Archive for the ‘Transaction Management’ Category
| Newer Entries »Navigating the Transaction Process – Part I
Wednesday, November 3rd, 2010
By Liz Roberts
Transaction Management Process is a term that is frequently tossed around the commercial real estate industry. Most every Corporate Real Estate Executive has at least one, if not many, process flow charts sitting in binders on their bookshelves. Personally, flow charts give me headaches, but they fill an important role in demonstrating process and developing best practices for every type of real estate user.
The transaction process can be broken up into six buckets:
-Define Requirements
-Decision Support
-Analysis/Negotiation
-Design Development
-Construction
-Move-in
Let’s start at the beginning – Define Requirements. In a perfect world, the real estate requirement is defined via a clear and articulate strategy that was developed months, or even years, prior to an action taking place. But this is not always the case, so before launching into a real estate goose chase, ask yourself the following questions:
-What is driving this decision? Is it a business action—like employee growth—or a real estate action—like an upcoming lease expiration?
-If it is a business action, how does this affect the real estate? Does it create a need for more space? Will you need flexibility? What are the key factors, and what is the business horizon that you are examining? Three years? Five years?
-If it is a real estate action, how does this lease currently complement the business drivers?
-Where does the lease fit into the bigger picture? What are your overall real estate goals?
Once you’ve developed answers to some, if not all, of the above questions, the next step is to determine preliminary criteria. There are four items that every group should address:
Financial Criteria
-What is the current financial situation? How much do you pay each month? Don’t just focus on rent but on your true “pay rate”, i.e. what is the amount of the check that is written on the first of the month?
-How does your current rental rate compare with the real estate market? Are you above or below where transactions are closing today?
-What is your financial wherewithal? Can you afford more? Do you need to cut costs?
Location Criteria
-Does your current location work for you? Are you near amenities, major highways, or public transportation?
-How are employee commute times? Are you close to your customers? Do you need to be?
-If you relocated, how would that affect the employees?
-Does your location impact your tax burden? Would changing municipalities help or hurt you?
Operational Criteria
-Does your current space complement your business needs?
-Is it too much or too little? Does the configuration of offices, workstations, and common areas create the right kind of environment?
-Are you in a “conventional” office? Would considering Alternative Workplace Strategies make sense for your organization?
Image/Quality Criteria
-Does your office space properly reflect your business and/or brand?
-How does the space and building look? Is it new? Old and tired?
By examining each of the listed criteria, one can create a strong roadmap for identifying and securing the ideal office. Your commercial real estate advisor can help you to answer all of these questions, and then work with you to develop the appropriate deliverables. These deliverables include a space program which details how many offices, workstations, conference rooms, etc. that are needed. This also includes a preliminary market survey that will include the options in the market that fit your preliminary criteria. Lastly, these criteria help to develop a preliminary budget of relocation costs, as well as an expected timeline of events.
Now you have a clearly defined requirement and the associated tools to begin your Transaction Management Process. I will discuss the subsequent step—Decision Support—in my next entry.
Tags: corporate real estate, process, real estate requirement, TM
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Office Market Recovery is Beyond 2014
Wednesday, September 8th, 2010
By Ann Hansen and Jim Vos
Across the nation, office markets are languishing in excess space. In the Twin Cities, for example, 22.8% of all space is available for lease either directly from the owners or through subleases and that shadow space could push the true vacancy rate closer to 30%. In much of the rest of the country, there is a similar story. It is our belief that number may be significantly underestimated, because what is not reflected in these statistics is how the shift of many companies to a flexible workplace environment will greatly impact the office market recovery.
Two primary factors will influence the reversal of the negative absorption trend that has dominated the market for the past two years: employment levels and dedicated office workspace. Historically, office market occupancy is a function of employment; more people working means more space occupied. We fill buildings when we create jobs.
Unfortunately for landlords, the traditional formula of 250 SF/person is no longer applicable; therefore, it will take even more jobs and more time to get back to what landlords and lenders might consider a healthy vacancy rate of 10%. The recession has not only taught many companies how to survive with leaner staffs but also pushed innovation in other areas as well. In this era of doing more with less, we’ve witnessed a truly functional new platform of flexible workplace environments that are dramatically changing the old rules about how space is used. Where previously many talked a good game about telecommuting, flex scheduling, and remote work options, some companies have, by necessity, put those concepts into practice and have found they make economic sense and produce happier employees. And perhaps most compelling, this shift to a flexible workplace has reduced space requirements by between 25-40%. A flexible workplace means different things to different people, but the core concept – leveraging technology to enable employees to work smarter and produce better results – remains the same. More than simply telecommuting, the move to a flexible work environment means a radical shift in not only when and where work gets done, but how.
For many businesses, a good number of employees spend significant amounts of time with their clients or walking the production floor. Do these employees really need a dedicated office space? If your managers spend the majority of their time in conversation with other employees managing workflow, should they reside in an open workstation in a central location, rather than a private office two floors away? Companies are starting to ask these tough questions and are modeling solutions that meet both the needs of the employee and the needs of the organization.
We sampled our own office usage in Minneapolis and found that our staff used their private office space or workstation less than 40% of the time. We are with clients, on vacation, meeting off-site, or working from home or a coffee shop. While it is convenient to have a dedicated private space, it is worth putting a price on your excess capacity and considering an alternative solution that could produce the same effect and results. Companies that have done so have found the benefits far outweigh the negatives.
The long-term impact of this shift will clearly be a net reduction in total space required, even as employment numbers improve. It may also result in a skewed demand from employers seeking the most flexible buildings with the best amenities and the latest technology. In most of the United States over the next 2 years, we anticipate a “flight to quality” which may actually increase rents in the preferred buildings. Market wide statistics will become less relevant as unique properties or particularly cooperative landlords become most desirable. Already evident in today’s office market, there are wide variations between buildings and landlords, due in many cases to their financing structures or cash positions. We describe the office market as being “lumpy” – with great fluctuations between seeming comparable buildings. One landlord’s concession does not guarantee another’s cooperation, and that can get frustrating for tenants.
Well before a lease comes due, smart companies will be taking a hard look at how they use their space and studying the options for a more flexible workplace. Managing the total SF leased will save far more than the managing the rent costs per SF. Job creation is still the key to economic recovery, but for all practical purposes, the substantial amount of excess office space will remain an issue for much longer than anticipated.
Have you adopted a more flexible work environment in an effort to shed unneeded space during the recession?
Tags: corporate real estate, excess space, flexible workplace, unemployment
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Commercial Leasing: Don’t Fall Into This Trap
Wednesday, July 14th, 2010
By Darren Fleming
Reviewing commercial leases is not for the faint of heart. It is very easy to miss the implication of a seemingly reasonable clause or run into trouble with a combination of clauses if you don’t seek professional advice. Personally, I believe the following combination of three standard leases clauses are the worst:
- The obligation to use the landlord’s contractors.
- The requirement to restore the leased premises to their original condition at the end of the term.
- Giving the landlord the right to apply any kind of blanket supervision cost to your tenant improvement work.
It works something like this:
Landlord: Your Lease is coming up for renewal in a few months, and we’d like to talk about you staying. By the way, the market has changed, and you are going to be looking at a stiff rent increase.
Tenant: Well, I guess we’ll be leaving you.
Landlord: That’s unfortunate, but not unexpected. Just make sure you put the place back the way it was when you first leased it from us ten years ago. (Obligation #1)
Tenant: Huh? What are you talking about?
Landlord: You know you have to rip the walls and doors down, fix the ceiling and tear up the carpets.
Tenant: What?!
Landlord: I’ll be sending our Project Manager down to look at the space and get you a budget next week for the cost of the demolition. (Obligation #2)
Tenant: You mean Gerry? His prices are always so high! I’ll get my own price, thank you very much.
Landlord: Sorry, but you don’t have the right to do that. Read your lease on page 47, paragraph 11, part b., section xv.
Tenant: Huh?
Landlord: Don’t worry. Our fees are very reasonable and we should be able to get this done for $70,000 or so.
Tenant: I think it should be closer to $60,000.
Landlord: Oh! You forgot to include the supervision charges. That’s an extra 15%. (Obligation #3)
Tenant: But he’s your employee! Why do I need to pay for you to supervise him?
Landlord: Did I mention you should really read your lease?
Tenant: But that almost half a year’s rent! I can’t afford that. I guess it doesn’t make very much sense to move out.
Landlord: I had a feeling you might say that. Now about that rent increase…
This is the trap that many tenants miss when agreeing to seemingly reasonable clauses which, on their own, can be onerous but don’t necessarily raise red flags. Unfortunately, used together they can provide an overwhelming obstacle against relocating because you have no right to get your own price or hire your own contractor.
The solution: Spot this trap before signing your lease and tweak the language to enable fair pricing. Get the right to use your own contractor if possible or give the landlord a right of first refusal to match any price you get from a third party.
Never agree to a restoration provision, especially if all you are building is relatively standard office space. And, finally, never agree to a blanket supervision fee. II have had great success using the words, “reasonable, out-of-pocket costs”. This puts the onus on the landlord to a) be reasonable and b) provide some type of justification of a supervision job that often never actually occurs.
How do you avoid traps like this?
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Changing Workplace Standards
Wednesday, June 9th, 2010
By Darren Fleming, Ottawa
Making the decision to move to a new office space standard should not be made lightly as it is time consuming, expensive and often stressful to you and your staff. While change is inevitable, poorly managed change can be ruinous. If change is managed well, it can create the opportunity to breathe new life into your space and revitalize your team’s communication and work/life environment. Here are some things to think about before, during and after implementation to try and smooth out the potential bumps in the road.
Consider the future.
While this seems like an obvious statement, many companies plan their space based on activities and practices that reflect where they have been; not where they’re headed. When planning new office space you should consider what your organization will look like over at least the next three to five years (or longer) and try to gauge what changes are likely to occur within that time period. Some examples: Are you moving from R&D to full production? Are there any contracts you are pursuing or that are coming to term? Is there a standard employee workstation footprint you need to consider? Would you like to create one? Is there a potential for a merger or acquisition in the future? All of these questions carry with them an impact on head-count and the roles that individuals will be playing. Taking the time to think about them will be essential to making your new office space program effective and obtaining buy-in from the employees and other stakeholders.
Implementation
Change is never easy for most people and is often hotly resisted. You will learn new aspects of your staff’s personalities and find that they can be territorial about some of the strangest things. “Do I deserve an office or a cubicle?” “How big is my personal work area?” “Is my office bigger than Karen’s office?” “Will I have a window?” “How about guest seating?” In making a change to a new standard it is important to understand the corporate culture you are dealing with and try to see these kinds of pitfalls before you step in them. For example, in an office where sales people had to compete for an enclosed office with a door versus a workstation, moving the sales team to a cubicle bullpen could be perceived as a demotion. In space with limited access to natural light the window spaces are likely in higher demand and reserved for more senior people. And most importantly, size does matter. Employees are very conscious about the size of their personal workspace as it relates to their seniority and guard their territory jealously, even though we all know that function should be more important than status.
The point is not to try and change their minds, but to make a compelling case for the change you envision. State it clearly and help your team understand why you are proposing the new plan. If you are moving to fewer enclosed offices then make sure everyone who is being affected clearly understands the benefits to the organization and what processes you have gone through to come to this conclusion. Perhaps you should offer them some kind of perk to offset their sacrifice. If you are saving money on rent due to right-sizing your space, consider spending some of the windfall on employee amenities like an upgraded kitchen, better coffee service, or a gym membership.
Change is inevitable in any organization and making a clean start with fresh new office space sends a message to your employees that you are prepared to invest in them and that the future is bright. It can be a fun process if properly approached and can make a dramatic, positive impact with your employees.
How does your company handle workplace change?
Tags: change, office space, workplace standards
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Why Use an Advisor?
Wednesday, April 7th, 2010
By Darren Fleming
Many tenants believe they have little room to negotiate their lease when planning a renewal. Many of the comments we hear include, “There isn’t a plan for major renovations,” or “My staff is generally happy with the location, and the business model easily accommodates the current rental rate.” If the landlord approaches his tenant with a proposal that sounds reasonable and maintains the status quo, there is often no red flag urging tenants to call an advisor for advice. And while it might be nice to have a lease that allows for some flexibility to expand, contract, or terminate in the event of unexpected circumstances, if tenants don’t take the time to investigate the market and create proper leverage those clauses never seem to make it to the final draft.
Seek Professional Advice
Let’s put things in proper perspective: By the time you add up rent, operating costs, and utilities in a typical 10,000 SF lease the total cost in most markets is more than one million dollars! If your company had a similar legal expense or tax issue, a professional advisor would be consulted as a matter of course. Yet when it comes to real estate, many senior executives try to tackle it themselves.
Choosing the Right Advisor
It is important that the advisor chosen is a specialist in the type of building you are leasing or considering leasing. Be it office, industrial, or retail space, there is usually one, or often several, advisors in your market who can help.
Another important item to consider is the potential for a conflict of interest. Does the firm usually represent both landlords and tenants? Do they currently have, or might have in the near future, a listing on a property that could put your company at a disadvantage? Inquire about compensation structures. Since most firms still get paid by the landlord, ask about how they get paid as it can vary widely from market to market. Is it on a percentage of the rent or on a flat fee basis? Lastly, check their references. Any firm that has been doing business for any period of time should be able to produce a list of recent transactions and provide you with some contacts to talk to.
Tags: advisor, tenant
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