Confessions of a Recovering Landlord: Recent Episodes
Jan Gibbons
Accommodating clients as they renew or relocate is today's podcast topic. Several inventive solutions have been used recently in our brokerage for solving clients dilemmas with regard to renewing in place or relocating!
- Long term costs
- Customization
- Equity
- Appreciation
- Interest rates
- Flexibility
- Accounting treatment
- Who represents whom?
- Always get your disclosure notice
- Written rep agreement
- Work with an exclusive agent
- Let your advisor speak for you
Several recent topics in the news discussed:
- Smaller leases shape office demand in the DFW area
- Commercial property debt due to mature in 2024 totals $929B, up 40% from earlier estimates
- Hopes of lower interest rates fade as inflation comes in higher than expected
- As Ozempic slims waistlines, it's beefy up on CRE
- Downtown Dallas office tower sells for $8M at auction
- Decline in office occupancy
- Financial strain on real estate
- Building obsolescence and value decline
- Impact on real estate companies and banks
- Shift in real estate investment and development
- Long-term implications for cities
- Potential for transformation
- Lower interest rates
- CRE loan expirations still plague industry
- Continued distress for office
- WeWork rejects more leases
- Conversions no panacea to office distress
- Insurance costs ballooning
- NAR under fire
How is the game, Jenga like commercial buildings?
Landlords want stability while tenants want flexibility - what to do?
Tenants should negotiate for all their rights prior to signing the lease such as early termination, expansion rights, right of first refusal, renewal options, etc.
Landlords face risks such as financial, economic, tenant failure, sublease competition, etc.
Chapter 7, entitled "Ruled by the Ruler" of our book, Confessions of a Recovering Landlord, is all about measurement of commercial spaces. Feel free to email me at Jan@TexasTenantRep.com and I'll email this chapter of the book to you for free.
What really happens when a bunch of brokers gets together for a couple of days away from the office?? Learn how Bob navigated the treacherous waters of the most recent SIOR convention in Chicago!
What are critical dates in a commercial lease. How can they trip up a tenant? Who is responsible for tracking them? Enquiring minds want to know!
What everyone wants to know but is afraid to ask. Listen while Bob and Jan clear up any misconceptions!
Should you be underwriting your landlord as closely as they do you? Stay tuned for all the scoop!
Wait, don't turn that dial, today while we do cover some basic terms, we've got lots of examples of how it all can go so wrong.....
- Over time tenants demand different features or amenities in buildings
- For example, office buildings didn't need the internet in 1980, but they must have fitness centers, conference centers and pickleball courts in 2023
- Covid brought heightened awareness of cleaning and air filtering
- Industrial - dock high or not, clear height, number of docks, outdoor storage, etc
- Big demand for industrial?? More electricity.
- Shift towards decarbonization in commercial operations
- Federal and state incentives and regulations driving electric vehicle production
- Reconfiguring parking areas and planning for increased power capacity
- CA regulation of not just trucks, but also warehouses as an end-run on trucks
- Impact of Inflation Reduction Act of 2022
- Difficulties in acquiring additional power from public utilities
- Implementing solar power on industrial rooftops
- Focus on emissions and tenant demands
Best Single Investment? Listen to Bob and Jan discuss all things regarding the current state of the office sector - nation wide and here at home (DFW)!
- Buying distressed properties
- Bank loans
- CBD areas
- Office pricing
- Subleases
- Vacancies
- Downsizing
Today Bob and Jan discuss the pitfalls of not being aware of the clauses in your lease - especially operating expenses, maintenance and insurance. Listen and protect yourself!
Confessions of a Recovering Landlord has now been around for 100 episodes! Breaking our hands patting ourselves on the back...
To celebrate this milestone we talk about collabs today. Brand new collaborations we are making with a good number of business but the primary one we discuss today is residential real estate agencies. From commission checks to continuing education listen and find out how it's all going down.
