Tag Archives: landlord

WeWork – Will it Work in a Downturn?

Post By : admin 22 February 2018 Leave a comment

The New York Times just published a feature on WeWork called The WeWork Manifesto: First, Office Space. Next, the World. It’s a very interesting article about how WeWork has gone from start-up idea to a market valuation of $20 billion in only 8 years.

It’s a very interesting article and I really have to give credit to the co-founders for creating something that appears to be working so well. It’s good for companies to have options. WeWork is one of many providers of co-working space. It’s hip, cool and very open space. There are some real benefits to it – chief among them being flexibility since tenants don’t have to lock into long-term leases.

Co-working providers claim to save companies a huge amount of money while providing flexibility and the kind of space that younger employees want. This is true, but you have to remember that if you rent a dedicated desk in a co-working location, each person typically gets a 4-foot-wide table with another table immediately next to it for another person. So a typical 10-foot-by-12-foot office that you would give a staffer in a traditional office build-out, would likely have 4 people in it at a co-working office. While prices vary by location, those 4-foot tables go for $500 a month. So that one office costs $2,000 a month. It’s easy to see how co-working providers can afford to offer free beer and other amenities.

WeWork has been in business for 8 years now – all of which have been in an expanding economy. It will be interesting to see what happens when the economy takes a dip. I hope they do well, but I’m dubious. Practically every executive suite operator went under in the recession of the late 80’s and early 90’s and landlords ended up taking back the empty spaces left over. Since WeWork members are on month-to-month contracts, they can move out quickly if they start feeling the effects of a downturn and are trying to reduce cost. Thus, WeWork and other co-working providers will lose revenue much faster than building landlords whose tenants are committed to multi-year leases. That will put a major strain on their ability to stay in business, much less grow.

So while a recession may result in tough times for the operators of co-working locations and executive suites as well (think Regus), they remain a great option for tenants who need short-term space for projects or when testing the water in a new market.

Bob Gibbons is a Real Estate Advisor & Tenant Advocate (also known as a tenant rep) with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.

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Your Building May be Growing – Rentable Square Feet Get an Update

Post By : admin 3 October 2017 Leave a comment

Your building may be growing. That sounds like a ridiculous idea, right? But it may be true. Not physically, of course, but in the way the size is determined.

We have blogged in the past about buildings are measured and the difference between the useable square footage (SF) of a building and the rentable. Here’s a link to our blog post from December 2015. In that post we demonstrate how the common areas of a building are allocated to each tenant based on their share of the building. This commons areas include restrooms, elevator lobbies, electrical rooms, and others. Once the share of the common areas for each tenant is added to the useable area they get to use exclusively, you arrive at the rentable SF. And it’s the rentable SF that is used to calculate rent.

The industry group that determines the methodology of measuring building is called the Building Owners and Managers Association or BOMA. Their main purpose is to create a uniform basis for measuring new and old buildings so that they can be compared with greater accuracy. Periodically, they update the standards and 2017 is a year in which they have done just that.

The architectural firm Gensler just put out a short article about the 2017 update.

Landlords have been adding new amenities to make their buildings more attractive to prospective tenants. These include things like rooftop terraces, tenant lounges, bicycle storage, fitness centers, etc. Some of these amenities are considered common area and should, therefore, be allocated to tenants.

That’s how the building may grow. It’s not really growing, but the common area may increase due to these amenities which increase the allocation to each tenant. Thus, your rentable area may increase.

Many landlords won’t go to the expense of remeasuring their building. Others will already have the data with which to do the calculations. But it’s unlikely that they will try to change the size of your space in the middle of a tenant’s lease term. Typically, they will wait until your lease is up for renewal or you want to expand. Then they will change the size.

This is a legitimate thing for a landlord to do, however. I’m not throwing them under the bus here. Something that is truly an amenity shared by all tenants for which the landlord is not charging a separate fee is fair game for being included in the common area calculations.

Just know that this may occur and be prepared with a corporate real estate advisor like REATA to negotiate your next extension, expansion or relocation.

Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.

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Dual Agency – New Court Ruling

Post By : admin 17 March 2017 Leave a comment

If you know me, you know that I am always talking about conflicts of interest and how the commercial real estate (CRE) industry is unfairly slanted in favor of the landlord. One of the big reasons for that is that companies that lease space usually only sign a lease or lease renewal once every 5 years on average while the landlords are professional CRE owners and may sign hundreds or thousands of leases in a year.

Another example of the imbalance is allowing brokerage companies to represent both the landlord and tenant in transactions. This concept, often referred to as “dual agency” or “acting as an intermediary,” muddies the negotiation process and creates less than transparent negotiations for both sides. If a CRE brokerage company represents the tenant and the building owner, for which side is it really negotiating hard. Possibly neither.

At REATA, we champion the idea that CRE service providers should represent the tenant or the landlord, but never both. You just can’t serve two masters. Sure, it makes a lot more money for the CRE firm, but where does it leave the clients – especially the tenant.

In late 2016, the courts in California finally took note and attempted to create more transparency around the issue. In the Horiike v. Coldwell Banker Residential Brokerage Co lawsuit, the state looked into the unfair practices within the industry. And now, the California State Supreme Court has upheld a ruling that dual agents have an inherent conflict of interest. This ruling has spurred the state government to take a closer look at dual agency and modify real estate laws surrounding this issue.
This is obviously a step in the right direction to protect the rights of tenants and make it more clear who CRE firms really represent. It will take some time for the impact of California’s decision to roll out across the country, but it’s good to see the balance of power shifting.

Sadly, I had lunch with an agent from one of the largest full service CRE firms in the world recently. I asked him about the California ruling and how his firm was addressing it. He didn’t seem to know anything about it although he wouldn’t admit it. He said this issue was way overblown and it was never a real problem.
It will take a very long time to pull all the heads out of the sand.

Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.

Categories: Uncategorized