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This chapter addresses the various issues and questions that the professional
services firm should consider when leasing commercial office space. Topics
include: (1) preliminary questions that the professional services firm should
address prior to looking for office space, (2) how to work with leasing agents
and the value that they bring to the process, (3) developing a list of potential
properties on paper, (4) conducting property inspections and the most im-
portant things to look for and consider, and (5) the lease negotiation process.
The chapter then focuses on the office design of the professional services
firm, including a basic discussion of space planning issues and the options to
consider in laying out the office, from reception and other common areas, to
the professional and nonprofessional offices and work stations. Last, this
chapter touches on some of the larger nontechnical capital expenses that you
should expect to incur in setting up a professional firm, including items such
as furniture and filing systems.

Why This Topic Is Important
Selecting the right office for the professional services firm is every bit as im-
portant as it is for other businesses. The cost of leasing office space is typi-
cally one of the largest fixed, non-labor monthly expenses that any
professional services firm incurs; thus, from a strictly financial perspective,
it is important to carefully consider the various leasing options that the firm
Real Estate and Facilities

will face in light of the firm™s budgetary constraints. Not only is choosing the
right office space important from an economic standpoint, but there are a
host of subissues that are important for the firm to consider before entering
a lease. For example, clients invariably have certain expectations about both
the location and quality of their professionals™ offices, and often use such
things as a proxy for judging the quality of the services provided. To meet
such expectations and maintain a happy and satisfied client base, which is
critical to the success of any professional services firm, it is important to
consider client concerns when deciding whether to enter a particular lease.
In addition, commercial office leases and subleases are often complicated,
long-term contracts that include various complex and unfamiliar provisions.
Before the professional services firm enters into contractual negotiations
over a lease, it should have a basic understanding of the more familiar and
negotiable terms that are found in the standard commercial office lease. This
chapter addresses each of the foregoing subjects, among others, and offers
insights as to how the professional services firm might best arm itself to ad-
dress these issues. Chapter 19, on legal counsel, also discusses some of the is-
sues to be considered by the firm before entering into legally binding
agreements such as leases.
Once a lease has been executed, there are still a host of issues that the pro-
fessional services firm must address. If, for example, the office space in ques-
tion has not been finished out, the firm must develop an office design and
layout that is consistent with the image the firm hopes to project, and which
promotes both productivity and cohesion among the professionals and staff.
If, on the other hand, the office space has already been finished out by the
landlord or sublessor, the firm must assess whether the current design meets
its requirements and, if not, whether and to what extent additional construc-
tion must be undertaken. Finally, assuming that the office is not furnished,
the firm must make arrangements to furnish the office space, which will in-
clude an assessment of the furniture and work-space needs of both the pro-
fessionals and staff employed by the firm, as well as the common areas and
back office of the firm.

Leasing Commercial Office Space
The most common arrangement for professional services firms to acquire of-
fice space is through a lease arrangement. This section covers the process for
determining leasing needs and identifying appropriate space.

Preliminary Considerations
Before the professional services firm begins to search for office space, it
should undertake a preliminary analysis of various factors that will help
468 The Back Office: Efficient Firm Operations

narrow the focus of the office search and ensure that the firm makes an ed-
ucated and fully informed decision about its office lease alternatives. Such
an analysis can be as formal as the firm decides it needs to be and can range
from a rigorous written evaluation prepared by the management of the firm,
to a simple checklist. While the form of the preliminary assessment will vary
from firm to firm, it is important that the firm fully understand its needs and
limitations before conducting a search for office space.

SPACE REQUIREMENTS. One of the most important things that the firm
should assess upfront is its space requirements. This can be accomplished by
simply counting the number of professionals and staff who are presently em-
ployed at the firm (or at least will be on-site on a consistent basis with some
accounting for traveling staff ) and allocating a predetermined number of
square feet for each such individual. Partner offices in professional firms
typically range from 250 to 300 square feet; associate offices, 120 to 150
square feet; and staff workstations, 35 to 50 square feet. Once the firm has
established its office and workstation requirements, it should consider its
needs with respect to common areas, including reception, conference rooms,
filing rooms, restrooms, copy/facsimile rooms, and kitchen areas.
In determining its current space requirements, the firm must be careful
not to overlook the projected rate of growth. Not only are leases typically
long-term contractual commitments, but also searching for office space, nego-
tiating a lease, and relocating the firm are all very time-consuming and expen-
sive undertakings, and are difficult and disruptive to do frequently. Multiple
locations within the same city can cause unnecessary travel and communica-
tion disconnects. Accordingly, the firm should do its best to determine what its
long-term space requirements will be before it enters an office lease.

