How to Choose the Right Broker for Your Space Search


When businesses retain a tenant representation broker, they are buying that professional’s time, knowledge, and commitment.  Tenant representation brokers can play many roles throughout a transaction (tour guide, analyst, deal maker, negotiator).  Whatever your broker’s role, the most effective tenant reps are those that are experienced and focused on your property type and market.

Interview at least two brokers before you hire your representation.  When interviewing brokers, procure the following information:

  • Scope and Size of Firm
  • Focus of Firm
  • Focus of Broker
  • Experience of Broker (Years in CRE, Years in Specialization)

Firms should also watch out for and avoid two personality types common in the brokerage community:

The Hyper-Aggressive Broker

The aggressive broker always believes that they’ve squeezed the deal for all it’s worth, because they’ve spent months or years of your time emotionally abusing the opposition.  However, this broker rarely achieves more concessions than their more professional counterparts.  Instead, they usually prolong the time it takes to close and worsen the relationship between the tenant and the landlord.

The Ultra-Selective Broker

Some times, a seasoned veteran in the brokerage industry will begin to believe his own marketing materials.  Although this broker is well qualified to work on your account, he thinks that he is too good to do so.  This broker only works with the “elite” of an industry or a market.  Your business will probably not fit his standards, and he will not dedicate his full resources to your account, if he decides to take you on as a client.

Source: Oak Brook Office Report Blog

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Understanding the Common Area Factor: Rentable vs Useable Square Feet

Bldg Can OpnrWhy do you pay rent for more space than you occupy?

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 in the building.

Useable Square Feet

In general, usable square footage is the amount of space you actually inhabit. For smaller tenants, useable square footage is simply the area of the demised space inside your office suite with no exclusions for recess entry/exit doors or structural columns. What that means in essence, is that the space is measured as if columns are not there. But restrooms and janitor closets, elevator lobbies and public corridors are there, and you pay a portion of the space they occupy with the other tenants who use them.

For full floor or multi-floor tenants, useable square footage is everything inside the glass line, including restrooms, janitor closets or mechanical and electrical rooms. Like small tenants, full-floor or multi-floor tenants also must pay a share of the building common areas not on their floor, such as the main building lobby.

The Common Area Factor

The common area factor is a number which refers to shared spaces on a single floor, and within a building in its entirety. These spaces as previously mentioned can be a pro-rata share of tenant common areas such as restrooms and elevator lobbies, or main building lobbies and amenities which all tenants of the building use.

The Floor Common Area Factor refers to tenant common areas on that floor only, and although the number varies from building to building, it is generally near eight percent of the floor for a factor of 1.08.

The Building Common Area Factor refers to common areas for all the tenants in the building, and can range from six to eight percent. Common area factors determine the actual square footage for which a tenant will pay rent.

Typically when you are quoted a common area factor by the landlord or the building’s leasing agent it includes the sum of the floor common area factor and the buildings common are factor. As a result for most office buildings the total common area factor ranges from 12 to 20% subject to the design of the building.

Rentable Square Feet

Simply stated, rentable square footage is the area of the enclosed interior space of the building other than holes in the floor, such as stairwells, and elevator and mechanical duct space. If it’s floor that you can stand on, you pay for it, because it is rentable space. That includes restrooms, janitor closets, electrical and telephone rooms, etc. What you pay for then-your rent–is the rentable square footage times the lease rate per square foot.

To calculate rentable square footage for a smaller (less than full-floor) tenant, first multiply the usable square footage by the floor common factor, then multiply that result by the building common factor.

Similarly, a full- or multi-floor tenant would multiply its full-floor usable by the building common factor because of the extra shared amenities and lobby space.

The Calculation

The formulas to determine the usf and the rsf are: rsf = usf x (1 + Add-on %)

Add-On % = (rentable sf / usable sf – 1)

For example: Assume you need 10,000 usf and there is a 15% add-on factor.

rsf = 10,000 x (1 + .15) = 11,500 rsf

For example: Assume you a leasing 16,000 rsf and have 14,000 usf.

Add-On % = (16,000 / 14,000) – 1 = 14.29%

In some real estate markets a load or common area factor (CAF) is used instead of using an Add-On or Loss factor. Sometimes various landlords have differing definitions of these terms. It is a good practice to always clarify the calculation with the landlord or his agent to ensure there are no misunderstandings.

It is very important for a tenant address this issue before a lease is signed, as there is usually little or no recourse after lease execution. Most leases do not detail a method of direct calculations of either usable or rentable square footage, and if a rentable figure is provided, it is almost always modified with the word “approximate.” However, most reasonable landlords will accept a revision to lease language that the measurement of the premises will be verified by either the tenant’s or landlord’s architect subject to an acceptable measurement standard such as the BOMA Standard or the commonly accepted standard for the market. Your tenant representative should verify that the common area factor represented by the landlord approaches reality.

