Larger Tenant Needs – Efficiency of Space Use

Larger Tenant Needs  We recognize that office users with space requirements in excess of 10,000 square feet, in one or many locations, have multiple needs. As vacancies drop and office markets tighten, the competition for the best office space makes your office broker an essential part of your planning team. Meeting the needs of the larger tenant requires a thorough understanding of the market and the players, and special analytical and research skills and services – all of which will affect your bottom line. Business Spaces has developed these skills and abilities through years of experience, continuing education and service. Years of office tenant representation experience and completing hundreds of transactions each, we know what we are doing and do it well. Among the services we provide or co-ordinate, in addition to locating and negotiating for office space, include that of performing frequent leased property portfolio reviews, market surveys, space measurement audits, lease cost pass-through audits and preparing long range planning recommendations.

Improving Workplace Efficiency We also offer our Agile WorkSpace Saver Program to optimize your office space use that could help reduce your office space needs by 30% – 50%. We do this executing workplace strategies and technologies that improve office space efficiencies. We help streamline a company’s office requirements by helping them implement a more efficient workplace strategy. It is one step above space planning and will not only reduce your office space requirement, but also improve the productivity, retention and work / life balance of employees.

Developing an “Agile Workplace” An agile workplace is one that is constantly changing, adjusting and responding to organizational needs. Agility requires a dynamic relationship between employees, management, work and the workplace as well how work productivity gets measured. Many companies are now finding that in order to attract and retain the best and the brightest, they need to rethink the workplace and how work gets done. A side-effect of this is that office space requirements are usually reduced 30% to 50% from the traditional workplace model with the implementation of an agile workplace strategy and technologies. Want to know more? We can help your workplace become an agile one, please contact us and we will get you started in learning about creating an “Agile Workplace” and then showing you how it might work for your company. A small sampling of the hundreds of larger companies that our members have assisted with their office space requirements include:

Hewlett Packard   Citibank   GE Capital   Yahoo  GTE   Bamboo.com   Network Associates Arthur Andersen Consulting  Lotus Development   Xerox PriceLine.com   Chiat Day Mojo Union Pacific Corporation   General Dynamics   Burlington Northern Railway   Federal Deposit Insurance Corporation(FDIC)   Apple Corporation   MetLife Insurance Company

Specializing in representing office users, we provide a combination of experience, service, exceptional market intelligence, and know-how to customize the best possible office solutions for our clients. – See more at: http://business-spaces.com or contact us at (310)428-9009.

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The Truth About Leasing Commissions

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he Truth about Leasing Commissions

One of the discussions many commercial real estate agents don’t like to have with their prospective clients revolves around the subject of fees or commissions. I have often seen brokers in an attempt to secure representation agreements with tenants, that make the claim that their services are free. This is a play on words, what they should be saying is; “the Landlord makes the actual fee payment and you are not required to make a direct payment for my services”.

The Truth about Leasing Commissions

We believe that it is important that the scope of services to be provided by a brokerage firm and the fees associated with these services should be clearly defined with the prospective client. 

iStock_000020510192SmallIn the office leasing arena, it is typical that the broker(s) both the Landlord’s and the Tenant’s representative are paid a fee after the lease is executed between the Landlord and the Tenant. The fact is most costs associated with the lease transaction including the leasing commissions are rolled into the final negotiated terms and paid back to the landlord in the form of rent over the term of the lease, including both the Tenant and Landlord agent’s commission. Building owners typically budget real estate commissions into their pro-forma and any commission that is not paid rarely finds its way back into the tenant’s pocket.

Leasing commissions are not set and are always negotiable, but generally speaking in the Los Angeles office market, the tenant representative will request a four percent (4%) fee of the gross lease value paid by the Landlord the Tenant contracts with. Also, in most cases the Landlord’s agent will receive two percent (2%) of the gross lease value, paid also by the Landlord for leasing his property. Some cities have slightly different percentages or payment arrangements that are typical for that market, but for the most part, this is the general cost of the services provided.

