My Commercial Real Estate Experience

It’s official, I’ve now been in the commercial real estate business for 15 years. My career began in Indianapolis, Indiana in 1994 when I was hired at a small, boutique tenant representation firm. Learning the business from the tenant side of the lease transaction is certainly one of the best educations available in this industry.

In 2006 I joined the Colliers office in Boise, Idaho.

The most rewarding aspect of my role is that I help businesses find solutions. I really enjoy negotiating and ensuring the best possible outcome—a win-win deal—for all the parties involved.

It’s very satisfying to me to be able to “level the playing field” between landlords and tenants. Landlords do leases every day but tenants only deal with them every 3-5 years, so my role as the tenant’s advocate really makes a difference.

Also, I get to see my clients’ businesses mature and evolve over the years and I enjoy being a part of that growth and success.

People often ask me about the books I’ve written on office leasing and negotiation.

The idea grew out of counseling and working with my own office relocation clients. Early on, my clients asked for advice about which steps to take and what to do next, and I suggested that they consult books or reference articles to get familiar with the process. But it turned out that neither they nor I could find any published material on the subject.

So, I did extensive research to develop my own templates and checklists, then had them printed and bound and gave them to my clients as a courtesy.

Everyone raved about the package, and clients kept telling me, “You should really publish and sell these.” From there, the idea began to take shape as a book and I’ve since written two more. Published titles include:

Move Your Office, 2006

Winning the Office Leasing Game, 2001

Office Relocation Planner, 1997; current edition, 2008

These are the top-selling commercial real estate publications on Amazon.com.

The commercial real estate world is constantly changing and I look forward to what’s in store over the next 15 years.

Please let me know of your experiences with commercial real estate. I’d love to hear from you, submit a comment or send me an email!

What is Dual Representation?

79M7494T63YN In any business transaction there is an advantage to having as much relevant information as possible. In a real estate transaction, this is often difficult because of potential conflicts of interest.

It used to be simple. A commercial real estate broker represented the individual or firm with whom he or she had a listing agreement. If a broker with several building listings is also representing a tenant in his search for office space, it is very difficult for the broker to be unbiased toward his or her own listings. The broker is representing the building owner and has a fiduciary responsibility to that owner. Thus, in this scenario, the potential tenant is left unrepresented, oftentimes, unknowingly.

Legally, the broker must disclose this relationship to both parties by entering into a role of “dual agent”. As a dual agent, the broker cannot disclose any information, which would put either party at an advantage in the negotiation process. In such cases, neither party, the tenant nor the landlord, are getting the value of the broker’s expertise.

In order to avoid any potential conflicts of interest or mixed loyalties, some brokers act only as tenant agents. The tenant’s best interests are always kept at the forefront, because the broker is not also representing landlords, which could prejudice their loyalty toward their client.

Lease Rates Down, Tenant Incentives Up!

The office leasing market is in a state of confusion, causing some property owners to implement aggressive lease rates and incentive packages. Incentives, consisting primarily of reduced or free rent, are a given in this market. Anything is on the table, including increased tenant improvement allowances, turn-key build-outs and existing lease buy-outs. Expect to get discounted rent in addition to an incentive package.

Tenants are king in this economic environment and shouldn’t be afraid to ask for their own terms. Do you have a year left on your existing lease? Ask the landlord to buy it out, i.e., continue making your payments after you’ve moved. Many landlords are agreeing to do this for up to one-year.

If you are able to get an aggressive deal, don’t be afraid to lock it in for the long haul. You’re goal should be able to get a 5-year lease or longer.  A significantly reduced rental rate will be even more valuable in the next three to five years when rental rates get back to, and exceed, the values of the recent past.

Sublease space can also make sense, especially when it is plug and play, with furniture and network cabling in place.

Even though there is an abundance of below market deals available, many tenants are reluctant to commit for a long-term and instead, prefer to remain flexible. For these tenants, flexibility means the ability to be nimble – they are renewing in their existing location with a one- or two-year lease, trying to ride out the recession without taking a risk. The safest option is to stay put.

Commercial Real Estate Goes Green

On my drive into the office this morning I heard an interesting story on NPR about the “greening” of New York’s Empire State Building. The energy sustainability program that is being implemented will reduce greenhouse gas emissions by up to 38%, giving the building an Energy Star rating of 90 – they are also pursuing LEED Gold certification. These are tough standards to achieve, even with new construction, let alone a building that’s going on 80 years old.

