Posts

real estate is like poker

Don’t be so naive to think that just anyone in your company can handle your office or facility lease negotiations. It’s not like leasing an apartment, but more like playing poker against Doyle Brunson (2-time World Series Champ/Hall of Fame). Just like your landlord, Doyle would be plenty nice to you and let you go on believing you belong at the table, but at the end of the day, he’ll have your money…and you’re none the wiser. Read more

commercial lease demising

 

Here’s a simple technique that has saved several dozen of our clients literally millions of dollars in lease costs, and is very applicable to the changes happening in today’s market. We call it the Tape on the Floor Option.

Many years ago, a utility client asked our firm to help them secure 25,000 SQFT of Class A office space. After some discussion, they revealed that they’d only have about a dozen employees to start although expected to ramp up to about 60 people within 18 months. Read more

If you were around and fortunate enough to have a cell phone 30 years ago, you most likely had a Motorola “brick”.  It made calls.  It did not have a camera, email, mapping or navigation function, calculator, clock, or play music.  It could act as a paperweight, mini-dumbell, or a defensive weapon in a pinch.

Now, think about how much has changed in cell phones in the last 30 years. Read more

captive tenant syndrome

In a recent post, Newtons First Law, we discussed how the “house odds” favor landlords since the overwhelming majority of tenants renew their leases.  Why?

Because:

  • It is a hassle to move
  • Evaluating options would require time and effort
  • A move would cause disruption to already stretched staff resources
  • It is expensive to move

Read more

Dubai commercial real estate

The world’s tallest building is perhaps the greatest architectural and engineering accomplishment of man.  While most construction methods used for our local homes and buildings have not changed in the last 50 years or so, the Burj Dubai pushes the envelope of technology, sustainability, and functionality.

The fact sheet is amazing.  For example, the concrete used in the structure would be sufficient to build a sidewalk 2,065 miles long – about the distance from NYC to Monterrey, Mexico.

Here’s an infographic with more detail:

worldstallesttowertheburjkhalifa_52d2af15985d4_w540

I’m not crazy about condominiums.  Here’s why:

Other people (the condo association – which is often controlled by a very small group of individuals) get to vote on how to spend your money.  Some of those choices may not add value for you or to your property.

Operating expenses on leased commercial property work the same way. The management company, which is the property ownership or someone under their direct control, gets to decide what expenses get passed through to the property tenants. Read more

If you go into the grocer and purchase, for example, three pounds of salmon, you can be relatively certain that you now possess three pounds of salmon.  However, if you lease 30,000 SQFT of space in an office building, can you be relatively certain that you possess 30,000 SQFT?  Absolutely not.

Here’s why:
To start, there is the concept of “rentable” and “usable” space.  In summary, “usable space” is the space actually contained within your walls, and “rentable space” is the same number plus your proportionate share of all common elements such as elevator lobbies, bathrooms, fire stairs, and mechanical rooms.  If you lease half of a floor, the rentable calculation would apportion half of those elements for your use and add that amount to your usable calculation.

The American National Standards Industry (ANSI) has created very detailed specifications on how to create accurate measurements.  For example, dimensions are taken from the interior of glass windows to the mid-point of the wall for any walls shared in common with other tenants, etc.  This standard has been adopted by The Building Owners and Managers Association (BOMA) and some landlords agree to adopt these standards.  Fair enough.

But there is another scenario which can cost you thousands, perhaps even tens or hundreds of thousands of dollars over the term of your occupancy:  Phantom Space.  This is when either the usable or the rentable numbers or both are inflated above the actual or proper numbers.  Sometimes this occurs because the Landlord or their representatives choose to ignore the ANSI/BOMA standards in favor of their own.  These may be based on a measurement of the landlord’s choosing (the drip line of the roof for example) or could be, well, anything that they decide which may or may not be based on a real metric.  Illegal?  No, because all aspects of a lease are negotiable – including the basis for measurement – and the landlords that do this almost certainly have very smart attorneys who put language in the lease that will indemnify them and prevent recalculation to any reality-based standards.

Do you think this is a low risk concern?  A May, 2014 article in the Wall Street Journal details how the MetLife Building has somehow grown from it’s original 2.4M SQFT in 1979 to 3M SQFT today.  Indeed, NYC is notorious for floor measurements that have in some cases exceeded the outside measurement of the actual building.  Many real estate firms, including one quoted in the article that purports to represent tenants, turn a blind eye to the practice and shrug it off with the attitude, “It’s an important enough market that they (the Landlords) can make their own rules”.

How do you protect yourself?  Take these precautions:

1. Insist that measurements and rentable adjustments be done in accordance with ANSI/BOMA standards.  Note that The International Property Measurement Standards Coalition mentioned in the article is working towards a global standards, although it will likely be years before it is adopted in any significant way – and more likely never by unscrupulous landlords.

2. Hire your own architect, rather than relying on the Landlord’s architect.  The architect, like most professionals, has a fiduciary responsibility to their client.  Make sure that you have someone on whom you can rely for accurate and honest representations.

3. Include language in the Lease document that affirms measurement to to ANSI standards and allows for adjustment if a discrepancy is discovered.

4. Be certain that you have a tenant representative that insists on the items above, manages the transaction to meet ANSI compliance, and will not passively accept the non-conforming measurements of unscrupulous landlords.

When it comes to Phantom Space, Less is More.

We have a rule for our real estate project management process:  No Surprises.

Typically our clients are either doing a major construction project to build out or expand their business space, relocating to another facility, or both.  Usually these are operations critical to providing their products or services to their customers.

So what happens when a freak storm like Hurricane Sandy arises well after the usual season, misses the tropical coast, and heads for New Jersey & New York?  Isn’t that a surprise to everyone?  Well, no.

Here’s why:  Stuff Happens.

Of course we could not predict that particular storm, but you don’t need to anticipate every possible scenario. You simply need to realize that Stuff Happens and have a contingency plan in place in case something occurs that will prevent you from executing on your plan.

Perhaps it’s a labor strike, bankruptcy of a contractor, fire, failure of a piece of equipment, unanticipated code or licensing violation, even death of a key team member.  All undesirable and unfortunate, but, from your customer’s perspective the show must go on.

Have a plan in place to deal with how you will handle unavoidable delays.  We’ve found that there are three key components to keeping your project moving forwardas anticipated, or at least with the absolute minimum disruption possible:

  1. Be Proactive – If even a hint of trouble is brewing, communicate with staff, property owners, contractors and other team members to discuss how to handle and respond immediately as problems occur.  Know operational alternatives: Can product ship from another location or staff lease temporary office space in another property?
  2. Establish Relationships in Advance – The time to look for a roofer is not after the hurricane has passed through town.  Know who you can use, talk to them in advance, and assemble your back-up response team before your project starts.
  3. Experience Counts – Staff the project with people that have experience commensurate to the importance of the project.  If you deliver mission-critical products or services, or a delay of the project puts a multi-million dollar contract at risk, don’t put a relocation/construction newbie in charge no matter how competent they are at running your [Fill in Blank] division.  Get someone who has been through many of the same situations before.  They may not anticipate a Hurricane Sandy, but they will know how to deal with seemingly insurmountable issues. A couple of those seem to happen on every major project, don’t they? No surprise there.