Business Space Decisions

CFO, BIg Picture - Great Business Space Decisions!

2011-10-16T20:54:00.000-07:00

I had the pleasure of co-writing an article on the business space decision making process with a friend of mine and CFO, Dan Whitaker, who's very involved with the Washington State Certified Public Accountants. The article captures how the financial aspects and function in a company have to incorporate a broad range of considerations to ensure a solid decision that supports the overall business goals and objectives. Check it out - I posted a pdf of the article at http://www.kevingrossman.com/wscpa/OfficeSpace_TheWashingtonCPA_SepOct2011.pdf

Download a sample net present value worksheet referenced in the article at: www.smartofficespacedecisions.com/wscpa/example.xls

Top 4 Keys to Making Smart Office Leasing Decisions

2011-08-03T04:02:00.000-07:00

A business space lease is something you only have to deal with every few years – but of course it’s important to your company so you want to make a good, informed decision. So what are the keys to making this decision, from the perspective of other business owners and people involved in many transactions? I’ve been representing tenants in leasing and buying properties for their business operations – office, high-tech and manufacturing space – and here’s a “quick list” distilled from client feedback and experiences over the years.

• Remember the big picture – keep the deal and specific points of the deal in context of what your business needs for its overall success.

• Approach it thoughtfully and with a good process in mind – this ensures you get the best deal in any given market environment for your firm.

• Use a team and tools to ensure you have the objective and subjective input you need to support your decision making process.

• Be sure the documentation reflects the deal you believe you’ve agreed to. The landlord may tell you the lease document is standard, but there is no standard and to avoid potentially crippling problems it deserves the time and attention to get it right.

Keep the big picture in mind - all the way through

It’s easy to get distracted by urgency and the many small but important details and time involved in going through the lease process. The best context for all this, keeping things in perspective, is to be clear going in what’s important to your company and you going forward. Here are some of the top trouble spots to be aware of:

• It’s about the future, not the past – what are your priorities and needs going forward?

• Marketing, branding and positioning in your marketplace may be impacted by your space.

• Recruitment and retention are often influenced by business space decisions.

• Logistics to clients, daily transportation, goods & supplies or the airport may be important.

• Environmental issues for an increasing number of companies is critical – air quality, waste stream management, energy efficiency of the building, access to services and mass transit.

• Financial ramifications – everyone focuses on the rate, but flexibility can be critical, as can the clause about assignment and subletting. It’s a rude awakening if you want to bring in a partner or sell and you realize you’ve given your landlord the ability to approve or extract concessions from you to get your financing or sale transaction done.

Good Process provides solid foundation

A good process produces consistently good results. Given the complexity of many deals, a thoughtful approach ensures you make a well informed decision. A general framework should include:

• Clarify your needs and requirements

• Determination and preliminary assessment of options

• Request for proposal process for top contenders

• Keep a fallback until the end – you need it to not give up leverage

• Negotiate, clarify and systematically compare on an objective and subjective basis

• Document well

• Design and construction if part of the deal

• Move and celebrate

Use a good team and tools

It’s not rocket science, but it is a set of skills and information that you don’t deal with on a daily basis. It is in addition to all the other things you have on your plate running your business and you’ll be spending a fair amount of time with who’s representing you, so choosing a representative (broker that represents business tenants) that’s a good fit for you and your firm’s values. Some key elements and tools to consider include:

• When choosing someone to represent you - experience helping business tenants not landlords is critical. Representing landlords is a marketing job. Representing tenants is a service job and involves a broader, more technical skill set to do it right.

• Using net present value to critically evaluate the range of proposals you’ll see. There will be variations in rate, operating expenses, how tenant improvements are handled, rate increases, the load factor, how efficient the space is for your specific needs, parking costs, moving and rent abatement, off hour use, how the space is measured, etc. A comprehensively designed NPV worksheet is invaluable in the negotiations and to help you in having an objective apples-to-apples assessment of alternatives.

• Team players – it’s important that your tenant representative can work well with you of course, but also your CFO, Operations manager, legal counsel and communicate well with your banker, the architect, contractor and building management team. All of these are important to getting the best decision and setting in place solid go-forward expectations and working relationships.

Documentation - a critical clarification process

After the months of getting to a deal you’re good with, the deal isn’t quite done yet. The lease document is like its own mine field just before the finish line. It’s not uncommon for the lease and related addenda to be 40 pages, and if it’s a sublease you have essentially two lease documents combined and your situation is guided by the most restrictive elements of either document. This is where your tenant broker and your attorney working well together is important to ensure you get what you’ve spent a lot of timing working toward. Some key points are:

The work letter – the part of the document that spells out the improvements, who’s doing what, who’s responsible for the process, construction, what costs are the landlord’s and what if any are the tenants responsibility.

