Tag Archives: tenant rep

Don’t Let Your Lease Kill the Sale of Your Business

Post By : admin 3 October 2018 Leave a comment

As an asset manager, in the late 90s, working for a large owner of office buildings, I got a phone call from a guy who said he was buying one of the companies in a Dallas building we owned. He said his company planned to close on the sale the next day and he wanted the landlord to consent to the assignment of the lease to him. After checking the lease, I told him that he should have come to us much sooner because the landlord had up to 30 days to approve or reject the assignment. But that wasn’t the bad news. The bad news was that the landlord had a right of recapture – the right to terminate the lease if the tenant requested an assignment or sublease. The tenant was paying rent of only $14.50 per square foot (SF), but the market rent had increased to $20.00/SF since the lease was signed. So, you guessed it, the landlord decided to exercise its recapture right. The buyer of the business was a savvy guy and recognized that the landlord was recapturing the space, so it could lease the space for a lot more money and, thus, increase the value of the building.

He asked at what rental rate the landlord would allow the company to remain in the building. I told him $18.50. That additional $4.00/SF for the remainder of the lease term would cost an extra $60,000. He then went back to the seller of the business and gave him a choice – reduce the sales price by $60,000 or the business sale was dead. The deal went through.

What can you do to make sure your landlord doesn’t have the power to affect the sale of your business? Negotiate the assignment and sublease clause in your lease properly. Here are a few things to negotiate or consider.

1. Remove Recaputure – at the time you negotiate a lease, make sure there is no landlord right to recapture or terminate. This may be difficult if you are a small tenant in a big building.
2. Add Conditions – at the very least, limit the landlord’s right to recapture only in the case that you no longer need the space and sublease it. Prohibit recapture in the case of an assignment associated with a business sale. In some cases, you can negotiate under what conditions you can assign the lease – a related entity, an entity with higher net worth, etc.
3. Be reasonable – make sure the lease adds that the landlord’s approval “shall not be unreasonably withheld or delayed.”
4. Tenant remains fully liable even if the lease is assigned or subleased. If selling the business, you may be able to waive this liability if the landlord gets something new that it wants – more leased space or a longer lease term.
5. A transfer of stock qualifies as an assignment in most leases where the tenant is not publicly traded.
6. Explain why – it always helps when the landlord understands the reasons for something you request. Explain the structure of the transaction and why it is good for them.
7. Give notice early but avoid false alarms. Let the landlord know as soon as you have high confidence the sale will go through. But don’t go to them every time you have a tire-kicker.
8. Consent – ask for the landlord’s preferred consent form and ask about their approval process. Landlords rarely will sign a consent form created by you or your broker. Get their form and have it signed by the primary tenant and the subtenant when the sublease is signed. This will speed things up.
9. Be aware of the rights of other tenants. Some tenants may have an exclusive use clause. This means the landlord gave them the right to be the only bank, or mortgage company or whatever in the building. This is more common in retail properties but will occasionally be a factor in an office building.
10. When possible, have the acquiring company sign a new lease. To sign a new lease for the same space, the landlord must terminate the current lease. That’s usually the goal of the seller. But the landlord must be getting something it wants in return which usually means stronger credit, more space leased or longer lease term.
11. Expect Fees – most leases now give the landlord a right to charge to review a sublease or assignment. In many cases, they can charge attorney fees on top of their fees. All this is negotiable when creating a new lease though.
12. Indemnity – if the landlord doesn’t allow you to be removed from future liability, make sure your business sale documents include a buyer’s indemnity of the seller. Of course, if they can’t pay the rent, the indemnity probably isn’t worth much either.
Business sales often occur with no notice to the landlord. What happens then? This is probably a technical default on the lease and the landlord may be able to exercise its rights including terminating the lease. However, that rarely happens as long as the rent is being paid on time. I don’t advocate this approach, of course, because it’s an unresolved, outstanding risk to the business.

As always, you should seriously consider your future business goals and objectives before you sign a lease and make sure the lease document is compatible with those goals. It’s easier to negotiate these issues when the landlord is trying to get you in their building than when they already have you and you want to sell and leave.

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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Open Plan Office Configuration – Productivity Killer?

Post By : admin 9 September 2018 Leave a comment

Open plan offices have been taking it on the chin for a while now. And now Harvard is piling on with a study that says open plan configurations actually reduce face-to-face interactions instead of increasing them as commonly thought.

Inc. did an article in which their headline goes further to say open plans are the “dumbest management fad of all time.” They say this because of the reduced interactions Harvard claims.

They go on to say that the only reason left to justify an open floor plan is to save space and, therefore, money. In fact, the author of the article says that companies should just allow people to work from home since that’s less expensive than open plan offices.

I haven’t seen the Harvard study or the data that supports their claim, but from my own experience with clients in office buildings, the trend is still toward open offices. There are still offices, but they have a a lot of glass and are moving to the interior leaving the “cubes” to enjoy the windows.

In terms of working from home, some companies are moving employees home, but I see just as many bringing employees back into an office from home. They tell me they want their employees to feel like they are part of something. They want them to see each other and talk to each other. They feel that is more likely in an office.

I don’t see the open office trend ending anytime soon. I expect it will continue, but we will continue to see innovation in furniture design that provide better privacy and sound control while allowing for greater density that companies need to control costs and preserving openness. The open aesthetic is more pleasing than the old way of a bunch of offices blocking the windows and tall cubes in the “open” areas.