- Challenges for property owners
- Lending guidelines
- Mortgages expire
- Higher interest rates
- Decreasing property values
- Refinance, foreclose
- DFW metroplex
- CMBS
- Asset type
- Market/submarket
- Loan seasoning
- Industrial
- Office
- Vulture funds
How do the failures of banks like Silicon Valley Bank and Signature Bank affect the commercial real estate market, and what impact could this have on tenants and their representatives? Listen as Jan & Bob interview Ben Parkey, Executive Vice President/Market President at Texas Security Bank. Ben helps to answer many questions we all have on our minds after the recent banking debacles of the last couple of weeks.
Industrial statistics shared regarding occupancy, absorption, construction, asking rental rate and much more.
Discussed upcoming office loan maturities - to the tune of $40.47 billion by the end of 2024. Scary!
Since hybrid work is here to stay how will it be successfully implemented and what does that mean for commercial real estate?
Enforcement of hybrid work policies?
Flex leasing - what is it?
Space as a Service - the new SAS!
Industrial subleases up 46%
And much more....
After all this time, in additional to his other accolades, we now get to call Bob, (drum roll, please) a published author. Bob has been working on Confessions of a Recovering Landlord for over a decade and it's finally in print! Jan interviews him on all things near and small including...
- Where did the title of the book come from?
- What was the inspiration behind the book?
- Have any landlords reached out offering money for the book NOT to be published :)?
- What was Bob's favorite part of the book to write and his least favorite?
- What is the confession Friend or Foe about?
- How long did the project actually take and what made you stay with it?
- What was learned writing this book?
- Can the readers expect volume 2 any time soon??
Crystal ball time again! Listen as Jan asks Bob for his 2023 predictions, like....
- Will the Fed continue to attempt to slow inflation by raising interest rates?
- How will the above prediction affect construction, supply chain management, rental rates?
- How about return to work? Will it happen and when?
- With the sublease market booming in availability, when, if ever, will office landlords get real?
REATA has many cool features (sounds like I'm selling a car, doesn't it) but one of our favorites is our REATA LeaseTrac System. LeaseTrac is our system of walking through our clients' lease term with them and it includes:
- Just the Facts - Lease Brief
- Safety Check - LES Quarterly Reviews
- Lease Doctor on-call - Any questions/anytime
- Expense Hawk - Review clients expense reconciliations from their landlords
- Market Manager - keep clients informed of all market conditions to help them forecast costs/evaluate moves/or add a new location
Why is it important for a tenant to use a tenant rep brtoker?
Why is it important for a tenant to use the same tenant rep broker each time?
- What happens to the tenants of an office building when the lender forecloses?
- Is the procedure different if the building is taken back by deed-in-lieu-of-foreclosure?
- How do tenants protect themselves from eviction?
- What if the lender refuses to sign the SNDA?
- What is an SNDA and how does it work?
Bob recently received the designation SIOR - Society of Industrial and Office Realtors and he tells us all about it including:
- What was the driving force behind becoming an SIOR?
- What was required to become an SIOR?
- What will be accomplished by having become an SIOR?
- What was the recent national conference held here in Dallas like?
- How long has the organization SIOR been around and how did it come into existence?
In today's episode we cover a recent New York Times, The Daily Podcast which uncovered a lot of information regarding workplace surveillance primarily in the work from home model....but also in the office!
- VP of business software company in Texas discovers she's being photographed every 10 minutes
- Paid according to employer's definition of "busy" - as provided by keyboard surveillance as well as pictures
- 8 of the 10 largest employers are utilizing software for surveillance
- In place prior to the pandemic but greatly ramped up after
- Possible justification? Working two jobs simultaneously, porn, video gaming, etc.
- Some employees prefer the system
- New industry created to fake out the system
- Mouse jiggler??
Bob & Jan had the pleasure of interviewing Tim Slaughter with Caddo Office Reimagined to discuss the world of coworking.
- How did Caddo decide to focus on coworking?
- How is their business model different?
- What kind of members are attracted to Caddo?
- What was learned by being a traditional landlord that helped with the coworking venture now?
- How did Caddo fare during downturns?
- Mission + Motto = Over the next five years, Caddo aims to build the most successful neighborhood office brand in Texas.