LOCATION. Another factor that the firm should initially consider is where
the office should be located. Often, professional services firms are located in
the central business district (CBD) of a city (generally defined as the down-
town retail trade and commercial area of a city or an area of very high land
valuation, traffic f low, and concentration of retail business offices, theaters,
hotels, and services2); however, this need not be the case for all firms. Con-
sideration should be given to locating the firm outside the CBD, such as in
the suburbs or smaller business centers, where rental rates are often more af-
fordable than in the CBD. Depending on firm priorities, an office location
that is nearest to the largest number of on-site professional and administra-
tive staff may be important.
Additionally, the firm should consider where it wants to office vis-à-vis
other important locations in the city. For example, for law firms that are
composed largely of lawyers who practice civil or criminal litigation, it is
probably important for the firm to be located close to the criminal and
civil courthouses. On the other hand, for law firms that are predominantly
Real Estate and Facilities

composed of transactional attorneys, it might not be as important to locate
the office close to the courthouse, particularly if the firm can achieve ma-
terial cost savings by locating the office elsewhere.
Last, the firm should undertake an analysis of how important it is to be in
close proximity to the firm™s clients and potential clients. The firm should
consider how often client meetings are held in the office and the clients™ ex-
pectations (if any) with respect to where they expect their professionals™ of-
fices to be located. While it is, of course, impossible to please every client,
the firm should at least be sensitive to and consider where its clients™ offices
are located and whether a decision to office in a particular part of town
would impose upon or inconvenience the client base.

BUILDING CLASSIFICATION. There are different classes of office build-
ings that will be available to the firm. While many firms choose to be in
Class A space, there are certainly other alternatives (Class B and C office
buildings) that could be less expensive and might fit the firm™s needs. The
Building Owners and Manager ™s Association (BOMA) classifies buildings
based on an alphabetic ordering. According to the Urban Land Institute:

• Class A space is characterized by buildings that have excellent location
and access, attract high-quality tenants, and are managed profession-
ally. Building materials are high quality and rents are competitive with
other new buildings.
• Class B buildings have good locations, management, and construction,
and tenant standards are high. Class B buildings have very little func-
tional obsolescence and deterioration.
• Class C buildings are typically 15 to 25 years old but are maintaining
steady occupancy.3

BUDGET. The other major preliminary consideration that the firm should
assess upfront is its budgetary restrictions with respect to rent, finish-out,
and furnishings. As discussed more fully later, rent is typically calculated
based on a per square foot basis; however, there are a number of additional
expenses that, as a tenant, the firm should expect to be responsible for pay-
ing on a monthly basis. Moreover, the firm should anticipate being responsi-
ble for substantial upfront costs, such as a security deposit, and depending on
the condition of the potential office space, the firm may also have to pay for
all or a portion of the improvements and furniture necessary to bring the of-
fice space into satisfactory condition.
Accordingly, the firm should prepare a preliminary budget that sets forth
an acceptable expense range for both the recurring monthly costs associated
with a lease (rent plus expenses) and upfront costs that the firm might be ex-
pected to pay (security deposit, finish-out, furniture). As with any start-up,
470 The Back Office: Efficient Firm Operations

cash f low in the first few months and years of the life of the firm is critical;
thus the firm should have a basic understanding of its budgetary constraints
before it begins to search for office space.

