It’s more than just dollars per square foot

One of the goals I consistently try to tackle with clients when their lease is set to expire is uncovering ways to help them reduce real estate spend versus their last lease.  While getting a more aggressive deal than their previous lease is an obvious way to reduce costs, the other way to reduce spend is to reduce the amount of space being used.

When it comes to space planning, most brokers take the same approach that landlords take.  “Well the average metric is 250 square feet per person, and you have X number of people, so you need Y sized space.”  Then they’ll have an architect go through the exercise and show how the operation can fit into the space that’s available.

I recently worked on a project where the client really needed about 11,000 square feet.  One building under consideration had two spaces available, a 14,500 square foot unit and separate 10,500 square foot unit.  The landlord’s architect first laid out a plan to fit us in the larger space (obviously, since they work for the landlord) and then when we balked, showed us how we could very comfortably fit in the smaller unit.

I work through a basic space planning exercise with my clients at the start of every project to define how much space is needed.  That way, we can not only focus on properties that are appropriate, but also narrow down the search to buildings that can accommodate our size needs.  We want to create leverage based on total cost of occupancy, not just dollars per square foot.

Building Signage

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We are discussing signage options for a large client and I thought this might be a good opportunity to review the various options that are available to tenants as they consider a branding strategy as part of a lease renewal or relocation. While signage has been popular in certain geographies, it has only recently been embraced by landlords here in New Jersey.

There are a few different options when considering signage.

First is “facade” signage. The tenant has the option to display their company name and logo on the side of the building structure itself. The advantage is that the tenant has the opportunity to brand the building as the “ABC Corporation” building and raise awareness of their brand among people passing. This is typically reserved for the largest (or occasionally two largest) tenants in a building.

Second is “stanchion” signage. This is much less common, but can be equally effective at branding the building. Rather than placing the tenant’s name and logo on the side of the building, it is mounted on the ground at road level. Once again, reserved for the largest tenant in the building.

Third is monument signage, which usually includes a roster of all major tenants in the building. It’s basically a building directory at street level. There is little opportunity for brand differentiation among the tenants, but it is a way for smaller tenants to raise their visibility.

Typically, the first two options are done at the tenant’s expense, and must be removed by the tenant at the end of the lease term. Monument signage may be an amenity provided by the landlord, or the cost may be borne by the tenant.

Corporate Real Estate Jargon Simplified

file0001845073484Two separate articles about “jargon” got me thinking about all the terms that we brokers in the corporate real estate world toss around when speaking with clients. And frequently, I am reminded by the blank looks on my clients faces that they have no idea what we’re talking about.

In an effort to take some of the mystery out of the language of Corporate Real Estate, here are a few frequently heard terms and what they mean. There are many more than what’s on the list below, but these are a few of the common terms that immediately jumped to mind.

Blend & Extend: This is simply the landlord offering a lower rent to an existing tenant in exchange for an extension of the lease.

Plug & Play: Space that is “ready to go” and doesn’t require construction, installation of furniture, etc before the tenant can move into the space.

Loss Factor/Add-On Factor: The calculations differ slightly, but essentially it’s a way to calculate the difference between the square footage of the actual demised space (also called “Usable space“) and the rent stated in the lease. It takes into account common corridors, bathrooms, lobbies, etc.

Rentable Area: This is the actual rent written into the lease. It’s the demised premises plus the Loss Factor or Add-On factor.

Base Year: In a traditional lease (at least here in NJ) the total rent is comprised of both the net rent (which the landlord uses for items like debt service and profit) and the building operating expenses and taxes. The base year is the first year of the lease and the tenant is typically responsible for any proportionate increases in those expenses over the base year.

True-up Statement: the invoice that a landlord sends to each tenant at the end of the year outlining any additional expenses that have accrued during the course of the year.

TI Allowance: The money provided by the landlord to a tenant so the space can be reconfigured to accommodate the tenant’s use.

I work very hard to explain what I do and how I deliver services to my clients in plain English. I take pride in the fact that on a very basic level, my six year old daughter can explain what it is that I do.

Good reads – CRE news from the week of March 3

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The Star Ledger has an article about the February jobs report and related economic data, which increased from a five year low. “Employers added more workers than projected in February, indicating the U.S. economy is starting to bounce back from a weather-induced setback.” The overall economy has positive signals for the future, including hiring in the private sector an an uptick in consumer spending.

There were two articles this week about how traditional commercial space is being re-purposed as demand changes.  The New York Times has an article about how abandoned hospital buildings are being purchased by developers and turned into “Health Care Malls” and Inc. has an article about the increase in co-working spaces across the country.

Star Ledger: 175K jobs added but unemployment rate rises to 6.7 percent

NYTimes: Repurposing Closed Hospitals as For-Profit Medical Malls

Inc. Number of Coworking Spaces has Skyrocketed in the US

Looking Back – February 2013 economic reports at a glance

8-03-2Nationally, the economy seems to be stabilized at a slow growth rate. Construction spending was essentially flat and consumer confidence was down slightly. The Non-Manufacturing report on business continues to be positive, but shows signs of slowing since the previous month. The inclement winter weather in the northeast has had a negative impact on business. The corporate real estate market across the region has remained stable, if weak (aside from NYC, which continues to remain decoupled from the rest of the region.)

Fed Beige Book

Economic activity in the Second District (New York City area) declined modestly in the first few weeks of 2014, hampered by inclement weather. Contacts report some broadening of price pressures in the service sector, though retail prices remain mostly stable. Manufacturers in the District report that activity was stable whereas service-sector firms report some weakening, on balance. Labor market conditions have continued to improve gradually since the last report. General merchandise retailers report that sales were below plan and down sharply from a year earlier, due to unusually harsh weather in January and early February. New auto sales weakened noticeably in January but showed signs of rebounding in the first half of February. Tourism activity was mixed in January and early February, hampered by harsh weather but boosted by the Super Bowl. Housing markets were mixed, while commercial real estate markets firmed slightly. Finally, banks report some further weakening in loan demand from the household sector, little change in credit standards, and steady to declining delinquency rates.

Commercial real estate markets were stable to slightly stronger in early 2014…In New York City, office leasing activity was characterized as very brisk… Elsewhere around the District both office availability rates and rents were little changed in early 2014. In general, the market for prime (Class A) space has underperformed the rest of the office market. Industrial vacancy rates were mostly steady to down slightly across the District, while asking rents were little changed.

Department of Commerce Construction Spending

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during January 2014 was estimated at a seasonally adjusted annual rate of $943.1 billion, 0.1 percent (±1.5%)* above the revised December estimate of $941.9 billion. The January figure is 9.3 percent (±1.8%) above the January 2013 estimate of  $863.1 billion.

Conference Board Consumer Confidence Survey

The Conference Board Consumer Confidence Index® Declines Moderately

The Conference Board Consumer Confidence Index®, which had increased in January, fell moderately in February. The Index now stands at 78.1 (1985=100), down from 79.4 in January. The decline was driven by the Expectations Index, which dropped to 75.7 from 80.8. The Present Situation Index, by contrast, climbed from 77.3 to 81.7.

November 2013 Non-Manufacturing ISM Report On Business

Business Activity Index at 54.6%
New Orders Index at 51.3%
Employment Index at 47.5%

Economic activity in the non-manufacturing sector grew in February for the 49th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®. 

“The NMI® registered 51.6 percent in February, 2.4 percentage points lower than January’s reading of 54 percent. 

Good reads – CRE news from the week of February 23

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There were a number of stories discussing a bullish trend among real estate investors both here in New Jersey and around the country. Mack-Cali sold a number of their office properties to Keystone Property Group and Mountain Develoment also acquired a property in the Meadowlands. 

Bergen Record: Mack-Cali selling Fair Lawn, Montvale offices as part of $231 million portfolio

Costar: High Turnover in Office Ownership Confirms Growing Strength of Secondary Markets