less by up to 20%, you may not think the deal is so great once you get a construction bid of $40 per rentable square foot. My job is to sort these things out for my clients, but if you are doing this on your own or with a broker, stay focused on the useable and rentable square feet when discussing economics. Ultimately, I like to look at spaces from a number of different financial perspectives: Cost per rentable/useable square foot annually Total per rentable/useable square foot annually Total cost over the term Present Value over the term Average net effective rent over the term (See my previous blog on these approaches.) The key points are that you can’t make these calculations without having an accurate square foot basis to start with and organizing cash flows. At this point the numbers still mean nothing if you don’t know... read more
Measuring the Measure: Square Feet

Measuring the Measure: Square Feet

No two measurements are created equal. Conversations about how many square feet are actually within a space have always been an interesting challenge. Urban myths about landlords measuring to the curb in New York City still circulate at watering holes around the globe. Let’s start with my final word on this issue and fill in the corners: The total square feet don’t matter nearly as much as what you can fit into a space and how much it will cost over the life of the real estate decision. The trick is being able to accurately determine how much of both you are getting in functionality and having a clear understanding of what it will cost. Too many people don’t fully grasp what I have just written, please read the above sentence again. Just how many square feet you can use and how many square feet you are renting varies from market to market and building to building. Many owners of building quote BOMA (Building Owners and Managers Association) standards and don’t really understand what those standards are or what version of the standards they are trying to get close to using. The guidelines are complicated and subject to interesting interpretations and conflict between architects that represent landlords and tenants. Rather than waste your time diving into the minutia of the process, I can only say that what really matters is getting a good space plan completed and making sure that the proposed space will provide the functionality you need. I like to tour buildings with a checklist that identifies cubicles, offices, meeting rooms, reception, storage rooms, storage cabinets, entertainment... read more
Negotiating Tip from a seasoned Tenant Representative

Negotiating Tip from a seasoned Tenant Representative

  How Many Square Feet do I need and what’s it going to cost us?   Good questions that can elicit many different answers because there are many opinions and approaches to answering what many think are so simple. A typical tenant representative will ask you how many people you need to occupy the facility and multiply that number by X number of square feet per person based on industry standards. They will then drive the conversation to assessing how many dollars per square foot you will receive in tenant improvement allowance and how many dollars per square foot your rent will be. In my twenty-five plus years of experience in this business, there have never been two businesses that operate the same and that is because each operation has unique needs. No business is average and yours certainly isn’t! Unique Real Estate Strategy Even within a single company, it is very rare to see identical spaces because designers and decision makers have had to adjust to physical challenges, cultural expectations and financial constraints within the organization that intends to use the real estate. There is also the fact that each real estate option is unique due to an unlimited number of variables ranging from location, column spacing/size, ceiling heights, access, parking, mechanical systems, visibility, traffic, etc. Competition for space based on the reality that there is a limited supply of solutions at any given time is another issue that impacts every real estate decision. While some would say that these concepts don’t hold true in suburban office parks, they are often only looking skin deep at basic shapes... read more
Tenant Advocate: Complaining Is Not Negotiating

Tenant Advocate: Complaining Is Not Negotiating

True mastery of negotiation requires years of practice and specialized training. There are theories of psychology and business that intermix forming a nebulous realm that for many people is filled with equal parts anxiety and anticipation. Body language and reaction are critical elements of negotiation. Less mysterious than the bluffing poker player, a professional negotiator uses language and openness to create and maintain a dialogue between parties. My greatest successes as a tenant representative negotiating office leases has been to generate a variety of options that would meet my client’s needs and to negotiate with those options to advocate for my clients best interests – this approach is vastly more effective than simply saying, “That’s unfair,” or “We don’t like that.” In fact, by not using that tone or language, options will begin to flow and naturally generate from dialogue. The skilled tenant representative will then begin to guide the property owner towards the options that are most inline with the client’s business real estate strategy and create value for both parties. Approaching a negotiation with options puts the client and tenant advocate in the ideal position of power and presents an open, but very confident front. This is the essence of skilled negotiation for anything you buy or lease but because real estate is complex and often relationship based that fundamental rule is often overlooked to the landlord’s advantage. Terms and Options Much like buying an automobile, real estate has a multitude of options that should be thoroughly explored. No one visits an auto dealership expecting the dealer to determine the make, model and options available for their... read more
Tenant Advocacy – A Case Study

Tenant Advocacy – A Case Study

Much of what we do at RE Workplace happens behind the scenes, during negotiations or in pre-negotiation strategy meetings. The following case study is typical of the final outcomes for clients that use RE Workplace as a tenant advocate and the results are much better than you can expect from a typical tenant representative that is deal driven. While each situation is different and there are a multitude of factors at every negotiation, in this case, a clear challenge was presented, met and overcome in a timely and beneficial fashion. Challenge: Create a lively work environment that meets the expectation of employees, partners, clients and prospects, while meeting strict financial expectations. The biggest challenge was to keep occupancy costs equal to, or less than the current expenditures, to locate and create a space that supported the national level brand the our client LSB needed to convey. Retention of key employees and supporting the need for all employees to feel connected to the company and each other was a priority. The breakthrough moment on this project was when decision makers realized that reducing dedicated single use spaces and eliminating private offices could create a multi-purposed collection of unique spaces created and supporting numerous activities extremely well. By avoiding extra square feet needed to support lots of private offices and minimizing tenant improvement dollars by reducing hard wall construction for single use rooms, the space and construction dollars were leveraged into obtaining the best quality space. Their new space is flexible and supports numerous work and social situations extremely well by using premium grade materials, lighting, and design. The space looks,... read more
True Tenant Advocate

True Tenant Advocate

The true tenant advocate or tenant representative works to further the strategic real estate goals of their client. This seems obvious and straightforward, but commercial real estate strategy and tenant advocacy can rapidly become very complex. Tenant vs. Developer vs. Owner In many commercial real estate transactions, there is no tenant advocate. The situation seems logical enough – like when renting a home or apartment, you find one you like (that is, that meets your needs) and sign the lease. That’s how it is with residential leases at least. A commercial real estate transaction can be, and if your business real estate strategy is properly developed, should be more complicated. Real Estate Opportunity A true tenant advocate will help you develop your real estate strategy and uncover opportunities for your business that you didn’t know existed. The space your business occupies, whether a perfect fit or something you plan to grow into, can have a dramatic effect on your brand and appropriately, your bottom line. A skilled tenant representative will advocate for the best possible terms for your lease. This is something many business owners don’t even know they can do! Lease Termination A solid exit strategy is always good idea. Just like in a sinking ship or falling plane, if for some reason (and there are many) your business space is detrimentally affecting your brand and short- or long-term business goals, you’ve got to get out. An experienced tenant representative will make sure this is included in the lease agreement for you. Actual Business Goals For many businesses, at some point in their product or service lifecycle, goals... read more

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