When choosing professional services, there exists an old adage that the largest providers are the safe bets. “Nobody ever got fired for hiring IBM” was the well known saying implying that a large company offered at least the reasonable perception of reduced risk over smaller firms. In regards to technology consulting, those advantages may have been real or simply perceived. When choosing commercial real estate advisors however, often the risk increases significantly as the size of the provider firm increases.

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The City of London realized, shortly after WWII that they would need a new airport, now known as Heathrow.   The job of determining the location was entrusted to Alfred Critchley, a successful businessman.

Consider the many criteria that must be considered when choosing the location for a major airport: Transportation access, proximity to the population, geotechnical suitability, environmental impact, utility infrastructure, land acquisition costs, many others. 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

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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

One of the easiest and most effective ways for a corporation to keep real estate costs low is to regularly perform Market Rate Audits on their leased locations.  Often many companies get caught up in reactionary tasks such as simply handling leases as they come up for expiration, so they never get ahead of the curve with a proactive approach. Read more

commercial lease commencement dates

A typical commercial office or industrial lease states something to the effect that the “The Commencement Date of the Lease shall be the later of X date or the date that the Landlord delivers the Premises to the Tenant.”  (Note:  If it says the “earlier of X date ….”, your landlord is really giving you a raw deal. Do not ever allow it.)

This Commencement Date language protects you in case the Landlord is late in completing construction and you don’t get possession when planned.  Right?  Wrong.  Here’s why: Read more

Your company has multiple leases for office or industrial space. You’re represented by a Big 5 Landlord Rep firm, and it’s not working out so well. You’re under pressure to improve it, along with a hundred other things that need improved. So you plan to create an RFP for RE services. I get it. Read more

Mick Jagger, Net Present Value, and the new FASB IFRS Lease Accounting Rules

I took this photo of Mick Jagger when I was a photojournalism major at the University of South Florida. It made the cover of a small time music magazine, and I had visions of eventually getting my work on the cover of Rolling Stone. Just like the song.

Around the same time, I took an elective real estate course and showed the photo to my professor. The unimpressed professor said, “If your photos are great, your photojournalism degree won’t matter. And if your photos are bad, your photojournalism degree won’t matter. Why don’t you change it to a finance degree in case the photos don’t work out?” Read more

Let’s consider the corporate headquarters of a fast growth service business. Suppose that 1) they have a preference for keeping everyone together in one contiguous space, 2) they desire to strategically minimize cost and risk, and 3) growth rate is a variable based on many factors. What is the smart way to scale facilities? Read more

Driving Business Growth using Smart Real Estate StrategyIf you have a growing service business, you probably used to shop for office space by comparing rental rates. The lowest cost space, of comparable class alternatives, was often the best choice. That’s no longer the case.

The cost of labor, including attracting, hiring, compensating and retaining staff is typically between 8 and 12 times the cost of the real estate that houses that staff. So while you certainly don’t want to overpay, in the grand scheme the cost of the real estate is just a fraction of the cost of labor, so perfect placement to attract and retain that talent is far more critical than rate. Read more

With the exponential rise in online sales over the past few years, and an expected additional increase of 54% by 2020 according to Forrester, retailers as a category are hurting. A June 2017 article in the L.A. Times predicted that up to 25% of U.S. malls will close in the next five years.

It is not that people are buying less, it’s that Amazon (mostly) and others are selling more product directly from a warehouse. The game changer that is making this possible is speed. Today’s consumers value speed to such a degree that many are willing to pay in advance for it: take Amazon Prime as an example, where $99 a year buys you a year’s worth of free two-day shipping upgrades on purchases. Read more

The Eight P&L Impacts of a Corporate Lease

On many CFO and financial executive’s Urgent Issues or Focus List, real estate often doesn’t make the top ten. Why? I think in part it is because the impact of a real estate decision is spread over many categories of the Profit & Loss Statement. (I won’t get into FASB ASC 842 even though it is one of my favorite topics — for now anyway, keeping watching this space for future posts) Read more

How to Screw Up an Acquisition

Acquisitions often focus on just a handful of items: synergy, talent, perhaps geographic coverage and/or technology, and revenue of course. The investment bankers and attorneys that orchestrate the deal generally do a great job of ferreting out the business issues that need resolved. Except for the real estate. Read more

Most commercial office leases contain a provision that requires the tenant to promptly return an estopple upon request.  What exactly does this bit of legal jargon mean?

It’s actually pretty simple: an estoppel is a common legal document that serves to 1) confirm various aspects of a lease agreement and to ensure that important documents and facts are accurate, 2) affirm that the landlord has met all of his or her obligations and 3) confirm that there are no additional addenda or other modifications to the terms. Read more

FASB-3-1

It seems like every accounting, real estate, and asset tracking software firm has published an article on the new FASB Lease Accounting Standards.  I’ve noticed that they all tend to talk in generalities about the actual mechanics, and none that I’ve found seem to offer suggestions from a corporate user perspective aside from “Get ready!”. Read more

When companies acquire or merge with other competing or complementary firms, real estate is, as a part of the transaction, generally a small overall concern. However, we frequently see major risk being absorbed by the acquiring firm with potential for a very negative surprise down the road. Read more

real estate timing

In honor of Back to the Future, let’s talk time travel in commercial lease negotiations…because business decision makers often need it. Many companies wish they could go back and start things sooner or change that one clause in the lease document that they overlooked in haste. Who would have thought that a holdover provision would prove so important in a simple lease renewal? Why does the landlord take so darn long to respond to our counter offers? Maybe we should have just bought a building or built to suit. Unfortunately, options are drying up and Doc Brown’s Flux Capacitor doesn’t exist. Read more

amazon prime logistics

A few months ago, I joined Amazon Prime.  That’s a $79/year program that Amazon developed that gives members free 2 day shipping on Amazon-stocked products (which is most of the stuff that they sell).  For me, having nearly anything I want conveniently delivered anywhere I want in two days is fantastic.  However, the second time I bought from them, I was given a choice:  Free 2 Day Shipping, as I had signed up for, or Free No Rush (5-7 day) Shipping with a $1 credit to their Amazon MP3 Music Store (with most songs priced $1 or less). Read more

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

multiple real estate locations

Any corporation with more than one office/branch/site is large enough to have real estate portfolio objectives. With just a handful of locations, the C-level executives are likely very hands-on in determining the best solution as real estate opportunities or decisions present themselves. Once the number of sites grows to a point where that oversight is delegated though – whether placed under the responsibility of another staff member such as Regional VP’s, Controller, VP of Finance, General Counsel, or a dedicated Director of Real Estate – there are three styles that the management can typically be classified under: 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

key performance metrics

Every business has a learning curve as it grows, and the collective wisdom learned along the way becomes an invaluable knowledge base.  This is especially true in regard to your facility strategy.  By analyzing  what was done right and what could be improved in each new location or lease renewal process, you can develop rules to achieve the greatest return and avoid pitfalls. Read more

It is a great time to be a tenant, and here is another example.  Because almost all options are written with the assumption that rates will climb forever upwards, we’re seeing some interesting effects as rental rates tumble.  Some options are literally not worth the paper they we’re written on.  However, declining markets have made some usually unattractive renewal options have new value.  Here’s why: 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

operating expense pass through

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.  So what expenses do they pass through?  Every single one that they can possibly get away with.  There are only two methods of protection for tenants, and I’d estimate that more than half of all leases don’t fully take advantage of them. Read more