The retrofit will cost $20 million and will save $4.4 million per year in energy costs. This translates to $0.70 - $0.90 annual savings in per square foot operating costs.
Even better news…this project is part of a program that is planned for implementation in other older buildings across the country.

For more info, read the article on globest.com:
http://www.globest.com/news/1383_1383/newyork/177914-1.html

Office Rental Rates Softening in Boise

The article below by Brad Carlson of the Idaho Business Review tells the story of where office and retail rates are headed in Boise. Expect to see more landlord concessions.

Office, retail users target softer rents

Downtown Boise office and retail businesses are taking advantage of lower rents, Colliers International commercial real estate brokers Karen Warner and Brook Blakeslee said.

Asking rents for office space in the downtown Boise core are down 5 to 10 percent from a year ago, said Warner, who specializes in office space. And more concessions are available, such as free rent for a period depending on the length of the lease, she said.

Other geographic submarkets in the Boise area now see steeper reductions in rent than the downtown core, which is one of Boise’s healthiest markets if not the healthiest, she said.
Downtown Boise businesses taking advantage of more attractive office lease terms include law firms and some financial planners, Warner said. Medical businesses also are looking for leasing opportunities downtown, particularly on the downtown periphery. She said she expects to see more deals for available sub-lease space, on which another business continues to pay rent to the property owner.
Some office tenants downtown express interest in moving, but then decide to renew their existing lease instead to avoid moving costs and a loss of productivity during a move, said Warner, who has written books on office relocation.

“Downtown is still healthy and active, although it has slowed,” she said, referring to the office market. “It’s not where it was a year or 18 months ago.”

As for downtown Boise retail space, there are leases in progress, but “deal volume or velocity has gotten significantly smaller and rents have tended to pull back or are pulling back,” Blakeslee said. Some restaurant operators and soft-goods retailers are looking for space downtown, he said.
Asking rents for retail space in downtown Boise are down 10 to 15 percent from a year ago, though rents are holding up better downtown compared to some other submarkets in the Boise area, he said.
Blakeslee said restaurant rents probably are highest on Eagle Road, in the Meridian area. There is a broad spectrum of restaurant rents downtown.

A number of restaurants have closed in downtown Boise recently, but downtown always has seen a certain amount of turnover in that segment, said Blakeslee, who has worked in the Boise market for more than 15 years.

“I have always been impressed that the downtown has remained the area for the independent restaurant or the independent entrepreneur, and I don’t see any of that pulling back,” he said.
Downtown Boise retailers are trying to figure out how to make money in the tough new economic environment, and some are asking landlords for concessions on leases, Blaskeslee said. “They’re struggling today, and that’s something you could say in a lot of markets in the West or the U.S.”
Soft-goods retailers in downtown Boise are “just starting to see sales stabilize” following a very difficult final two months of 2008, he said.

How Much Office Space Does Your Business Need?

Determining how much square footage your business requires is an essential aspect of the office space search process. There are several different methods to calculate this; the simplest is to base your square footage requirement on the number of employees in your office.

Experts estimate that you need 200 to 250 square feet per employee. You may require even more room if you have significant storage needs or if your business requires large amounts of open space. Calculating your square footage needs at both 200 square feet per employee and 250 square feet per employee is an effective way to determine your square footage range.

For example, if your firm has 27 employees: 27 at 200 square feet per person equals 5,400 square feet. Next, multiply 27 by 250 square feet for an answer of 6,750. You now know that your ideal office space will be somewhere in the ranage of 5,400 square feet to 6,750 square feet. Keep in mind, this range gives enough room for the individual employees and adds a buffer for corridors, conference rooms and work areas.

If your business requires the use of additional equipment, or offices that are significantly larger than usual; you will want to increase the amount of square footage for your office space search. Conversely, if you run a call center with that utilizes small cubicles, you may be able to get by with less square footage than is considered typical. Extremely dense call centers can often get by with 150 square feet per employee or even less.

Your commercial real estate broker will be able to uncover available office space in your desired area that is in your size range. When identifying spaces that may be a good fit for you, your broker will also take into account your business culture, your typical work flow, and whether you require private offices or space that is an open work area. It is also important to factor in future growth. If you plan to expand your business in the near future, don’t forget to add the additional space you are planning for up front.

Timing Your Search for Office Space

Many of the business people I talk with wonder when they should begin their search for office space. Is a year out too early? Is a month out too late? The answer is typically somewhere in between.

Lease negotiation delays, design, permitting and construction setbacks, are just some of the reasons why it is important to begin your search for office space early. The biggest risk in waiting too long to start your search is that you end up limiting your options.

I recommend the following timing for starting your office search: