Basic Steps – Beginning the lease negotiation

In this current economic cycle there are clear opportunities for consumers.  New, growing or even downsizing companies can find great value in reduced lease rates.  Simply put, this is a great time to lease office space.

The concern for owners/managers is that prospects not be overly aggressive in their negotiation.  The reality is that there can be significant cost factors that impact an owners ability to do make a deal.  This is why information is the key. Owners need to fully understand all the needs of any prospect.  They need to fully communicate their ability fulfill all of their potential customers needs.  It is reasonable for a prospective tenant to ask for the best deal they think they can get but it is prudent for owners to quickly determine whether they can meet the expectation and communicate it early in the leasing process.

For Tenants:

1. Make sure to understand the owner’s rate structure – Full Service, NNN (triple net), Modified Gross etc.
2. Understand the owner’s tenant improvement cost – is enough being allowed to accomplish your build out?
3. If there is an overage in tenant improvement cost, how will it be handled?  Will the owner amortize any overage or will you have to pay it up front?
4. Make sure to understand how CAM or expense pass through costs are calculated and how they are billed – annually, monthly quarterly?
5. Lastly, while you may have a certain price in mind, the owner has to calculate the tenant improvement costs, operating costs and leasing commissions in their rate offer.  If the price is higher than you desired/expected, it is reasonable to ask to review those costs.  There may be an area to compromise to achieve your rate expectation.

For Owners/Managers:

1. Be accommodating and up front with your prospect.  Whether they have representation by a broker or not, prospects seem to assume there is some “smoke and mirrors” in the information they receive.
2. Be willing to share your analysis of the deal with the prospect.
3. Tighten up tenant improvement costs.  Make sure your contractors are giving you the best possible pricing.
4. Know the bottom line you are willing to net in a deal and don’t be surprised if you get there in this market.
5. Last but not least – be creative.  There are lots of ways to structure a deal.  Know your prospect’s needs and drive all of your decisions toward that end.

In closing, my belief has always been service and dedication to your customers and prospects will win you deals more often than not.   There is no reason for anyone to get “hurt” in a deal.  Even though the market is tough today and prospects and/or their brokers may reach pretty deep, both sides are most likely developing a business relationship that is going to last a while…..well beyond the current market cycle.

Greg Herzner

Commercial Tenants Need Information

I have often said to colleagues in the commercial real estate profession and to a number of business networking groups that my potential future customers are wide and varied so I have no single medium with which to communicate with them.  Additionally, the customer I am looking for is in the business of “running their business” and not always considering the location or cost of their current office space.  In many cases, even if they are thinking about it, they may be in a lease obligation that has another year or more and therefore it is not a pressing issue.

Businesses that lease office space simply view that cost as a predetermined expense for a set period of time.  While this is true, it is prudent for any business to give themselves as much time as possible to consider all the options available to them.  Especially in the current market – there are great deals for commercial office space.  As any other cycle in the economy, it will come to an end eventually.  Now may be the time for businesses to lock in as great a rate as they can for a longer period of time.

There are a lot of resources but each business must choose what works for them.  Below are a few resources:

• Contact a local Commercial Brokerage – I.E. Colliers International – or someone you have worked with in the past
• Contact management of a building you are familiar with – perhaps a location in your existing geographical area
• Search web resources such as www.loopnet.com, www.costar.com , www.cityfeet.com, www.craigslist.com

Any business should be as specific as possible as to what they are searching for.  This will narrow the field of options.  Consider location, access to freeways, surrounding amenities and price.  Make sure to understand the pricing structure – Full Service, Modified Gross, Triple Net (NNN) – and how they are calculated.  The most common pricing structures will be discussed in separate post.

Finally, it is important to be realistic.  While the market is certainly a benefit to tenants right now, be mindful that owners & managers have many different costs associated with leasing you a space.  Many of those costs are fixed and unavoidable.  It is not reasonable to enter into a negotiation for a “premium” location or office build-out with the expectation of paying 50% of what it is worth.  Owners will negotiate in this market but each building and each location has its value below which it makes no sense to do the deal.

At Bell Plaza Professional Building in Sun City, AZ, we pride ourselves on going the extra mile to “get the deal done” for any prospect.  We get to our best price after conisdering all factors of the lease and we deliver what and when we say we will.  If you are a business professional seeking office space in the Northwest Valley, we are here to help.  If we can’t satisfy your needs here, I am sure we can help you find the resources you need to find your next office.

Greg Herzner