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commercial office space that is available than the professional services firm.
Commercial leasing agents are in the business of familiarizing themselves
with many, if not all, of the various office buildings in a particular city. Thus,
while the professional services firm might possess a limited amount of knowl-
edge about certain office buildings in town, leasing agents should bring to the
table deeper historical insights about many office buildings.
Third, leasing agents can provide valuable counseling and insight into var-
ious office needs and requirements that the professional services firm may
have overlooked. Leasing agents are not only professionals who help the pro-
fessional services firm navigate the office search and lease negotiation pro-
cess but also counselors who will have a great deal of experience in working
with tenants and understanding their needs. The professional services firm
should take the time to explain the firm™s business model and goals to the
leasing agent, who can then provide the firm with informed advice about the
best leasing alternatives.
Last, as discussed more fully later, leasing agents often possess signifi-
cant expertise in negotiating commercial office leases. The leasing agent
may be able to help the firm obtain concessions from the landlord in the
lease negotiations that the firm would not have considered or even re-
quested. In almost all cases, the landlord is more sophisticated and experi-
enced than the professional services firm in negotiating leases. However,
the leasing agent can help level the playing field and explain any confusing
or frustrating lease provisions.
When selecting a leasing agent, issues to consider and questions to ask
include:

1. Who pays the leasing agent™s fees, and how are they calculated? Leasing
agent™s fees are almost always paid by the landlord and range from 3 per-
cent to 5 percent of the total value of any lease that is ultimately exe-
cuted. The total value of the lease is calculated by multiplying the total
square footage of the lease by the price per square foot by the term of
the lease. Thus, if a five-year lease is executed for 5,000 square feet and
473
Real Estate and Facilities

the price per square foot is $20, the leasing agent™s fee would be some-
where between $15,000 and $25,000.
2. What experience does the potential broker have in placing profes-
sional services firms? Agents with experience representing tenants in
the retail and /or industrial context may or may not bring adequate ex-
perience and knowledge to the table in assisting with a commercial
lease. Thus, it is important to ask whether the broker has experience in
the commercial realm and, in particular, whether he or she has prior
experience representing professional services firms. Within the pro-
fessional services firm arena, some brokers may have more expertise
with specific firm types, such as financial services providers, lawyers,
consultants or medical specialists.
Similarly, it is important to determine whether the potential broker
has experience assisting tenants with office space in the same size
range as the professional services firm is considering. If the agent is
used to dealing with larger clients and is actively representing a number
of other larger clients, the firm might not warrant an adequate portion
of the agent™s attention or obtain the full benefit of the services.
3. Is the broker licensed by or affiliated with any professional leasing or-
ganizations? Two of the more familiar and reputable leasing organiza-
tions are the Society of Industrial and Office Realtors (SIOR) and
Certified Commercial Investment Members (CCIM).

Although in many cases it makes sense to retain the services of a leasing
agent to assist in leasing office space, it is not mandatory.


Develop a List of Potential Office Buildings
Either with the assistance of a leasing agent or without, at some point the
professional services firm should identify several properties that, at least on
paper, appear to fit its needs and are in line with its budgetary constraints.
In developing a list of potential office properties, the firm should consider
certain issues to narrow the list of properties to inspect. The leasing agent
can prove invaluable in preparing a professional market survey that includes
much of the following information and that, at least preliminarily, appears to
meet the firm™s needs. Regardless of whether the firm retains a leasing agent
to prepare a formal presentation, however, it can and should consider the fol-
lowing issues before it begins to conduct property inspections.

LOCATION. Based on the information gathered during the preliminary as-
sessment, it should be relatively simple for the firm to determine which of the
potential office buildings meet its location needs. One way to accomplish this
is to ask the leasing agent to prepare a map of potential office buildings,
474 The Back Office: Efficient Firm Operations

which can be as simple as a street map with f lags denoting available proper-
ties. Such a map provides the decision makers within the firm a basic but
helpful tool to assess the location of the buildings in relation to one another,
as well as location of the buildings in the city. While most professionals are
generally familiar with the more prominent buildings in a particular city,
many of which are found within the CBD, if the firm is considering office
space outside the CBD, a map can help clear up any confusion about build-
ing locations.

