A: We had a vision to use the 30 years of Commercial RE experience that we each had to help businesses here in the Bay Area. We structured the firm to exclusively serve tenants who needed assistance in relocating offices here in the Bay Area and the Western US. Today we provide consulting and relocation services to both private sector companies and government agencies in most of the western states.
A: Carpenter/Robbins is different in four significant ways aside from the thirty years of industry experience that John and I both have:
A: Business cycle planning is at the core of our practice. We purchase forecasting date from the Institute for Trend Research in New Hampshire and combine it with our experience in the commercial real estate industry to enable our clients to be a year or two ahead of their competition as it pertains to their lease or owned commercial real estate. That translates into selling in 2007 at the top of the market, writing short term leases in 2007 and 2008 so we could write long term leases at the bottom of the cycle in 2009 and 2010. Companies that are not taking into consideration the impact of business cycles on their real estate and therefore their bottom line are leaving money on the table.
~
What to do now, May 2009
A: I can’t emphasize enough how important it is to have a regular check in on how the companies facilities can do more than be just a vessel to hold employees or production. Proactive thinking will enable companies to take advantage of market conditions even if they have not looked at facility leasing from a business cycle perspective.
- Conduct a regular lease review so you will not miss an option or renewal date
- Consider alternatives to relocation, it is seldom go or don’t go
- Interview relocation advisors and vendors well in advance of need
- Compile a relocation budget
- Develop a relocation strategy that has credibility in the market place, does your existing landlord think you have time to really relocate or will you have to renew on his terms
back to top
Q: How do we know we can afford to relocate?
A: You know it’s unfortunate how many times companies are out in the market looking at space without a good idea as to what is entailed in relocation or how much relocation will cost. Preliminary budgeting with an experienced move manager should be a Must for every company, regardless of size. A firm should have more than a pretty good idea about what the entire move will cost, not just the new rent figure. We have seen many entities, both public and private, loose substantial time and money due to false starts that could have been avoided with better financial planning prior to implementing a relocation process.
- Avoid rushing out to look at space
- Take the time to meet with an experienced move manager
- Look at the high expense items early-IT, Cabling, Furniture, Double rent, Tenant Improvement contributions
back to top
Q: What are the additional cost categories to consider besides rent?
A: From a planning perspective:
- Furniture [additional, new vs. used, filing cabinets, reception upgrade, conference room upgrades, soft areas, coffee corners, do you need a foosball table]
- Sound proofing between conference rooms and offices
- The move itself
- Phone upgrades or VOIP
- Computers
- Cabling [are you responsible to take your old cable out?]
back to top
Q: What are the advantages of a tenant representative?
A: Firms that specialize in Tenant Representation are geared to not only helping clients with their planning and budgeting needs, but are armed with a rolodex of the best strategic partners in the business. For firms that represent Tenants only, it is all about the client’s successful relocation outcome not just finding a space to collect a commission. This leads to repeat business and long term relationships. We have literally done hundreds of transactions for several of our long term clients because they have experienced the difference this advocacy approach can have on their relocation experience and bottom line.
Ten Reasons You must have a Tenant Representative
- To have an experienced advocate working just for you.
- To insure a lease document expert is on your relocation team.
- To ensure a space location specialist is out looking for your specific requirement.
- To acquire lease negotiation expertise for your company.
- To ensure your broker has NO landlord ‘conflict of interest’.
- To avoid buildings with large common area factors.
- To have access to a team of preferred vendors.
- To concentrate on the all important internal coordination aspects of the move.
- To have more time to run your business.
- Because the landlord generally pays your Tenant Representative.
back to top
Q: How does a firm determine how much space they need?
A: This takes place during that planning period discussed earlier. Firms, either with the guidance of an interior architect, tenant representative, space planner, or move coordinator determine the positions they will need going forward, the size of the areas anticipated [offices, conference rooms, labs, reception, etc.] and who should be next to whom [adjacencies] for optimal organizational efficiency. This data is organized and literally drawn as a preliminary view at how the planning team’s vision will look in a standard building rectangle. The team and management get an early glimpse to see how their vision looks on paper and more detailed information as to how much office space will be needed to accomplish this vision.
back to top
Q: How do we talk about all this with the Landlord?
A: Many of us in business think we are pretty good negotiators and hopefully we are, our business probably depends on that. But the more I need to negotiate outside of my prime area of expertise the more I realize that I don’t know all the things for which I should be asking. Before every negotiation, whether with a vendor, advisor or landlord, we structure a negotiation objectives outline to be sure we consider all that should be negotiated and our target outcomes. We may not reach target on all objectives, but we miss very few things this way and can compare trade-offs more effectively and where appropriate quantify them more easily.
back to top
Q: Seems like when I talk to business people about real estate they are all very much focused on lease rates, is this the right focus?