SUBLEASING. Subleasing office space is often an attractive option for
many professional services firms that are just getting started. Most landlords
require future tenants to post a significant security deposit on a lease, par-
ticularly for new, start-up firms or companies without a proven track record.
By subletting office space, the firm can avoid all or a portion of the financial
burden associated with such a security deposit, because the sublessor is still
contractually liable to the landlord for all rent due and owing under the pri-
mary lease. Thus, while the firm may be required to post a security deposit
with the sublessor, the amount of such a security deposit may be signifi-
cantly less than under a traditional lease.
Not only might the firm be able to obtain significant savings by avoiding
or at least decreasing the amount of security required on a sublease, but it
might also realize additional savings in rent by considering a sublease.
Whether the potential sublessor has already moved out of the office space or
is simply trying to sublease a portion of its current office space, one of the
sublessor ™s primary objectives in subleasing office space is to offset the
amount of rents due under the primary lease. Thus, for example, if the sub-
lessor is contractually obligated to pay the landlord rent at $25 per square
foot, the sublessee might be able to negotiate a sublease that calls for rent to
be paid at $20 per square foot. In such a case, the sublessor will have offset
the amount it is liable to the landlord by 80 percent. While the amount of
rent savings that might be achieved depends in large part on the strength of
the overall commercial real estate market in the area, the sublessor rarely ex-
pects to find a sublessee who is willing to pay the same rent as the sublessor
is required to pay under the primary lease.
An additional area of potential cost savings that the firm can obtain by
opting for a sublease relates to the design and finish-out of the office space.
In many cases, office space that is being marketed as a potential sublease
will have already been designed and finished out by the sublessor. In offer-
ing to sublease all or a portion of its leased space, the sublandlord rarely, if
ever, tries to recoup from the sublessee the money it spent in initially de-
signing and finishing out the office space, which can be costly. Although
the overall design of the office, the size of the offices within the space,
and the finish-out (e.g., carpeting, wall covering) may not be exactly how
the firm would have designed the office space on its own, the firm must
balance this concern with the savings in avoiding paying for the office de-
sign and finish-out. Under a traditional lease, landlords often provide the
tenant with a finish-out “allowance,” which is a negotiated amount that may
or may not be sufficient to design and finish out the office space to the ten-
ant™s satisfaction.
Real Estate and Facilities

Last, the sublessor may allow a sublessee to use some or all of the furniture
and equipment currently in the office space at little or no cost to the subles-
see. As discussed more fully later, furniture, fixtures, and equipment can ac-
count for a large portion of the start-up costs of any business, including the
professional services firm. However, as with office design and finish-out, the
sublessor will have already incurred the cost of furnishing and equipping the
office space that it intends to sublease and, as a result, may be willing to allow
the sublessee to use its furniture and equipment during the term of the sub-
lease. The cost of using the furniture and equipment presently in the office
space can simply be rolled into the amount per square foot that the sublessee
agrees to pay under the sublease. Alternatively, the sublessee can offer to pur-
chase all or a portion of the sublessor ™s furniture, which, as discussed more
fully later, would still save the firm significant money over buying new furni-
ture and paying for delivery. The subject of furniture and equipment is one of
many potential points of negotiation between the sublessor and sublessee and
may not even be an option if the sublessor is moving its entire business oper-
ation to another location. Nonetheless, in negotiating a sublease, the firm
should consider these options.
Subleasing office space can be accomplished in different ways. The subles-
see can assume a portion of an existing lease and share common areas and fa-
cilities with the primary tenant. On the one hand, such an alternative provides
the firm with an opportunity to get to know the primary tenant and possibly
obtain business and business referrals from the primary tenant. On the other
hand, if the primary tenant is a competitor of the sublessee or there are other
compatibility problems that cannot be resolved, sharing common space with
the primary tenant may not make sense. One way to assume only a portion of
the existing lease and avoid or minimize sharing common areas with the pri-
mary tenant is to construct a wall dividing the sublessor ™s office space from
the sublessee and construct a separate entrance. Such construction adds to the
upfront costs associated with the sublease, and the sublessee and sublessor
must determine who will pay for the construction. How much these considera-
tions impact the agreement will depend on the individual firms need for pri-
vacy, security and a separate identity within the office space.
An alternative to assuming only a portion of an existing lease is to take
over the entire lease. This type of situation often arises when the sublessor
already has or is considering relocating its entire office to another location.
In sum, there are various ways in which the professional services firm can
go about subleasing office space. Subleasing office space provides the firm
with an opportunity to save significant upfront capital on a variety of fronts,
including security deposits, rent, finish-out, and furniture. On the negative
side, however, subleases are often shorter in term than regular leases, and the
sublessee may be forced to cooperate and coordinate with the sublessor on
common areas, reception management, signage in the space, security and pri-
vacy issues.
472 The Back Office: Efficient Firm Operations

Leasing Agents
Once the firm has established its basic needs and requirements, it should
consider retaining a leasing agent. There are numerous benefits to retaining
a leasing agent. First, leasing agents usually possess a greater degree of fa-
miliarity with the landlords and properties in the area and the real estate
agents representing such landlords. The real estate community in many cities
is close knit, and leasing agents can provide the professional services firm
with their valuable impressions about the quality and reputation of the land-
lords who are offering office space, as well as the history and quality of the
properties in question.
Second, leasing agents almost certainly possess greater knowledge of the


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