Who’s signing – you personally? The Company? If it’s the company, is there a guarantee? Is it a reasonable amount relative to the landlord’s actual risks or for the entire lease obligation?

Assignment is often glanced over but shouldn’t be. If you want to partner up or merge or sell, many leases don’t have any criteria or set a very low threshold at which the landlord has sole discretion to decide if they will allow and assignment or subletting. You don’t want your business subject to arbitrary involvement by your landlord.

Mechanisms for extensions, expansions, give-backs, determining market rent, and the timing of each of these are additional potentially critical issues to be aware of and understand – and to negotiate if the starting document is unreasonable.

Don’t get sucked into the “you can trust me” by the landlord regarding ambiguous language. The response I often use is “I’m sure that’s true, but since we don’t know if you’ll still be the person we’re dealing with we have to make sure the document reflects what is reasonable and not rely on a verbal understanding”.

Of course you have to tailor the approach to the landlord – many are quite reasonable. Some you will need to rely on your fallback to have the fortitude to hold firm on some critical items (and of course stay reasonable yourself – keep the big picture context in mind).

Celebrate Completion!

This isn’t one of the four keys, but I highly recommend that after you’ve executed the lease (and the landlord has too) you should do a provisional celebration. It is a long road to get to that point. Then after you’ve moved in have a broad based, all hands celebration with your team and clients. Let your marketing folks have a fun time with it. By that time you will have really earned a party.

Kevin Grossman provides commercial brokerage and project services to businesses leasing or buying business space. He’s assisted firms with transactions involving over 3 million square feet of space from Eugene to Bellingham from his office in the Seattle area. kevin@kevingrossman.com

Collaboration and a Good Process – Keys to Successful Outcomes

2011-06-06T09:43:00.000-07:00

Good process and collaboration can save the day. Bad process and a silo approach set us up for painful project failures. Save yourself and the other stakeholders from trouble by insisting on collaborative, thoughtful process basics.

· Clearly articulated top level goals – re-articulated often and firmly through the process

· Distinguish deal breakers from nice to have characteristics

· Require communications loop-backs to ensure a common understanding across the decision makers (and implementation team if possible) of all critical aspects

· Expect and require transparency and appropriate decision item documentation in the process

· Be respectful and firm, while staying open minded to achieve the best outcome

· Keep the goals in mind (don’t take ownership of problems that aren’t your problem!)

I’ve been in intense, long and challenging meetings for the last few weeks where everyone around the table is working hard to fix a big problem and keep a deal on track. We are working to get a LEED Gold light manufacturing lease deal moving again. It was derailed by bids that were 50% over the 90% design completion estimates. Needless to say, there were some hard questions being asked around the table. In reflecting on what went sideways and what we’re doing that seems to be getting it back on track, it really has brought into the spotlight the need for the above list of bullet points to be in place.

We did articulate the top level goals at the beginning. I always start there with clients. We actually restated them often during the process. Where I dropped the ball was not recognizing scope-creep as various consultants reflected their vision for the project that exceeded the primary goals, and ultimately the budget. I understand that we all want to leave our fingerprints on deals – especially fun ones that are unique in character as this deal is. This will be one of a very small list of LEED Gold advanced manufacturing facilities in the State, and we believe the only one that involves a landlord/tenant relationship instead of an owner/user situation. Many people on the design team – smart, well intentioned people all – let their excitement flow into the design process. Excitement is good, but needs tempering by realistic budget and baseline needs. We needed more differentiating between needed items and additions that would be terrific if there were money to fund them (but there wasn't).

Once the bids came back beyond any possible go-forward amount the tenant had the option of walking away for a modest termination fee I’d negotiated to cap the exposure my client had on this phase of the deal. After all the work to get to that point - by everyone on all sides of the table - and after some intense conversations with the landlord and design team, we decided it was worth the energy to try to intensively re-design and take one more shot at making the budget – with the tenant retaining the veto option if the revised design to meet budget didn’t meet his needs.

So then the question is how to re-visiting of the top level goals, now with a clear requirement to understand deal breaking elements vs. nice to have, and make the budget. It is a very different project when you have to trim a third out of it. The challenge at this point in the process is as much psychological and emotional as functional, since things are being "taken away". It’s analogous to house shopping at a price range above what you can afford before you get to a point you can buy – you like the things in the more expensive home, but you can’t afford them so it feels like a letdown to look at your price range even if it would have been terrific had you not seen the higher end things that are unaffordable.

One of the keys to the redesign process has been an acknowledgement that there were breaks in the communication loop and process in the first pass that we were determined to resolve. Information from the consultants on electrical and mechanical systems had not been clearly or timely relayed back to the client’s operating people originally, nor to the cost estimator by the 90% completion point. There were many nice things that were in the spec that were not needed or designed with mis-understood priorities. In some cases items were not requested or not discussed, just well intentioned but very off base assumptions, and they exceeded the functional needs and budget constraints of the project.

During the redesign process the architect has worked with us to document discussion items and be very clear about things on the table; what’s ok to drop, what’s critical to keep, what needs more information regarding cost against which to weigh the respective value, characteristics relative to cost. The consultants have been proactively looped in on better understanding needs and coordinating with the value engineering (cost reducing) process.

In future projects of this complexity I will require better loop back or check in communication pieces from day one. We requested more clarifications that we got the first round, but we didn’t force the issue and it was an important part of missing the budget target the first time. We believe we have the needed additional tracking tools to ensure we’re all on the same page so the project reductions we’re making are the ones that make sense.Most importantly, the team has rallied together to collaborative and aggressively address the issue - this resolution focused attitude seems to be getting the job done.

This conscious attention to communicating clearly and grounding it back to the functional requirements and LEED Gold objectives has been very effective at improving focus and has added transparency. Being able to see and hear the suggested changes and modifications in this format, with drawing modifications too, of course, has improved the client’s comfort level that we will still achieve a great building meeting his LEED objectives and functional requirements within the new design that will likely meet the budget this time around. While there is disappointment about some of the things left on the editing room floor, he has the big picture perspective to still see the great improvement in facility the resulting building will provide his firm over his current facility.

Given the personalities, egos and personally desired outcomes at stake, this revision process has been an amazing thing to participate in. It has required the best from everyone – focusing on the successful revision of a project everyone has a professional and emotional attachment to in its former, unaffordable form. So all around a mindful, sensible, egos checked at the door approach has been required – and it’s coming together. It appears at this stage that we have a LEED Gold, very functional project with a number of special features still retained.

This is a work in progress – I’ll add a “how it turns out” note at the end of this post in mid-July when the new bids come in. I’m keeping the faith that it will be a good update and that this hard work and refocusing will pay off.

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Index of all blog posts by Kevin on “Business Space Decisions” is at:

http://businessspacedecisions.blogspot.com/2011/06/index-of-blog-posts.html

Kevin Grossman helps businesses lease and buy space. Taking a “real estate department for hire” approach, Kevin ensures clients are engaged in the right questions, are deeply listened to and then receive the attention and assistance to make and implement the best decision. Kevin can be reached at 206.730.5567 or via email at kevin@kevingrossman.com

Index of Blog Posts

2011-06-03T12:55:00.000-07:00

Business Tenant Representation –the cost and pain from not having a good tenant rep broker

2011-05-18T09:34:00.000-07:00

Lots of brokers talk about representing tenants in leasing space, but do they really? Well, there are three main things that should get your attention – value for your money (yes, it truly is your money even if brokers tell you it’s free because the landlord is writing the check), accountability in the relationship, and, ultimately, the end results.

A little background may be helpful… Landlords hire a listing broker to market their space and agree to pay a percentage or a $ amount per foot to the brokers for leasing their space. The listing broker agrees to share the fee with another broker who brings a tenant to the table or is working with the tenant.

However, think about that for a minute – do you include sales costs when you calculate your costs when going after a large sale? Of course you would – and so do landlords. The money paid by you for rent going forward absolutely includes the costs the landlord pays for this process, which by design is to lease their space – not to ensure you as a tenant are getting the right deal for your business. It’s nice from a cash flow perspective to be able to use someone that is being paid directly by the landlord, but since you are paying it over time you’d be well served to think of it as your money and get that value of service out of the process.

So what’s the value to you for this money? Reflect on the amounts – it’s common in downtown office space in today’s environment for the broker representing the tenant to get 5% of the total lease amount or over $5/sq.ft. If you’re leasing 5,000 square feet, your broker is probably getting north of $25,000. If you were hiring a consultant to provide you with $25,000 of professional service – an attorney or accountant, for example - what level of clarity in scope of work, documentation and understanding of process and project would you expect? You should expect this level of professionalism from a broker who represents you in a lease negotiation as well. The stakes are high if the broker doesn't have your back in the process.

Many brokers who want to represent you won’t clarify the relationship and scope of work for two reasons. One, they aren’t usually held accountable for clarifying their relationship or scope of work. The second is that they have a conflict of interest they’d rather not discuss. They work for firms with signs up on buildings – meaning the firm represents landlords. If they represent landlords and they want to represent you and the landlord and you have many polar opposing objectives in the negotiations – well, you see the problem.

To represent you fully, true tenant rep brokers – and there are a few to choose from – need to only represent and negotiate for tenants.

So at this point you may be saying, “Kevin, who really cares? I mean, isn’t all that matters that we reach a mutual agreement?” To answer that I’ll share some quick issues I’ve helped people with after they used the wrong broker to help them …

Dramatic expense increases due to the poor wording of how operating costs are calculated and passed through
Trouble with closing business expansion equity deals due to bad language around “assignment” of the lease, giving the landlord the ability to terminate a least due to partial ownership changes
Derailed sale of businesses due to related issues around assignment and subletting
Expensive problems relative to timing on renewals, expansions or early terminations and related unequal language around the process of determining “fair” market value
Not including all costs in alternative to alternative net present value comparisons, proving for substantial unexpected costs only clear after the lease was already agreed to

It’s better of course to hire a better broker in the first place.

These issues are really important, often critical to a business. A broker who really has the tenant’s interest at heart will not shirk the negotiation duties around these issues, or gloss over them because they are inconvenient and with some landlords can be very contentious. Experience and skill applied to a well understood set of tenant’s needs in a context of truly representing the tenant will produce the best outcome.

So, ensure you don’t pay dearly by hiring the wrong broker. When selecting someone, discuss the issues and process to a standard or level that you would your legal or accounting service providers. Hold the person and team accountable for professionally representing you, treat them as the consultant and adviser they should be for you given the money they’ll get for representing you in the deal. Ensure they really do take care of you through the process.

Kevin Grossman has been helping businesses make sound business space decisions since the 80’s. His “real estate department for hire” approach ensures clients are asked the questions, really listened to and then receive the service to make and implement the best overall decisions for their company. Kevin can be reached at 206.730.5567 or via email at kevin@kevingrossman.com

Hire a Space Planner Early In the Process - Broker Collaboration with Space Needs Programming Produces Great Lease Outomes

2011-02-28T21:56:00.000-08:00

Understanding your space needs – now and into the future, is critical to making informed business space decisions. If you’re growing, changing or in a dynamic market, thinking fresh about your needs will avoid common pitfalls of simply extrapolating from your current situation. With help from a good space planner and programming firm you’ll be able to use a move to support your company in many ways more than just having a spot for each desk – and preventing problems common from just being reactive to your current space.

The involvement of an experienced space planner will aid you in finding great solutions and choices for your facilities layout, design and furnishings. They are terrific team members for this process. While many brokers will default to advising you to let the landlords’ space planners lay out options for you (it’s easier for them this way), you may want to ask some questions…

• What is the motivation of that planner? They’re paid by the landlord as part of a marketing process, not a needs assessment of what you and your firm require.
• If you use landlord’s planners you have to explain and educate each one, help them understand your company situation, culture and values to ensure they understand what you need from the space, and trust that they’ll reflect your objectives and values even though you don’t have a relationship with them and they are on contract to the landlord – how much time and exposure is that for you?
• Their scope of work is to lay out a space, not understand your short, intermediate and long term staffing and functions, or adjacencies, or corporate culture and values. Their job is not to really understanding of the values and elements needed for you to sustain and grow your company, it is to make it look like the space their employer is trying to lease look like it is the perfect fit for you – and they have many tools at their disposal to make pretty marginal layouts look quite beautiful if they need to.

To ensure the best outcome for you, the best approach is for you to select your own space planner at the front end. Work with them to be sure they understand your requirement – both objectively and subjectively. There will be some additional cost to you in this approach – but the value of the information and control in the process is well worth the investment. I’ve seen the difference it makes over and over again. Often the landlords will agree to pay the tenant’s space planner what they would have paid their contracted provider anyway, offsetting some or much (it’s all negotiable, of course, so sometimes it’s all) of the cost. You will be well served if your leasing broker understands how to work collaboratively with and leverage the information from your space planner in the selection and negotiation process.

Objectively, there are current and anticipated staffing levels, by category, level and function. There will be ranges of space sizes to accommodate various functions. Storage, work space, conferencing and reception are all typical components to be incorporated. This approach is a rough baseline – a baseline that with the subjective attributes included in the thoughtful designers design for you will greatly improve functionality and your team’s satisfaction with the space.

The important subjective overlay includes adjacencies, potential growth or contraction, flexibility and values.

You want to have a layout that results in the support people being near who they support and work with, and their work areas and needs near that. By investing your time with a your space planner, and having them talk with your key people and your internal functional/logistics thinking people, the planner will help develop options of how to improve on the current situation and situate people and teams and divisions in ways that improves things. You can stimulate communication, encourage collaboration and increase opportunities for the whole firm to work well together.

Growth for most companies is difficult to anticipate – as is potential contraction. Take a look at customer acquisition history and goals, for example. If you have a lot of customers providing diversified revenue you’ll have a different perspective than a consulting firm with a few clients, or especially if one client is a very substantial portion of your revenue stream. Designing the space with the potential expansion or ability to sublease or give back portions is possible – it just requires forethought and a good planner on the team.