A: Lease rates are important because the rate is multiplied times the square footage to be leased to determine the monthly rent. It would follow the lower the lease rate the lower the rent, right? Well, here’s where firms can get into trouble. Let’s go back and look at the basic formula for starters –
Price per square foot x square feet leased = monthly rent [lease rate]
Price or lease rate can be a vague term. Make sure your are comparing artichokes to artichokes here. Office buildings generally quote rates on a ‘fully served’ basis, which means during the first year of the lease that is the price per square foot you should expect to pay, no extras. A ‘gross lease’ on the other hand, may be defined similarly, but interpreted differently building to building or city to city. A ‘modified gross lease’ you guessed it, more variation, and a ‘NNN lease’ where the tenant pays their pro-rata share of most of the building expenses, can vary greatly from building to building. The important point here is to know what exactly is covered in the rental payment you are considering, so you will know what rent you will pay and so you can accurately compare your options. I think the main message here is don’t be afraid to ask questions about what is and is not involved with the rent figure.
Lease rate is only one side of this equation so we have to know as much about what that rate is being applied to [square footage leased] as possible:
- Does my firm have to lease the same amount of space in each building?
- Is one building more efficient than the others and therefore we can lease less space?
- Spaces in the same building can have different efficiency factors.
- Some building styles will enable particular types of office users to fit better than others.
These factors should be considered hand and hand with rate to determine over-all cost of occupancy.
back to top
Q: What lease clauses should business owners focus upon?
A: Because our time is limited, let’s pick three:
- Tenant Improvements
- Commencement date
- Expenses and ‘base year’
Tenant Improvements – These are concessions a landlord makes to entice a tenant to choose their building. Generally, and depending on the position of the business cycle, these concessions contribute substantially to constructing the interior of the future space so the tenant can occupy. This is a complex area, but the tenant should know what specifically is being offered and its’ market value. You need an expert on your team to do this; don’t try this without one. Many tenants leave big dollars on the table here.
Commencement Date – The big issue here is double checking that your space will be ready for you to start your move no matter what. The complications which arise from delays in this area are enormous and sometimes very expensive.
Expenses and ‘base year’- While your first year of occupancy should be relatively ‘extra cost free’, it is important to know all costs in addition to rent that you might be responsible for paying in the first and subsequent years. You should examine this while you are evaluating which building has the best economic package, not after you have gotten your first ‘whopping’ unexpected bill. The first period of occupancy should be computed as above – ‘lease rate x square footage leased = monthly rate’. In the second year you will be charged a pro-rata share of increases in building expenses. To make a long story short it is important to know what is in those expenses; increases in water and lighting costs, capital improvements to the property and management’s retirement plan obligations or the landlord’s cabin at the lake. Sometimes we can get expense items excluded or modified, sometimes it’s better to go to another building.
back to top
Q: Do we need to get an attorney involved and what does that cost?
A: A good attorney, like a good anything, brings substantial value to a real estate transaction. This is a highly specialized area, where a small mistake or oversight can lead to unanticipated difficulties down the road. Your advisors should be able to direct you to legal council who will look at your lease review as an investment in a future relationship as much a few hours of boiler plate review. This should not be expensive.
back to top
Q: What else can we do to save money before we sign the lease?
A: So before we make the final commitment to the most promising space let’s make sure that our advisors have got it right! We always have one or more of our contractors review the intended building to make sure the tenant can do what it intends to do from an infrastructure basis. These are always painful when they are missed:
Does the building have the basic:
- power capacity to accommodate the intended use,
- phone truck lines,
- high speed access,
- HVAC capacity?
- Will phone numbers have to be changed?
- Co-tenancy – can we live with the neighbors?
- Parking – will we all get a spot?
- Does our use need a special permit?
Q: Why should I have representation in a lease renewal?
A: In almost every case we have encountered, the unrepresented Tenant has not received the best rent or terms they should have in a given market. Tenants renewing their lease often feel that they have a good relationship with their landlord already and would be treated fairly in a renegotiation. The fact is that the Landlord wants you to believe this and wants you to think it’s too expensive to move. He also wants you to believe that without a broker on your side you’ll get a better rental rate – no commissions to pay. Those commissions are already built into the Landlord’s marketing costs – why not get the benefit of representation you’re actually paying for in your rental rate? There are other dollars you could be leaving on the table with regards to tenant improvements and free rent to name a few. Make sure you are getting a strong financial package for your company without having the pain of moving.
We would like to thank everyone for coming to the “Tenants Corner”. We answer tenants questions here on a daily basis with the help of our strategic partners in law, architecture, construction, move management and project management.
Serving your best interests at all times -- John and John
back to top
