LEASE TACTICS BLUEPRINT

Transcription

1 LEASE TACTICS BLUEPRINT FOR MORE INFORMATION PLEASE CONTACT Traci Jenks, CCIM Senior Associate CBRE, Inc. Licensed Real Estate Broker

2 LEASE TACTICS BLUEPRINT What is the most effective way to save money on your real estate costs? The optimal way to ensure you are obtaining the lowest rates is to follow a strategy that includes the steps outlined in the Lease Tactics Blueprint. There are five (5) main points to the plan as follows: 1 2 Look into your existing space layout & determine future needs 3 Evaluate market conditions A nalyze & compare alternatives 4 Submit final offers & negotiate business terms E xecute the Lease and move in! 5 Each step is paramount to making the best decision for your company. I find many companies skip the first step and move right into looking for space without really considering where their company is headed. I usually tell people to look at where you want to be in 3 years. These days it is harder to look into your crystal ball and know where you will even be in one year much less three.

3 Step 1 Look into your existing space layout & determine future needs Before starting your search, it is critical to analyze your existing space and consider current trends and how your business has changed since you signed the last lease 5, 7 or 10 years ago. Space needs have changed dramatically in recent years: Technology has enabled individual workspaces to get smaller There is an increased need for collaboration areas More employees are working virtually from outside a traditional office, but still need desk space when they come into the office Right now a lot of companies have excess space, and are unsure of their future needs. I ve put together the following list of 10 questions to help you look into your crystal ball and determine your growth needs. Do you have the correct type of space? Multi-story, single-story, or flex type space Does the space support your business goals? Some companies have switched from a hierarchical structure to more collaborative Does your space speak to your brand and encourage employee recruitment? How are you currently working? In offices, open area with workstations, or virtually? How do you want your staff to work in the years to come? What are your environmental needs? Is your space too hot or too cold? Do you control your own HVAC? Need more natural light? Do you have sufficient amenities and restroom capacity? Is there deferred maintenance the Landlord needs to address? Is your location in the right area? Near clients, vendors, convenient to employees homes What do your employees think about the space and/or location? Take the time to analyze employee concerns Understanding the answers to these questions will help you to determine the framework to help you and your broker analyze your needs before moving to the next step.

4 LEASE TACTICS BLUEPRINT Step 2 Evaluate Market Conditions CBRE has extensive research and prepares quarterly reports on every major market in the world. Markets can change each quarter and allow certain opportunities. I examine the current market conditions with my clients to determine the best place to start looking for space. For example; the Deerwood Park area has landed some larger Tenants over the last 6 months and has a less than 10% vacancy rate. Building owners in this area are not offering many concessions, because the demand has increased and there is less supply. Right now, there are still deals to be had downtown and in some areas of Southpoint and the Baymeadows area. Once you decide on the area of focus and size range needed, I prepare a list of options to compare. I usually recommend a long list of properties. I review these options and ask the Landlord brokers for floor plans of the spaces that meet your size requirement. It is important to see the floor plans first and to try to find a space that needs little or no modifications to meet your needs. Any improvement costs will be passed on to the Tenant, so starting out with a plan close to your needs is best for you and will save you money. OPTION 2 OPTION 1 OPTION 3 After you review the plans, then I recommend touring no more than 5 or 6 properties. Any more than this on a tour is tiring and a waste of time. If you have done your homework ahead of time, all of the options you tour, should meet your needs. It is just a matter of narrowing it down to your top 3 to obtain proposals for analysis.

5 Step 3 Analyze & Compare Alternatives Once you have determined your top 3, your broker should prepare a Request for Proposal (RFP) to be sent to the Landlord s brokers. The RFP will detail all your specific requests, so everyone understands your needs and can address them. The following items should always be included in an RFP: Describe the Premises and location of the space Length of term and commencement date Rate (full service or triple net) Tenant Improvements requested (allowance or turnkey) Parking Termination, Renewal or Expansion Options Who pays for the HVAC maintenance Concessions (free rent, moving allowance, stepped rent etc) Depending on your space needs, if you don t find a space that is set up exactly to your specific needs, you may need to have the tenant improvements priced out. If the improvements are extensive and you are starting from a space that is in shell condition, it is important to ask for a space planning meeting. Space planners can come up with ideas to maximize the existing features to cut down on costs. They will prepare a plan that can be given to a contractor to prepare an estimate of the costs. This allows the Landlord and the Tenant to know the costs involved, so negotiations can continue. Once you receive the responses to the RFP, your broker should prepare an analysis showing the costs and how each location compares. The most important numbers to consider are your total effective rent (the rent adjusted downward for concessions and allowances and upward for tenant pass-thrus [operating expense increases]) and total effective rate (total effective rate divided by the square footage). One space may have a lower total effective rent, but the total effective rate may be higher if the square footage is smaller than the other options. A lot of people get focused on the price per square foot, but forget to consider the overall costs over the term. There are also other items to consider like the location, parking, flexibility and amenities. Companies have begun to recognize that the right type of office space can reinforce your culture and improve productivity. After cost, this is the most critical point to consider. Ensuring your office is comfortable, has the tools needed to get the job done and has space for collaboration and independent thinking is crucial.