SURROUNDING AREA/FACILITIES. The condition of the area immedi-
ately surrounding the office building is also important. The professional ser-
vices firm would not want to office in an upscale, Class A building in a rough
or unsafe neighborhood. Although the firm can and should consult a map to
better understand where the available office buildings are located, the deci-
sion makers in the firm should be familiar with the areas surrounding the po-
tential office buildings. If the firm is not familiar with the surroundings of
any potential office buildings, the decision makers in the firm should, at a
minimum, take the time to drive by the buildings and perhaps walk through
the neighborhood.
Additionally, the professional services firm should have a general idea
about the retail facilities and restaurants in the area immediately surround-
ing the office building. While office buildings located in the CBD of many
cities provide professional services firms with a wide variety of retail ser-
vices and restaurant alternatives, this is not true of all cities and locations.
Moreover, office buildings located in smaller business centers or office parks
may not provide the firm with sufficient retail options. Such options are im-
portant not only for the benefit of the professionals and staff who are em-
ployed at the firm but also for the clients and potential clients who will visit
the firm™s office.

OFFICE DESIGN AND LAYOUT. When offering to lease or sublease office
space, landlords or their agents will prepare f loor plans that depict the lay-
out of the space. If the office space is not finished out, the f loor plan will re-
f lect little more than where the office space is located on the f loor, whether
it is less than the whole f loor, and where the demising walls are located.
However, if the space has been finished out, as is often the case with sub-
leases, the firm can get a good idea of the office design and layout simply by
reviewing the f loor plan. While it may be difficult to rule out potential of-
fice space simply by reviewing the layout, the firm can get a good idea of
whether the current layout would be acceptable or whether a significant
amount of construction would be required to bring the office space in line
with the firm™s needs.
In some cases, the landlord includes in its marketing materials photo-
graphs of the office building and the space for lease. Although photographs
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Real Estate and Facilities

do not obviate the need for a thorough property inspection, they can provide
the firm with a decent superficial look at the quality of the building and po-
tential office space.

BUILDING HISTORY. In addition to reviewing any available office f loor
plans and photographs, the professional services firm should seek basic back-
ground on each potential office building, including the year the building was
constructed, the building classification (A, B, or C), and the percentage of
office space that is currently vacant. Moreover, the firm should ask whether
and to what extent there have been environmental, zoning, or other major is-
sues with a particular building, and if so, whether such problems have been
satisfactorily remediated.

LANDLORD AND PROPERTY MANAGER. The professional services firm
will encounter a number of different types of landlords when searching for
office space. Landlords can range from very sophisticated real estate invest-
ment trusts (REITs) to less sophisticated individual owners. While landlords
who have the same organizational structure do not always act in the same
manner, in general, the more sophisticated the landlord is, the longer it will
take to negotiate and agree to a lease. Often, larger institutional owners have
very lengthy and complicated standard lease forms that contain a multitude
of provisions, some superf luous and some relevant, that the professional ser-
vices firm will need to carefully review, comment on, and negotiate with the
landlord. This very time-consuming and costly process is only exacerbated if
the organizational bureaucracy within the building owner includes the usual
complement of real estate professionals, property managers, and lawyers.
On the other hand, if the landlord is an individual owner, he or she may
not be inclined to a particularly sophisticated form of lease and may elect to
save time and money by involving fewer people in the leasing process than the
more sophisticated landlord. Moreover, in most cases, the individual owner
will not have the financial resources and backing that larger institutional
owners enjoy and, thus, may be more motivated to negotiate with and procure
tenants in an effort to ensure steady cash f low in order to meet mortgage ob-
ligations on the property.
In addition to doing basic research on the size and sophistication of the
landlords who are offering commercial office space, the firm should inquire
about the reputation of the landlords. As is true with residential landlords,
commercial landlords can vary dramatically in the manner in which they
deal with tenant concerns and questions. The real estate community in most
areas is fairly close knit, and, with little effort, the firm should be able to as-
certain a particular landlord™s reputation and determine whether the land-
lord is known for responsiveness (or lack thereof ), f lexibility and willingness
to meet unanticipated tenant needs, which will invariably arise over the
term of any lease.
476 The Back Office: Efficient Firm Operations

The firm should inquire not only about the ownership at each of the avail-
able office buildings but also about the property management company that
the landlord has selected to manage the building. The building manager is
often a tenant™s main point of contact in an office building and the individual
to whom the landlord has entrusted responsibility for the maintenance and
upkeep of the building. Thus, it is critically important that the property
manager have a good working relationship with the current tenants in the
building and that the building manager has demonstrated the ability to
promptly resolve the various kinds of issues that arise in all office buildings,
which can range from minor janitorial issues (e.g., keeping restrooms cleaned
and stocked) to more significant engineering problems (e.g., f looding or mid-
summer HVAC outages).
There are a wide variety of property management companies, from very
small building management companies who are responsible for only a hand-
ful of buildings, to larger nationwide companies that manage buildings in
many different cities. While the latter may provide the professional services
firm with a higher degree of comfort, at least on a superficial level, the firm
should nonetheless seek the input of other tenants about the building man-
agement company, as even the largest property management companies can
experience varying levels of service between different cities and even be-
tween different buildings in the same city.