Comparing Various Buildings

When you are out evaluating space options it is important to note that most buildings have different common area factors and floor plate dimensions or shape can impact the space plan and the required amount of useable square footage. When comparing buildings particularly from a financial aspect you should be using a cost per useable square foot (USF) metric, to be sure you are evaluating your options on” apples to apples” basis.

Ultimately you are looking for the right space that not only fits your budget but also other real estate and workplace criteria. However, two buildings with the exact same face rental rate can have significantly different economic as a result of common area factors and space design efficiencies.

Working with a tenant representation specialist who understand all the intricacies of leasing office space and possesses the technical skills to evaluate various options will insure you are making an informed decision.

Source: The Tenant Advisor

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Avoid CAM Cost Surprises After Lease Signing

Before you sign a lease for any space in an office building or shopping center, you should know all of the costs that make up the CAM costs and operating expenses for that building or center—and how much of those costs you’ll be responsible for. Without that knowledge, you can’t make an informed decision about whether leasing the proposed space will make sense for you financially.

You can avoid getting an unpleasant surprise when you get your additional rent bill by talking with the owner during negotiations to nail down these costs. There are several documents relating to office building and shopping center CAM costs and other operating expenses that can show you whether additional rent will end up wreaking havoc on your cash flow when it’s too late—after you have signed a lease. If you ask the owner why it did not disclose those costs to you when you negotiated the lease, the owner may simply respond: “Because you did not ask about them.” So have your Tenant Representative get and review the following five types of key documents before you proceed with lease negotiations:

· Expense schedule

· Historical operating expense/CAM cost data

· Accounting of base year expenses

· Utility and tax bills

· Insurance policies

For details about what to look for in these documents, and for eight key questions to ask during negotiations to tease out the information you need, please inquire directly with Business Spaces.

Source: CTLI

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Digital Office Space Calculator

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Commercial Real Estate Terminology

Posted on June 21, 2014 by Admin

dictionaryLike every industry, commercial real estate has a language of its own.  Let’s run through some of the key terminology you must know and understand when plotting your real estate strategy.

Blend and Extend: A strategy where tenants trade early renewal and extended lease length for more favorable lease terms.

Build-Out: Refers to the construction of the tenant’s proposed space to make it ready for occupancy.  Also referred to as TI or tenant improvements.

Building Class (A, B, C): Building classification may rate how the building is generally accepted in the market, or could be a personal classification by the individual referring to that structure.  Buildings are usually referred to as Class A, Class B, or Class C.

  • Class A. These buildings represent the highest quality buildings in their market.  They are generally the highest quality properties featuring first class tenant improvements and state of the art infrastructure.  Class A buildings are located close to important amenities and enjoy good access.  They are professionally managed and well maintained.  Class A properties tend toward the larger side for their market.  For example, in the western suburbs of Chicago most class A properties would be 50,000 square feet or larger.  These features allow Class A properties to attract the highest quality tenants and command the highest rents.
  • Class B. This is the next notch down.  Class B properties are either new buildings in secondary locations or older buildings in prime locations.  Class B properties also include new, smaller suburban properties sized 5,000-25,000 square feet which lack typical Class A features (covered parking, onsite property management, etc) due to their size.  Class B properties are still expected to have good quality management and tenants.  Often times, value-add investors target these properties as investments since well-located Class B buildings can be returned to their Class A glory.  Generally, all space in a Class B property has been occupied at least once, but the property is not functionally obsolete.
  • Class C. The lowest classification of an office property is Class C.  These older buildings (usually more than 30 years old), are located in less desirable areas and are in need of extensive renovation.  These properties are obsolete, featuring outdated building infrastructure and technology.  As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.

First Right of Refusal: A right given to the tenant stating that before the landlord will lease the space in question (usually expansion space), the tenant will be given the right to lease it first.  The first right of refusal is usually negotiated into the lease and is typically governed by an agreed upon time limit.

Rentable Square Footage vs Usable Square Footage: Rentable Square footage is the amount of space the tenant will pay rent on.  It includes the space inside the tenant’s suite plus a factor to account for the tenant’s use of common area.  Rentable Square Feet is always larger or equal to Usable Square Feet.  Usable Square Feet equals the amount of square feet measured within the confines of the tenant’s space – this does not include common area space.

Site Selection: Indicates the practice of new facility location. Site selection involves measuring the needs of a new project against the merits of potential locations.

Sublease: A lease of a property or space by a tenant to a subtenant.

Tenant Improvement Allowance: This is the amount of money the landlord is willing to contribute for the build-out of the tenant’s space.  It is usually quoted as “x” amount of dollars per rentable or usable square feet.

Whatever question you have about commercial real estate, chances are it can be answered by your tenant representation commercial real estate broker.  For more on the benefits of tenant representation and more information about planning an office relocation, contact Business Spaces, (310)428-9009.

Source: Oak Brook Office Report Blog

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