6 LEASE TACTICS BLUEPRINT Step 4 Submit final offers & negotiate business terms After you have analyzed your top 3, now is the time to decide on your top 2 locations to negotiate. Both of these should meet all your requirements. The current market is a Tenant s market in most areas of Jacksonville. Even though now is a Tenant s market, it is not ok to ask for more than what is fair and beat up the Landlord. You will have a long term relationship with your Landlord and don t want to start the relationship where one of the parties feels like they have been taken advantage of. The market will turn and when it is time to renew, your Landlord will remember how they were treated. I have completed hundreds of lease deals and represented both Tenants and Landlords and believe me they remember! As your advisor, I am in the market every day and know the type of deals occurring and can assist in a fair, but aggressive counter offer. The areas to pay special attention to in final negotiations are the term, expenses, maintenance and repair of the HVAC, free rent and renewal and expansion options Term :: The first order of business is the term or duration of the lease. Most Landlords will require at least three years on a new deal. If you can commit to a longer time, now is a good time, since rates are low and you can lock into a lower rate as well as take advantage of more concessions. If you are concerned about flexibility, Landlords will offer a termination option if you need one. Expenses :: Landlords pass on the expenses to the Tenant, whether it is a triple net or full service lease. You want to see the how the expenses for the property have been for the last few years to determine how much your lease may go up. If you are a larger tenant, most Landlords are willing to put a cap on the controllable portion of the increases which are things like, landscaping, property management, parking lot and upkeep of common facilities. HVAC maintenance :: In triple net leases, usually the Tenant s space are separately metered and have individual HVAC systems to heat and cool the space. Most Landlords of these types of buildings, put the responsibility on the Tenant for maintenance, repair and replacement. Companies should ask to see an HVAC inspection to see the condition of the units. If they are over 10 years old, I usually request the Landlord amortize any costs to replace a unit based on the amount of term left on the lease. Free rent :: Most locations are offering free rent at the moment, one free month, per year of the term is pretty standard right now - so ask for it!

7 Step 5 Execute the lease & move in! Once you make a decision on a location, the Landlord will ask for a Letter of Intent to outline the terms of the lease. A Letter of Intent is non-binding, so this is ok to sign. The Letter of Intent is used to prepare the Lease. Most Leases are in favor of the Landlord, so I highly recommend companies hire a real estate attorney to review their lease. Landlords also prefer that companies use an attorney that understands commercial real estate leases. I ve seen companies try to use in-house counsel that don t negotiate leases and this can hold up the process and make negotiations more difficult, because they don t understand what it takes to get a deal done. A good real estate attorney knows the areas to pay special attention to and areas that are not as important. After the Lease is signed, the Landlord will start working on the improvements needed to get you in the space. The Landlord will either have a property manager or a construction manager handle the improvements. You will want to schedule a meeting with the manager to discuss the expectations and to get a timeline for completion. After this you can focus on the move. The following is a checklist for your move: Create a moving task force Choose key employees to take the burden off you! Hold a meeting and tell your employees the good news Hire a moving company and plan the move date Meet with an interior designer This should have already been initiated in the beginning, but now you will begin to make the final touches Clean house Now is the perfect opportunity to throw out old files and extra equipment not needed. Meet with communication or PR staff Start preparing a press release about the move, so you can get some free press! ontact utility companies Phone, internet, cable, water and electricity Alert customers Contact clients and vendors about your move and send them your new address Order new stationary and business cards Arrange for access to the space You may need a key card system in your new space or have keys made for employees. Also, you may need parking cards for employees this needs to be addressed Conduct a final walk-through Before move day, walk through the space with the new property manager to ensure everything is ready After the move Plan a party and celebrate! I hope you have found the Lease Tactics Blueprint helpful. Please let me know if you have any questions and definitely give me a call when it is time to negotiate your lease.

8 LEASE TACTICS BLUEPRINT FOR MORE INFORMATION PLEASE CONTACT Traci Jenks, CCIM Senior Associate CBRE, Inc. Licensed Real Estate Broker View My Profile: 225 Water Street Suite 110 Jacksonville, FL CBRE, Inc. This information has been obtained from sources believed reliable. We have not verified it and make no guarantee, warranty or representation about it. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the property. You and your advisors should conduct a careful, independent investigation of the property to determine to your satisfaction the suitability of the property for your needs. CBRE, CB RICHARD ELLIS and the CBRE CB RICHARD ELLIS logo are service marks of CBRE, Inc. and/or its affiliated or related companies in the United States and other countries. All other marks displayed on this document are the property of their respective owners.