Since commissions are built into the overall building operating expenses, in rent the tenant is not only paying for his broker’s services but also the Landlord’s agents services, which only reinforces the fact; that tenants should have its own professional representation. In most leasing arrangements listing brokers have with building owners, if the leasing agent completes a transaction directly with a tenant who does not have representation, they get a bigger fee (6%) for representing both the Landlord and Tenant. This creates an inherent conflict of interest since their main source of income and fiduciary responsibility is to the Landlord. So under this scenario, the net fee of the tenant representative is 3-4% of the gross lease value. A good tenant representatives services will save you more than this amount or more in occupancy costs over the term of your lease if not much more money, in many cases.

A commercial real estate professional will clearly outline not only his scope of services, but what their fee is, how they get paid and where the money comes from.

Source: The Tenant Advisor

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3 Tricky Things in an Office Lease

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Every office tenant wants the highest quality office space available that fits within their budget. In other words, they want the best value that fits within their total overhead cost structure. The ability to achieve this objective requires an understanding of what drives costs and how to effectively manage them.

There are three factors that impact the total cost of your office space:

1.) The Location you choose
2.) The Lease Structure and Negotiations
3.) The Layout of your Space

Understanding these factors and the close interplay among each is critical in getting the most value out of your office space. If a tenant fails in this regard it is typically because they did not properly address one of these factors. There are a myriad of items in a typical office lease when not addressed properly will add to the cost of your occupancy. Minimizing the cost of office space and the probability of negotiating a favorable lease will be greatly increased by utilizing professional expertise throughout the leasing process.

I Need Your Help …. Can You Explain This?

I periodically get phone calls from office tenants who didn’t utilize professional representation, asking for help and who clearly didn’t understand the lease they signed or are about to sign. While there are dozens of key issues in any typical office lease, three of the most commonly misunderstood components in regards to lease structure are (1) how the Landlord charges rent for the common areas of the building, (2) how the building operating expenses are structured into the rent and (3) how the cost of improving your space impacts the rental rate.

Understanding the Common Area Factor

Few commercial real estate concepts are as misunderstood by tenants and even real estate professionals, as the measurement of office space square footage for rent purposes. The formula to determine the amount of rent in most office leases incorporates both the usable square footage, plus the tenant’s proportionate share of common areas.

Rent is More than Just Rent

Lease Agreements for a typical office building are complex contracts and most commercial leases provide a mechanism for common area maintenance and other building operating expenses (such as janitorial services, taxes and insurance) to be passed on to the tenant. In office building leases, where separate utility metering is uncommon, utilities are also included in the pass through of expenses. These pass-throughs are often referred to as “Additional Rent”.

Negotiating the Tenant Improvement Allowance

A key component of any lease negotiation is the tenant improvement allowance provided by the landlord to build-out or retrofit an office space for the tenant’s specific use. The amount of the tenant improvement allowance, as well as the length of the lease term have a significant impact on the negotiated rental rate.

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The Pros & Cons of Subleasing Your Space From Another Tenant

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There are inherent advantages and disadvantages to an office sublease . When considering relocation, office tenants should carefully compare the sublease option with a direct lease (for more on office relocation, read How to Find the Right Office Location in 10 Steps). In many cases, the benefits of a sublease outweigh the disadvantages. Below are three advantages and three disadvantages of subleasing office from another office tenant, compared to signing a direct lease with a professional landlord.

Sublease Pros

1. SUBLEASES ARE CHEAP

For most firms that sign a sublease, the biggest benefit is receiving a low rent rate. Subleases are almost always significantly less expensive than a direct lease with a landlord. Sublease inventory has increased since the Great Recession, leading to further savings available for those who opt to take a sublease.

2. FLEXIBLE, SHORTER LEASE TERMS

Most professional landlords insist on a lease term of at least 3 years for direct leases with new tenants. Companies looking for shorter lease terms are usually forced to renew in their current location. However, most subleases tend to be in the 12 to 24 month range. Of course, a short term is a ‘double-edged sword’, because you will have to renegotiate and/or relocate in the near future. Alternatively, you can negotiate a direct lease agreement with the landlord to start once the sublease expires. For example, you may sign a 1 year sublease with Business A, and simultaneously sign a 4 year direct lease with Landlord B, creating a framework for staying in place for 5 years.