Flexibility is often needed not just in size of the space, but in the way the space is designed. You know many firms have ever evolving ways of getting things done – yours may be among them. Similar to LEAN manufacturing, office processes can be changed and modified to improve outcomes as well. Engineers that would have had private offices 10 years ago may be in open work studios and senior sales people may have small work stations since they’re out of the office most of the time. Virtual staff, flex time, seriously cross trained team members and flexible grouping of people for specific projects require a thoughtful approach quite different than organizing a group of lawyers and their staff. It’s all good for some companies, but each company can be very different – and that uniqueness needs to be reflected in the space.

The softer components are important, but often not explicitly addressed. What are the values of your company? If natural light is a high value, you can place private offices on the core with low height workstations along the window line, so everyone gets to see the sky (and trees if it’s a shorter building). It’s not uncommon to see very open space with even the executives choosing to be in an open, workstation type environment with scattered conferencing areas for privacy or team work areas. If privacy is a major factor then more traditional private offices are probably a better fit. It’s about your broker and space planner taking the time to understand your goals, objectives, culture and value to reflect in the process.

Corporate culture characteristics are supported or inhibited by design. Some examples of themes that benefit from very different approaches to their space layout include: deliberative, traditional, established, creative, intellectual property driven, dynamic and high growth. Different companies do well with different approaches, and ensuring your space is consistent with your culture. This fit impacts your people the entire time they’re at work, so you want to capture in the physical space what you believe will move your company forward.

A team approach produces the best results. A broker that can work collaborative and can coordinate and integrate the feedback and help of a good space planner into the process will be able to secure a much better overall deal for you. Hiring the space planner to be explicitly on your team, to really learn about you and your company, really addressing your culture and values, will pay off. The objectives and values that you can incorporate and create support for through thoughtful, experienced design help will pay dividends to you throughout the term of your lease.

Kevin Grossman represents businesses in leasing, renegotiating and occasionally acquisition of their business space. He believes strongly in working as an ally for his clients in making informed decisions, and encourages an integrated approach to achieving triple bottom line results with his clients.
http://www.kevingrossman.com/
http://businessspacedecisions.blogspot.com/

Triple Bottom Line Business Space Decisions

2011-01-04T17:32:00.000-08:00

Lease expirations are like the calendar year end – a perfect time to reflect on creating and supporting your company in being what you want it to be. While dealing with the facilities issues is seldom on the list of things you want to have to deal with, lease expirations open opportunities to have your business space better reflect your company and where it’s going. For many of my clients the path forward is around more of a triple bottom line approach – people, profits and planet – and working to ensure their new lease moves them forward on all three measures.

Since many articles only focus on the financial aspects – and of course you have to be financially sustainable or the other considerations become irrelevant – I’m going to make an assumption that you are already very mindful of this part of the triple bottom line. The People and Planet aspects, however, do also impact your bottom line in a less direct way – so what are some of those aspects and how do you leverage that through your business space lease decision process?

For your people, the location (transportation and area amenities), aesthetics and layout of the space, as well as air and lighting quality all impact their quality of work-life. The level of input you solicit from them can also influence their buy-in to the decision.

Before they even get to work the transportation access – whether it’s mass transit or flex-car or easy parking – and the commute impact their state of mind and productivity during the first part of the day. Your decisions around location and specific property have a big impact.

When your team gets to work, business space impacts thier morale and productivity. As you go through the layout and design process, taking the time to work thoughtfully with a quality space planner will result in spaces that better support your people’s function and use of space. Generally a good reflection of you and your team’s input to the designer in a well executed design process provides for smooth workflow and increased productivity, and seldom costs any more than a poor design you’ll be frustrated with for the duration of the lease. Common sense things like grouping the spaces of the people who work together is a planning not a cost issue – it requires being alert to what matters and having your space planner and broker paying attention to ensure the homework is done. Working with people that know that this is important doesn’t cost more money, and it supports more content and productive people.

Light and air quality are key to your company's quality of work-life also. Use of natural light, task lighting and illumination appropriate to the tasks being done in a given area really impacts the quality of work your team can consistently provide. Air temperature and freshness in the ultra-tight buildings that make up most of the properties built in the last 20 years is worth consideration. If the heating and cooling zones are too large you’ll have overheated people on the W. or S. side while the people on the N. and E. sides are too cold, so be sure your broker or planner is getting this information for your consideration as you narrow your choices to a negotiating short list.

You want to consider the level of input you want from your senior people and team regarding location, qualities and functionality. The right level of participation can pay benefits in developing ownership of the process. To clarify, I’m not advocating abdicating the decision, but rather being inclusive to ensure your leasing team has all the relevant ideas and input for a good decision making process. The final decision is still the responsibility and choice of the senior person or owner, of course.

Many of the People elements of your bottom line are closely related to the Planet and Profit elements of the triple bottom line. Transportation options, lighting, heating, walk-ability – these are all related to productivity, quality of work-life and environmental impact of your company.

