Tag Archives: tenant

Flexibility in Your Office Lease

Post By : admin 9 July 2015 Leave a comment

Don’t want to be tied down with a long-term lease?  What are your options?

There are times when flexibility is critical to an organization – entering a new market, acquiring or merging with other companies, launching a new product or service, or growing dramatically in the short term.

In these cases, you should first find a corporate real estate advisor who can help guide you through the process and then find and analyze the options.  These professionals work for you, but they are paid by the landlord, so they are effectively a free service.  Their expertise and involvement also frees you up to stay focused on your business.

So here are four options that you should consider to solve your need for flexibility.

1.      Executive suites/Coworking

What’s the difference between an executive suite and coworking? Executive suites are the traditional shared office arrangement where you lease one or more private offices and have shared use of conference rooms, restrooms, a kitchen, copiers, and support staff. Coworking is a more open concept which usually provides a menu ranging from daily use of a desk to a dedicated desk to a dedicated private office. There are still shared conference rooms, restrooms and a kitchen, but little or no support staff. Coworking also will often have training opportunities, happy hours in the space and other events to create a sense of community among the people using the facility.

london-thehubExecutive suites are generally more “corporate” while coworking is more creative. Many executive suites are scrambling to compete with coworking. I was recently asked to participate in a survey by Regus, the 800-pound gorilla of the executive suite world, in which most of the questions focused on coworking. It was clear that they are considering ways to operate their suites to compete more directly with coworking. Coworking is usually a lot less expensive than executive suites.

Both options provide great flexibility for office space. Both offer plans from month-to-month to multi-year contracts. They both can also have you set up and working within a day to a few weeks depending on availability. Executive suites are usually the most expensive option offering flexibility, but can arrange for secretarial services, high-speed internet, fax, phones, copier, printer, receptionist, voice mail, and furniture rental, all in the matter of a days. In the case of coworking, most of these services are already in place waiting for you to just walk in and start working. You can even get a day pass to most coworking locations. Some of these services are included in the base rent and others cost extra. What’s included varies widely by location and operator so be sure to look at the “all in” price and not just the base rent.

2.      Sublease

When companies vacate their space prior to the lease expiration they will often offer it for sublease to reduce their remaining lease obligation.  The rent is usually discounted from the landlord’s asking rent depending on the amount of time left on the lease and whether any furniture is available.  For example, a sublease in a building where the landlord is asking $24.00 may go for $18.00 – $20.00.  The shorter the remaining lease term, the lower the price.

If you need a longer term than what is left on the lease, you can often negotiate a wrap lease with the landlord.  That is a direct deal which commences upon the expiration of the sublease.  It allows you to enjoy the lower cost of the sublease with the certainty that you can stay in the space for a longer term.

Subleasing can be risky, however.  If the prime tenant is not financially stable and the landlord doesn’t get the rent, you could be evicted even though you were paying the subrent to the prime tenant.  Subleases usually are leased in an as-is condition so any changes needed to the space may be your cost.  That’s negotiable, of course.  Finally, the landlord must approve the sublease before you move in.  If the business you are in does not mesh with the landlord’s desired tenant mix or another existing tenant would be your direct competitor, you may be denied.

3.      Space sharing

Sharing space with another firm can provide flexibility as well.  It’s a hybrid between an executive suite and a sublease.  Like an executive suite, you may share services like a kitchen, conference room, copier, etc.  This is technically a sublease so it comes with the same risks as mentioned above, but with one additional issue – getting along with and trusting your suite-mates.  You must trust the people in the other company and have compatible business styles.  You wouldn’t want to have a law firm share with a dot com or a credit restoration company share with a high-end financial planning firm.  All these companies are office users, but they use that space very differently.

4.      Direct Lease

Don’t overlook the opportunity to lease space directly from a landlord.  While they typically prefer a 3-5 year lease, I have seen them be very flexible when a prospective tenant explains the business reason behind the request.  For example, one of my clients took over an insurance company in receivership and the company leased space in a building owned by the previous business owner.  That owner was bitter about losing the company and didn’t want the company in his building any longer. So the company had to move quickly.  We negotiated with a few landlords and eventually negotiated a one-year lease which allowed the receiver to stabilize the business and find a buyer.  We even got a 5-year renewal option at a pre-determined rental rate so a buyer of the company had the option to stay and would know exactly what the lease terms would be.

5. Work from Home

Most companies overlook this option because they fear it will look bad to clients, investors and employees. They also fear that they won’t be able to maintain productivity if they aren’t looking over the shoulders of their employees. With all the technology available today, however, those concerns are far less significant than they were even 5 years ago. While it may not be ideal, it just might be the best option for a while especially for start-ups. Leasing space is a usually a large fixed cost and 2nd only to payroll and benefits. So growing companies, start-ups and new non-profits should think long and hard before committing to that expense.

In the final analysis, business owners and managers will always have to evaluate the trade-off between their desire for flexibility and the risks and costs of actually having it.

 

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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Estoppels: What are they? Why should you care?

Post By : admin 21 May 2015 Leave a comment

Lots of buildings are selling right now. It seems like every day there’s another announcement of a building in the Dallas Fort Worth area trading hands. As part of the sale or refinancing of an office or warehouse building, tenants will be asked by the landlord to sign a document known as an estoppel. In fact, most leases require a tenant to sign an Estoppel and failure to do so can result in a tenant being put in default.