TENANTS. Before the firm narrows down the list of office buildings to
those that it will visit and inspect, the firm should informally assess the other
major tenants in the available office buildings. It is important that the firm
determine whether any competitors are already tenants in the building and,
if so, whether their presence would be an impediment to servicing existing
clients or attracting new clients. For example, if an accounting firm (50 to
100 professionals) is considering office space in a number of buildings and
one of those buildings is generally referred to by the name of one of its larger
competitors (e.g., the KPMG Building), the firm should assess whether and
to what extent its business would be impacted by the presence of that com-
petitor. Additionally, the professional services firm should try to determine
whether there are any unsavory or objectionable tenants in the building who
might ref lect poorly on the firm.

PARKING. Parking is one of the hidden costs that can add to the overall
expense of a lease; thus, the firm should ask whether parking spaces are in-
cluded in the rent and, if so, how many spaces. The number of parking
spaces that a landlord is willing to provide a tenant free of charge is usually
determined by a predetermined ratio of parking spaces per square feet of
leased office space. Thus, for example, if the total lease size is 10,000 square
feet and the landlord is willing to provide one parking space per every 1,000
square feet of leased space, the tenant will be provided 10 parking spaces at
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Real Estate and Facilities

no charge. (The term “no charge” is a misnomer because the landlord will
have built the cost of parking into the rental rate.) In this example, any addi-
tional parking that the tenant needs would be paid for by the tenant, whose
costs are often passed through to the professionals and employees employed
at the firm. The cost of parking and the allocation of parking spaces per ten-
ant are often subject to negotiation between the landlord and tenant, but can
wind up being a significant additional rent expenditure.
The firm should consider not only the cost and allocation of parking
spaces but also the location of the reserved parking and whether there is suf-
ficient visitor parking either in (or under) the building or nearby.

SECURITY. Because of the sensitive nature of the work that professional
services firms perform for their clients, the buildings in which they office
must be secure. Building security can differ dramatically from one building
to another; however, the firm should ascertain whether the office buildings
under consideration provide protection, such as security guards, video cam-
eras that monitor the common areas of the building and the parking garage,
and access cards or keypad entry systems for the building™s tenants. Addi-
tionally, the firm should ask whether access to the building, both externally
and internally, is restricted during nonbusiness hours. Often, during non-
business hours, tenants in a building are granted access to only the f loor or
f loors on which they office.

RENTAL RATE AND EXPENSES. Of all the foregoing issues that the firm
should assess on paper, perhaps the most important consideration is the price
per square foot that the landlord is asking and what expenses the firm will
be expected to pay. In almost all cases, commercial office space is quoted
based on the price per square foot. However, this number can vary rather
dramatically depending on the market. For example, in 2003 the average ask-
ing rent for a mix of Class A and B buildings in New York City was $47.02 per
square. On the other hand, the average asking price for similar office space
in Dallas was $20.35 per foot. Exhibit 18.1 shows the 2003 average price per
square foot of Class A and Class B office space for 29 of the largest U.S.
markets. The exhibit also ref lects the 2003 vacancy rates in each market.
The vacancy rate can have a dramatic impact on both rental rates (an inverse
relationship exists between rental rates and vacancy rates), as well as the
landlord™s willingness to negotiate and give on certain terms of a lease. Al-
though the asking price per square foot is negotiable and depends a great
deal on the real estate market, it should be relatively simple for the firm to
rule out alternatives that clearly fall outside the firm™s preliminary budget.
In addition to the price per square foot, the landlord will also seek to
recover from the tenant a portion of the operating expenses associated
with the leased premises. What is included in the definition of operating
expenses depends on how that term is defined in the lease; however, in
U.S. OFFICE: YEAR-END 2003
VACANT SPACE Y-T-D QUOTED RENTAL RATES
MARKET VACANT SF VAC % NET ABSORP CLASS A ($) CLASS B ($)
1 Atlanta 38,212,470 17.4 488,847 20.96 16.19
2 Austin 11,003,756 18.7 467,487 19.56 17.12

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