3. LOWER SECURITY DEPOSITS & RELAXED SCRUTINY

Sublessors tend to be less strict than professional landlords when leasing space to young companies. For startups, professional landlords require personal guarantees, a significant letter of credit, or a large security deposit (up to one year’s rent). Sublessors have less invested in the real estate, so they tend to be more willing to take risk. Thus, sublessors usually will accept less creditworthy tenants and lower security deposits. However, the landlord will usually have to approve any sublease agreement his tenant makes.

Sublease Cons

1. IMPERFECT FLOOR PLANS

Despite the recent increase in sublease inventory, it is still difficult to find an office for sublease that exactly fits the specific needs of a given business. Most sublessors do not offer a Tenant Improvement allowance, so customizing the space is not an option unless you want to spend your own money to do so. Alternatively, you may be able to sign a direct lease in addition to the sublease, with the direct lease starting right after the sublessor’s lease expires. If you also sign a direct lease at the property, the landlord may provide a TI allowance.

2. ADDITIONAL RISK

As the sublessee, you must be confident in both the primary tenant and the primary landlord. If either party acts unfaithfully, or if the relationship between the two sours, then you will pay the price. For example, if the primary tenant defaults on his rent, through no fault of your own, then you will probably be evicted from your office unless you can quickly sign a direct lease agreement with the landlord.

3. WHAT’S YOUR EXIT STRATEGY?

After your sublease expires, then your firm will be subject again to the market rates of a direct lease. As a sublessee, you likely enjoyed terms that were far below market, and a return to market terms could be a significant disruption to your cash flow. Since most subleases are short term, it doesn’t make sense to relocate from sublease to sublease. A sublease can be a smart way to save money for 1 or 2 years, but it’s not a long term solution.

Source: The Oak Brook Office Report Blog

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Top 10 Steps to Being a Great (Retail) Tenant

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In order to be a great Tenant keep these 10 things in mind. We all know human nature is this: As soon as you decide to open your retail store or purchase a franchise the first thing to do – and the only thing you really can do – is drive around and call all the numbers on all the signs in all the windows. WHOA there! Cool your jets turbo! You need a strategy, a plan of action.

Ready, Shoot, Aim, gets really expensive and just won’t work in the long term. If you look at the great tenants out there like WalMart, Kroger, AutoZone, they all have teams of professionals and experts. Sure, most of their people are employees, but you can get the same expertise without a real estate department. You will need a team and this list will get you headed in the right direction.

Top 10 Steps to Being a Great Tenant

1. Determine if you should even be in business. Look, not everyone is cut out to run a business. Don’t call the sign in the window and ask them what type of business would be good there.

2. Understand your concept. Know your customer profile (hint, it’s not just anyone with a buck in their pocket).

3. Research your competitors. Who does this now? Sell burgers? What does McDonald’s do?

4. What do you really need? How large is your space, where, who would be a good neighboring Tenant (where else does my customer shop)? Do you need a warehouse, patio, or drive through? What special zoning do you need? Alcohol sales? Health Department Permit? Sprinklers? Impact Fees?

5. Hire a Broker

6. Ask Questions – require the your team to explain their specialty until you understand it well enough to spend your money on them.

7. Be Coachable. Understand that your team is there to help you make the best decisions possible. Engage them, open a dialogue and open your mind to the reality of the situation. Because you can afford a $10.00 rent doesn’t mean that is the market.

8. Consistent. Create a Strategy with your Team, and execute it to the best of your ability.

9. Prepare your financial statement in advance. Without exception this will be required at some point in the process.

10. Be Decisive. Make a decision, and feel confident that the team you’re working with helped you make that perfect decision.

Just because you haven’t heard from your broker in the last 2 hours, or over the weekend, does not mean they are not working for you. Be very candid and specific when you discuss your needs. If you don’t communicate your needs effectively, how can your team possibly meet them?

Being a Great Tenant, just like operating a business takes effort.

Source: CCIM Blog

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