Some items that affect your bottom line and the Planet that you may want to give some weight to include:

• Energy use - lighting and HVAC (heating, ventilation and air conditioning) approaches and systems – natural light, task lighting, light as needed/required

• Water systems – rain water for toilets, low flow fixtures (required in all new properties in most communities), low impact landscaping for suburban complexes

• Transportation options – mass transit, proximity to your employees’ homes, building or project incentives for single occupancy vehicle trip reduction

• Re-purposing of existing space or buildings – the greenest building is generally a “re-used”, renovated or repurposed building

• Build-out and renovation considerations – paints, adhesives, carpet and furniture materials – air quality, local content, environmental impact of producing or using the materials, life cycle impacts

• The building and/or solid waste vendor program for recycling

The great thing about the People and Planet portion of the bottom line is that in today’s world most of the considerations are cost neutral and often productivity enhancing, so “doing the right thing” turns out to be good for you as a business owner whether you talk triple or traditional bottom line.

There are some incremental branding benefits for some firms, depending on who they sell to. I recently worked with a light manufacturing client in completing a lease for what will be the first LEED certified light industrial building in Whatcom County (and one of only a handful in Washington State). Because this firm sells to large, publically traded companies with sustainability goals, the sustainable aspects of his new facility gives him a small edge in future contracts over his competitors who don’t have a good story to tell about their manufacturing processes and building.

Be sure the team you have, and of course I always emphasize the broker, is up to speed on how to incorporate the broader perspective of bottom line into your business space decision making process.

This broader perspective of benefit from an informed real estate decision will produce results for all three of your bottom lines!

Kevin Grossman represents businesses in making informed real estate decisions for leasing, renegotiations and owner-user acquisitions to meet strategic facilities requirements. You can contact Kevin at kevin@kevingrossman.com.

You deserve a broker that fits you and your company!

2010-12-28T15:01:00.000-08:00

Most lease negotiation articles are about rates, tenant improvements and “top 5” type lists of things to avoid or do or pay attention to. There’s one very critical element I believe should be in these lists that’s always missing - be sure the broker you choose is a fit for you and your organization. You know, that person you’re going to rely on for advice, market information, strategy – and who you’ll undoubtedly spend more time with during the process than you planned for and with who you'll rely on to help you in making the best decision.

I’ve often come in to help clients restart a lease process after seeing many buildings with someone else. This generally happens when the prior broker started with the buildings and rates instead of what the client needs. It takes some time and well developed inquiry and listening skills to help you ensure that the facilities decision will support your company's objectives going forward. It is time well spent if your broker takes the time to talk with you and perhaps your key stakeholders about your business – fundamentals, growth, image, people, values, and decision making processes. If you don’t have this foundation developed with your broker, you’re setting yourself up for a ready-fire-aim scenario that costs you time and unnecessary anxiety, and probably money as well.

Lease decisions impact not only your finances, of course, but many important non-financial aspects of your business. Your branding, recruitment and retention, operating effectiveness in some cases and flexibility going forward are all available for fine tuning during a business space decision making process.

A very common issue is lack of transparency in the relationship between the broker and client. While you have brokers stating they work for the tenant, do they really? A very brief checklist...

Who’s paying them? If not you directly (since many brokers participate in the listing fee instead of “charging” the tenant) then is the broker transparent about their income from every deal or willing to fix the number to eliminate bias?
Is there a written agreement with a scope of work, deliverables, timeline, expectations and declaration of fiduciary obligation? You wouldn’t hire an attorney or accountant to represent you in a deal worth millions or hundreds of thousands of dollars without one – so does your broker provide this level of professional documentation of expectations and responsibilities?
Do they or someone in their office represent any buildings for lease? It’s hard to be objective when the landlord is responsible for more income to their firm than your deal will provide – where’s the long term financial motivator?

On the “softer” side, a broker that "fits" you and your organization can be valuable at the margins – critical margins, sometimes – if your broker’s values are aligned with yours. If you are concerned about the triple bottom line, but you have to explain to the broker what this means, you may not be on the same page. If you have a commitment as a firm and personally to sustainability, it’s more likely you’ll get a deal that supports that if the broker has some history of results helping clients achieve this. LEED facilities or an active dialog about the tradeoffs of one alternative vs. another relative to the overall list of important features that make a difference to you, your team and the planet ensure triple bottom line results. If you want someone that understands getting buy-in from your partners or senior management team, it helps if your broker understands the importance and has some experience in accomplishing that.

This doesn’t supersede the technical expertise necessary in today’s world. You want to be sure your representative can assess the numbers – there are wide variations in the deal structure that can make a meaningful financial analysis a key factor in negotiating and understanding how to balance the issues, the dollars and the total final package. If the broker can’t have a meaningful conversation with your CFO then they may not have the skill range to get you the best overall transaction that addresses both the “hard” and “soft” aspects of your facilities needs.