What is an Estoppel?  In the simplest terms, an estoppel is a legal document where a tenant confirms the terms of the lease and makes representations to another party (building purchaser or lender) about the lease.  It has two goals. First, verify the terms of the lease (dates, rent, options, security deposit). Second, prevent the tenant from asserting claims related to the lease at a later time which are not consistent with the representations made in the estoppel.  As part of the due diligence process, a buyer or lender wants to know that the lease information the landlord gave them are, in fact, accurate and that there are no outstanding claims or defaults by either landlord or tenant.

The lease will typically specify that the tenant must sign the estoppel within a given number of days. This is necessary because estoppels are usually the last thing to be done before a sale or loan is closed so there isn’t a lot of time to get them done. Furthermore, most leases will state that if the tenant doesn’t sign the estoppel within the required time, the landlord can sign it on behalf of the tenant and the tenant may then be in default as well.

In negotiating the estoppel provision of a lease, the tenant should be sure to allow enough time to review the document and make comments to it, delete language allowing the landlord to sign the estoppel on the tenant’s behalf, negotiate the estoppel itself and attach it as an exhibit to the lease, and add language allowing the tenant to request an estoppel from the landlord and/or lender.

What should you do when you get an estoppel from your landlord? Most importantly, be careful because it could change the terms of your lease.  Estoppels are often not accurate because they are prepared for all tenants in the building at one time and by people usually not familiar with the building or tenants. Here are some things to keep in mind:

1. Note how much time you have for review.

2. Review the lease including amendments taking special note of the estoppel provision.

3. Verify that the names and addresses of all parties.

4. Verify that the original lease, amendments and other documents related to the lease are properly reference in the definition of “Lease” including the dates of those documents.

5. Confirm facts with personnel in the local office to which the lease applies to be sure there are no operational concerns with the building – HVAC, plumbing, electrical, etc.

6. Be sure that all of tenant’s options to renew, expand, terminate, etc. are noted.

7. Check to be sure of the status of the payment of rent and other charges to be sure the amounts in the estoppel are accurate.

8. Delete any language which adds new obligations on tenant that are not shown in the lease.

Remember, the estoppel is supposed to simply record the facts of the existing lease and not renegotiate it.

 

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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Does Your Real Estate Agent Have a Specialty? Does it Matter?

Post By : admin 23 April 2015 Leave a comment

Several years ago I was talking to a friend and mentioned that I had sold a house as a For Sale By Owner (FSBO). He was surprised that it was possible to buy or sell a house without a residential real estate agent. I was shocked that he didn’t know he could trade real estate without a broker – however ill-advised that might be.

Brokers can only negotiate the sale or purchase of a house, right? Aren’t they all the same since they have access to the MLS? Even though I’ve been in the real estate business for over 31 years now, these misconceptions surprise me. I haven’t had access to the MLS for all but 2 years of my career and I’ve almost always hired a residential agent when buying or selling the homes I’ve lived in or bought for investment.

Real estate brokerage has evolved in the last 30 years to become a highly specialized industry. Many brokers have essentially become real estate advisors providing financial analysis, demographic studies, market analysis, site selection research, business planning, portfolio analysis and management, marketing plans, and even construction management in some cases. This is more the case for commercial brokers, but residential brokers have also become specialized.

For example, residential agents usually specialize based on geography first and then by the price range of the house, type of house (single-family, high-rise condos, etc.), type of client (owner-occupant or investor, buyer or seller), and type of service (sales or property management). Many will be a combination of these specialties – seller agent for high-rise, luxury condos in the Uptown area of Dallas.

Commercial brokerage is far more specialized than residential. Agents will often specialize based on 4 factors. First, by geography. Dallas or Phoenix. Arlington or McKinney. Second, by product type. Office, industrial, retail, hospitality, or multifamily. Third, by client type. Seller or buyer. Landlord or tenant. And finally, fourth, by service provided. Investment sales, tenant rep, project leasing or property management.

These criteria can be cumulative, of course. So an agent may focus on McKinney, retail properties, for landlords, for lease. One broker I know only represents church properties, but does so throughout the country. Another only sells large office buildings on behalf of owners in Dallas. While yet another handles only corporate real estate services for corporate tenants in Collin, Dallas, Tarrant and Denton counties.

The degree of specialization is often a function of the size of the market. For example, a commercial broker in Amarillo may have to represent both owners and users of several product types because there isn’t enough business in any one specialty to make a living. In Chicago, on the other hand, it’s more likely that a broker would focus exclusively on owners or users with further specialization by product type.

Rarely do you see brokers cross the residential/commercial line though many of the national residential brokerage companies are trying to set up commercial divisions. You just can’t be all things to all people. If someone tries to do that, it’s a clear sign you shouldn’t hire him/her.

The good news is that owners and users of real estate have an incredible array of options when hiring a broker to represent their interests. The greater the specialization, the better the quality of service in most cases. It’s important to find an agent who specializes in the area, product type, client type and service that fits your assignment. The agent must be of impeccable integrity, be willing to listen to your needs, and have the time to focus on your assignment. Don’t be afraid to use one broker to help your company lease space, another to find a house to buy, and yet a third to handle your investment property. Ask for referrals even from a broker you have used.

Oh, and by the way, there is no law saying you have to use an agent at all.

Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. based in Plano, Texas – www.texastenantrep.com. You may contact him by email at bob@texastenantrep.com or by phone at 972-468-1946.

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