The site selection process has become far more technical than in the past, and this creates new challenges for companies trying to navigate the globe. As a result, finding the optimal location has become extremely challenging for companies expanding their headquarters, manufacturing plants, shared service centers, call centers, distribution centers, data centers and retail sites.
Your lease has been signed, you have a Tenant Improvement Allowance from the landlord and the landlord is building out your new space. Nothing left to worry about right? Well, maybe there is. Before you turn over your construction project to your landlord, there are several things you should address in your lease to ensure you get the most for your money.
Frequently, we are asked by our clients whether it is more beneficial to lease or own their real estate. It is a great question and one that companies should be asking themselves and their advisors, particularly if the new international accounting standards are implemented and leases become “on balance sheet” transactions. The answer, however, is not black and white and will vary based on the company and the type of real estate involved.
For the first time in more than a generation, businesses are contemplating and, in many cases, implementing, dramatic changes in their office design and space utilization. In some instances, these changes were instigated by permanent paradigm shifts in their business as a result of the Great Recession of 2008. For others, the changes reflect a desire to stay current and competitive, and otherwise ensure that their space supports the way their employees actually work today. Regardless of the motivations, more and more companies are looking to shake things up. However, with change often comes fear, confusion and stress for the project leaders and employees.
You are in the jungle and are suddenly bitten by a poisonous snake. You will not survive unless you receive an antidote within one hour. You panic until you are assured that a local businessman, Joe, has the antidote. When you ask Joe for help he asks you how much you are willing to pay for the remedy. You have $1,000 in your wallet and only 20 minutes left to act. How much will you pay Joe? My guess is you’ll fork over the $1,000 without much haggling especially if Joe knows what’s in your wallet. Joe has what you need, there are no other alternatives and, under the circumstances, the product is worth everything to you. In fact, you’d pay more if you had it.
There are scores of “tenant only” brokerage firms around the country and hundreds of brokers who have dedicated their careers to representing only tenants. Thousands of companies have chosen to work with these firms and brokers because they believe there is an irreconcilable conflict of interest when brokers attempt to represent both landlords and tenants in the same market.
A very wise mentor of mine once told me that when a seemingly smart and rational person takes a seemingly irrational position in a negotiation, it can be explained in one of two ways: either the person is not as smart and rational as you thought they were or, more likely, they have a hidden agenda or knowledge of certain facts which, if revealed to you, would reveal the rationality of their position.
When you look at leasing comparables for particular building, one consistent pattern invariably exists – renewing tenants don’t achieve the same deal that new tenants receive. Tenants often believe that because they are a good, rent-paying tenant that their landlord surely wants to keep them on favorable terms. Many tenants don’t realize that landlords view renewing tenants as captive, and already have factored a high renewal probability on favorable terms for the landlord into their pro-formas. Tenants can avoid this discrepancy by taking steps to make their landlord compete to keep their tenancy.
Rate. Landlords focus tenants on the rate, and as a result, the rate is the most common term tenants and their business advisers focus on when discussing their leases with each other. Tenants need to go beyond landlord marketing tactics to understand the other 24,999 words in a lease that can cost them money.