Another important fit aspect is that of teaming and leadership. I personally prefer a relationship where I’m leading the group to help clients get a lease that fits well. Not driving, not directing, but leading by understanding the needs of the client, the opportunities of the market and a range of ways to get the two to mesh in a successful outcome.

Time is a challenge in all of this. You have a full plate already, most likely, so how do you deal with the additional issues of dealing with the lease? My approach is to work with clients as a “real estate department for hire” – being the sort of assistance that you can count on to have your back in the process. It takes a lot of time – typically more direct and calendar time than people assume. Coordinating tours, designing, permitting, buildout, moves, documentation – it all takes time and much of it is serial not parallel so it adds up. You want to allow for it and keep your personal time reasonable by having someone you can count on to keep things moving and raise the issues necessary as things progress.

So, be sure that you have a broker who:

1. Has the skills to understand your business – functional, values, direction

2. Has the technical skills to work the process professionally

3. Truly and clearly represents you, not the landlord, without bias or conflict of interest

4. Has your back and ensures the process and market are addressed in a manner to best serve you, your team and your business.

kevin@kevingrossman.com

http://www.kevingrossman.com/

Why Are the Landlords Too Sticky?

2010-10-18T05:10:00.000-07:00

With rampant vacancy, recovery hard to see and empty space losing non-recoverable income why, many people have asked me, are the Landlords so darn sticky about doing a current market deal? Since it is good to understand how the world looks to the other side of the negotiations, here are some of the perspectives and realities of the Landlord's view of the world – financial, emotional, and externally imposed on them.

Financial considerations are of course a big deal – people own property to make money (when the markets are not doing their once a decade chaos dips). You’d think that they want their building full. Well, sort of. Here’s the rub – there are two competing priorities; cash flow now vs. capitalized future revenue which determines future valuation of the building.

For current operating costs that rack up regardless of occupancy – loans, taxes, insurance, some base line of utility services – there is tremendous pressure to get deals done and generate cash flow. Add to that the fact that each month of vacancy is money that cannot be recovered. It’s a use-it-or-lose-it asset. So while the vacancy rate is historically high, there are deals being done and a landlord doing market deals can secure tenants. There are some big costs in securing new tenants – commissions, tenant improvements, often concessions around moving and transition costs – but there are deals being done.

So what about the other landlords? Some are simply not in touch with the market. They may be in denial, or so far under that they can’t muster the funds to secure the new tenant. These are the walking dead. If someone who can’t come up with a reasonable response offers you a good deal to have you take on all the up front costs, beware and be sure to do a title search and get anyone with liens against the property to sign off, or your lease is at risk if they take the property back.

Some building owners have external constraints – lenders or partners that have agreements in place regarding approvals or previously defined limits of negotiation latitude for what the owner can do. In these cases if the person/entity that controls these constraints doesn’t want to do a deal or doesn’t understand the current market environment, the owner (a term loosely used in many of today’s building ownership structures) may feel good about you as a firm and want to do the deal, but just can’t.

The other side of the cash flow goal is the long term value goal – capitalization of revenue. Without going into sleep inspiring detail, building values are tied to the capitalization of current and anticipated net operating incomes – a multiplier in essence of that net income resulting in a calculated value. While this isn’t the only component of the value, it is a major component, especially when it comes to loan underwriting, since net income pays debt service. So the rub is that a discount of a couple dollars a foot to meet the market means a capitalized value decrease of around $25 a foot. If the basic deal is $20 full service deal, minus maybe $8 a foot in operating costs (mid-rise class B office building example) they can sit on the space for two years to get the extra $2 and still be ahead, assuming they have the cash to carry it. That’s their dilemma. If they hold out and eat the carrying costs anticipating the market firming up or a tenant that for whatever reason just really wants their specific space, they come out ahead on multiple measures – but it’s a real gamble. It’s a gamble many owner’s are losing right now.

As a tenant what this means is to take advantage of the down leasing market it helps to have a broker that has your interest and needs at heart and who understands the landlords perspective and issues to get you as the tenant the deal that best suits your company.

Kevin Grossman represents businesses in their lease negotiations for office, flex-tech, and light industrial spaces in the Seattle, Bellevue and Redmond markets. For complex projects he represents businesses as far away as Vancouver, Spokane, Bellingham and central Washington. Clients report Kevin invests the time to listen and really understand their organization, ensuring they make an informed decision and he gets the right deal completed for them out of the process.