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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British Real Estate Investment Firm Gives WeWork a Go

Post By : admin 7 June 2018 Leave a comment

A colleague of mine in London who is a member of the Alliance of Tenant Representatives with me sent the following article about an old established commercial real estate investment firm that tried officing in a WeWork location for a while until their new office was ready. I think it does a good job identifying what co-working really is. In the end, it’s a step in a journey – one which rarely ends at a co-working facility.

Why we ‘WeWorked’ and what we have learnt
By Anna Durkie | Offices | 06-06-2018 | 12:52

COMMENT: There is a lot of talk in the property industry about co-working and flexible offices, mostly from people who have never occupied one, writes Evans Randall chief executive Kent Gardner. We wanted to learn from first-hand experience so when the lease on our Mayfair office was approaching expiry, I persuaded my colleagues to leave early and move to a WeWork space until our new premises were signed and ready.

We moved to WeWork to expand our knowledge of workplace trends, effectively disrupting our own business so that we could understand this office sub-sector more deeply. Being a London office specialist, the goal was to further inform our work as investors in the office sector and as creators and asset managers of office buildings.

First impressions
The easy-in, easy-out simplicity of the contract was remarkable. We viewed the space, decided it was what we wanted and by the time I’d got back to my office, the contract was in my inbox as promised. I signed up online and paid one month’s deposit on my Amex card.

The packages are simple and inclusive and we can leave at a month’s notice if we want to. This contrasts sharply with the leasing experience on our new Mayfair office where, as is par for the course for a conventional lease, it took several months to sign.

Disruption
The experience has disrupted our behaviour; it has forced us to make sacrifices we hadn’t envisaged, from getting used to smaller floor space and desk size and the availability of meeting rooms and how all these factors impact our privacy.

Our behaviour has adapted. We have gone largely paperless and discarded clutter from our old office, which has been a difficult transition. We have become closer to our colleagues, literally, by giving up cellular offices and working together in a smaller space. This has been good for integration, especially for recent joiners like John Slade.

We have also adopted “WeWorker” as a term to describe our approach – to sharing meeting space, to joining with guests in preparing our tea and coffee and clearing up our own meeting rooms afterwards. We have consciously made an effort to participate in functions and events and to be “WeWorkers”.
At times we have relaxed our dress code, which though never strict, does tend towards conventional business dress. This has helped us fit in, but we still need to be suited for many of our meetings, so we have stood out a bit at times. John’s classic chalk pinstripes do turn some heads!

The brand
Brand alignment is arguably the crux of the matter. When you move to a WeWork space you assume its brand to a great extent. It’s the brand that signifies or potentially even shapes your business culture and behaviours, to greater or lesser degrees. That won’t suit everybody. We have held meetings here but they have been with contacts who know us well and understand our WeWork experiment. For others, an explanation of our experiment is required.
Our future

We are an established business for whom our own front door and a sense of being well-established is crucial to our brand. There is a big tier of such businesses, especially in the investment world, and a West End address is still an important part of the brand identity.

It remains to be seen whether these disrupted behaviours remain embedded in our culture and operations. I suspect we may revert to type when we move into our new, more permanent space in Mayfair. As Churchill said: “We shape our buildings, thereafter they shape us.”

COMMENT: When Kent initially suggested the idea of moving to WeWork I was against it, writes Evans Randall executive chairman John Slade.

I’d just moved over from a big corporate office at BNP Paribas and didn’t feel WeWork was the right environment for a business like ours. I felt a communal office was a little depreciating and a total disruption to what the office setting is and should be for a top real estate investment house.

After years in the business, you acquire lots of flotsam and jetsam. I’d just had a big clear out before joining Evans Randall and the prospect of moving to WeWork meant this had to be done all over again.

First impressions
Although I wasn’t keen on moving to WeWork, I liked Kent’s mentality on testing the product and found the ease of occupation a real USP. It’s efficient, slick and designed to be so. The service at WeWork is also extremely good, it’s welcoming and helpful. The reception can feel more like a hotel than an office building. It all reflects the brand and encourages people to enjoy the experience. It will be interesting to see how the wider industry adapts to keep up.

Disruption
We had to be really particular about what we could bring to fit into the space. We have 15 people in an office that WeWork says is for 21 and we still feel very limited, which suggests the most suitable type of resident for a WeWork may be digitally based. Although the open-plan layout does not suit the nature of our work, it has been positive for our office culture. I believe integration of our team that could have taken two years has happened in more like four months.

The brand
You are part of WeWork’s brand here and it feels very crowded.

The WeWork brand might suit start-ups and early stage companies but unless you are a large corporate occupier, it’s almost impossible to have your own corporate identity within one.

Our future
I oscillate daily between thinking “this is great” and being sceptical about the concept. I probably sit in the middle now but it has definitely been a more positive experience than I initially expected. In my opinion, WeWork is an office for a journey; it won’t take you to the end game. It’s a transient workspace and feels very much like a staging post.

People are often here on their way to someplace else, so at times it does feel a like a cross between a student hall and an incubator. WeWork still has to mature. I would recommend trying life in a serviced office, although I am looking forward to being settled in our own office again. I had to realise I am not the youngest guy in the office anymore.

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.

Categories: Uncategorized