Insight

Executive Q&A: Cresa Wisconsin’s TJ Blitz helps companies save on rental agreements

March 31, 2012
Before commercial real estate agent TJ Blitz can start trying to save companies money on their rental agreements, he has to get one important preliminary out of the way: he has to sell them on himself.

"One of the biggest challenges in our business is educating the consumer on how we work and how we can add value to the lease negotiation process," said Blitz, a managing principal and joint owner at Madison-based Cresa Wisconsin.

"It’s very common for companies to overlook their leases as a potential means to reduce overhead costs," he added. "They just think, ’It’s my lease and I know I have to spend X amount for it per year, so there’s nothing I can do about it.’"

Blitz and his four partners at Cresa, which also has a Milwaukee office, make a living trying to disprove that assumption. The commercial real estate services firm they formed in early 2010, after each worked a decade or more for other companies, has focused purely on tenant representation in lease transactions. Most other commercial real estate companies represent both landlords and tenants.

"We feel our approach is a lot more clear," Blitz said.

Cresa Wisconsin last year handled 57 commercial lease or purchase transactions, with a total estimated value of $30 million. About 20 percent of the business involved representing clients who were looking to buy, rather than lease, their space.

In addition to hunting out locations and negotiating the lease terms, the company can provide services including strategic planning, transaction management, subleases, work force planning, and facilities management.

One of Cresa Wisconsin’s most notable recent lease transactions was finding space for Shine Medical and Phoenix Nuclear Labs in a 10,000-square-foot Madison relocation off Monona Drive. The companies make radioactive isotopes used in cancer treatments, and needed to find a suitable temporary location where they could work together to prepare for an expansion to an $85 million manufacturing plant in Janesville in five years, Blitz said.

Q: What’s the process with a new client?

A: The first thing we do is a needs analysis. We need to figure out where they are and where they want to be and how to get there, and then we can create a virtual plan for their space.

Then we go out to the market and we search for the best options, considering factors like location, growth flexibility, price.

Sometimes clients will say they need the lowest-price option. Other times people don’t mind if the price is higher, but they need to be within a certain mile radius of their biggest client, or they need to be within a two-mile radius of their CFO’s house.

Q: What happens then?

A: Once we find a handful of options, then typically we will do a request for proposals to those three to five landlords.

Q: Why do most companies rent rather than own?

A: Most of it has to do with cost. Oftentimes buying doesn’t give you as much flexibility. If you grow out of it, all of a sudden you have this building you have to get rid of.

Q: How do you build flexibility into client leases?

A: There is a right of first refusal (option). That means if there is a space next door to you in the building, we want to make sure you have the ability to grow into that space.
We often get early-termination options, where after three years in a five-year lease, the tenant will have the ability to terminate. We try to build that flexibility in ahead of time.

Q: What if clients come to you with existing leases they want to break early?

A: We need to review their lease to see if there are any options to terminate early, and if there is not any, we might be able to find a landlord who is willing to take over the remaining lease term in exchange for putting them in their building. Or sometimes a landlord will be willing to restructure the lease.

Say the tenant was in 5,000 square feet and they find out they only need 3,000. So they basically downsized, but their overhead (expense) for occupancy is now a significantly higher portion of revenue than it was when they first signed their lease.

Sometimes in that situation we’re able to get a reprieve from the landlord. We could say, "If you don’t help us, the company will go bankrupt and you will be left with nothing for the next two years." In lieu of that happening, the landlord may provide some free rent or a reduced rental space that matches up better with our tenant’s ratio of expenses to overhead.

Frankly, sometimes there isn’t anything you can do. If somebody has a 10-year lease they negotiated and they’re three years into it (and want out), it’s going to be tough to do anything. You might appeal to the good will of the landlord. A lot of smart landlords these days would rather keep a tenant than lose them, even if they’re paying less rent.

Q: Why is it so important for tenants to be savvy about lease costs?

A: Typically your lease is your second-highest expense as a company, after personnel. We try to empower companies to realize that their tenancy is a valuable asset to a landlord, and that there are many, many ways to create flexibility.

Q: How open are landlords to providing amenities to sweeten leases?

A: Oftentimes we’re able to offset moving costs or get some free rent from the new landlord or get a higher improvement allowance. The landlord would typically like to rent it as-is. But most sophisticated landlords realize ... they’re going to have to do some sort of renovation, even if it’s just new carpet and paint to freshen it up, or moving some walls around to reconfigure space.

Or maybe they’ll pay for some improvements, and then they’ll put another $100,000 into it, but the rent goes up by $2 a foot.

Q: What do you like best about your job?

A: It’s very satisfying to know that we’re helping to shape the local economy every day. By changing (locations), companies can sometimes find they have better employee retention, and all of a sudden new life is breathed into a company. You feel better in your new space. It helps us contribute to the life blood of the community.