Stay well during the leasing process

2010-10-14T04:26:00.000-07:00

Over the years I’ve seen many very capable, smart, driven folks succumb to the malady of “well-being deficit disorder”. It’s a rarely talked about unanticipated risk of having a full time job on steroids running your business - and then adding the decision making process for a business space lease on top of it. What are the symptoms and remedies, you ask? Well…

One early sign is an increase in those moments when your brain seems to be taking an unauthorized break from doing what you want it to do. The basic cerebral processing stalls out, and often all the trying to power-through-it push does is make it worse. Since it’s an issue with how our brain is designed to a large degree, cut yourself some slack and take a mini-break to allow your brain to reboot. The barista a couple blocks away would love to see you now, especially if you’re a generous tipper.

When your key managers and stakeholders are concerned about you, don’t ignore them. They are often a path to dealing with the process in a way that spreads some of the thinking and processing load, and you will likely benefit from their participation as a valuable side benefit. Building a team helps you make more informed decisions, building ownership by those participants of the final decision along the way, and you get to spread around some of the processing work load. You really should not be the one getting information on new copiers, moving services and researching the B&O taxes in the various places you may be looking – you have a company to lead.

Another critical indicator to pay attention to yourself in the middle of the chaos is when your spouse, significant other, kids or for some people your dog or cat or best friend look at you like they don’t recall who you are. Even in the midst of extraordinary hours of work, we need to stay in touch with those closest to us. I know for me personally that the proverbial “date night” has been a relationship saver. You have other solutions to keeping your important relationships alive through the trials of adding a major project on top of an already very full set of responsibilities – just don’t forget to schedule them and honor those blocks of time.

Diet and exercise get to be secondary, but your body doesn’t know it’s supposed to just suck it up – it actually believes and acts like it’s really important. One of the worst “wake up” calls I’ve seen is a serious health issue exacerbated by not taking care of himself. A client of mine recently was limping pretty badly and it was after he took some pain medicine. When I asked what was going on, he said he’d done a ½ marathon and for the first time in doing these 13 mile runs he really injured himself. As we talked a bit further it came out that he’d stopped his regular training out of schedule overload. Since the training runs both helped him de-stress and kept him prepared for the longer runs, the extreme pain in his lower leg was a pretty uncomfortable way to get his attention, ensuring he takes some time out for himself during the heat of the negotiations process to go for a run.

So, the “take a ways”, as my old econ professor would have said, are:

·         Pull together a good decision team to support you in making an informed decision, of course with a great tenant representative broker as a key member
·         Stay in communication and engaged with your key people - family, business and personal – maintaining your social connections will keep your mind clear and you more content
·         Keep up your activities – it will pay big physical and psychological benefits (and help you avoid injuries!)

Overall, you’ll need all your attention and intention skills to juggle the extra issues. Cut yourself some slack by letting others on your team do some of the worrying and together you’ll get what you need to support your organization well going forward. You’re smart, you’ve heard this all before – sometimes it’s just good to have a reminder.

Kevin represents businesses in their lease negotiations for office, flex-tech, and light industrial spaces in the Seattle, Bellevue and Redmond markets. For complex projects he represents businesses as far away as Vancouver, Spokane and Bellingham. His clients report they especially like the time he takes to listen and really understand their organization and help them to get the right deal at the end of the process.

Entrepreneurs and Early Stage Businesses Rejoice!

2010-09-23T11:36:00.000-07:00

(at least regarding leasing space for your business…)

It is great working with early stage companies – the energy, optimism and vision are contagious, and it’s always encouraging to be around teams that are growing, hiring, figuring it all out. There are a lot of variables on the plate – and at least for now one of them is really in favor of the entrepreneurs; great deals on the office space and facilities they need to ramp up. Rates are down, flexibility on terms is good and even bootstrap companies can get space on reasonable terms.

The high vacancies in all commercial properties has pushed rates down – a lot. I recently represented a digital arts company in downtown Seattle. Their prior landlord misjudged their wiliness to move if he didn’t come close to current market – a bad position to take on his part when the market is over 20% empty. We went through a good process and got more space and at a rate that was about 20% less – and the terms were more flexible for their expansion as well.

One challenge for earlier stage companies is that everyone wants the owner to sign personally, unless they’re backed by some heavy hitter. For the scrappier startup, being a bit flexible on the layout can mean even deeper discounts on the rate, and no personal obligation on the line.

Another common challenge for the early stage organization is determining the growth path. Will you be still getting your feet under you in a year? Will your service or product get picked up in a big distribution agreement and you’ll need 10 times the people and space to deliver? With a good market search you can find the landlords that will accommodate the flexibility you need to ensure that the main paths you may see or are hoping to see are taken care of.

The flexibility is possible in office space, light industrial, manufacturing and many retail locations too. I work with firms from Tacoma to Bellingham and have seen amazing deals, so if you’re growing your company think about what you really need and want in your lease deal and with the right broker you’ll be able to get more in your favor than you’ve seen in the last decade.