In today's episode Bob & Jan discuss what CEOs and business owners highest rated desires are for new space for their companies to occupy and they include:
- Space image is consistent with image and values the company wants project to clients, investors and employees
- Health consciousness
- Scale of opulence vs frugality
- Ease of access
- Attract and retain employees
- Location relative to clients, employees and operations
- Encourage and support productivity
- Consistent with value proposition of the company
- Civic responsibility - in a certain city, opportunity zone, congressional district, etc
Buildings are more in demand than ever. Short supply, big demand and where are prices to go. That's right....up! How does that affect the taxes of said building and how are tenant's pro rata share of expenses treated? Listen to Bob & Jan discuss all things CRE buildings, prices, taxes, and expenses.
- Cost of buildings
- Class of buildings
- Taxes
- How are they calculated
- Appraisal districts
- Tenant expenses
- Protecting your client
When to begin renewal/relocation discussions with a client? Several factors to consider:
- Is the organization changing rapidly and not sure how much space they will need?
- Company is unsure of the right location for their client base and employees.
- There is a chance the organization will be acquired or might be acquiring themselves.
- Company is confident the economy will experience a downturn bringing lower rental rates OR an upturn bringing higher rates.
- Client has a renewal option which must be exercised by a certain date.
- Missing a renewal option date could allow the landlord to lease the space out to another tenant, forcing client to move whether they intended to or not.
- The client wants to shrink the size of their space and are willing to sign a longer term lease to accomplish that.
- Client might consider buying a building instead of leasing.
- Client is doing a 5-year or longer forecast and wants to know what to assume for future occupancy costs.
- They want to consider changing their office culture in order to attract the right employees.
- Occupancy costs are generally the second highest expense behind payroll/benefits and should be managed proactively.
- The average project from the start of the search to the signature on the lease is six months. Purchases generally take even longer.
- If the tenant decides they are better off relocating and the new location requires interior construction, that could add two to six months to the project timeline.
Why use a tenant rep broker?
- A tenant rep broker will almost always save you money (whether through face rate rental price, expenses, tenant improvements, etc).
- The rental rate already includes a fee for the tenant's agent which the landlord pays. If the tenant doesn't use an advisor, it's like paying for a service without getting the benefit.
- Using an advisor provides professional distance from the negotiation for the CEO. This allows all items to be considered collectively instead of sequentially.
- An advisor negotiates many leases a year and is an expert on industry trends, terms and practices. That knowledge is used on behalf of the tenant and levels the playing field with the landlord.
- An advisor is a fiduciary to the tenant and must put the tenant's interests above his own. Loyalty is critical.
- The advisor saves the CEO time that he would otherwise have to invest himself in dealing with every aspect of the search (if there is one) and negotiations.
- JLL can't collect an $800K commission due to improper disclosure of dual representation
- D.C. Brokerage Act
- Judge Florence Pan
- Disclosure must be large and in charge!
- Spaces
- Regus
- S.C. Herman
- Amazon and the supply chain
- Older offices
- High-cost cities
- Migration patterns
- High-cost markets
- Sun Belt
- Remote work
- Class-A Office buildings
- Class-B Office buildings
- Class-C Office Buildings
- Deed in lieu of foreclosure
- Traditional gateway cities
- Texas Triangle - Dallas, Houston & Austin
- Amenity rich buildings
- Luring employees back to the office
- Location, location, amenities
- Virgin Hyperloop
- Freight transportation
- Battery-powered pods
- ELF?
- Fed raised interest rates today a quarter point.
- How does that affect CRE?
- How will it affect the general economy?
- How does this affect the space companies occupy for their businesses?
- Will demand for space slow?
- Will rental rates come down?
- Major brokerages pulling out of Russia - CBRE, Knight Frank, Savills
- Major oil companies pulling out of Russia - BP, Shell, Exxon Mobile
- Tech firms suspend sales - Apple, Dell
- Shipping companies pulling out of Russia - UPS, FedEx, Maersk
- Impact to data centers in Russia - Oracle has stopped providing cloud services
- Russian cloud provider Yandex near bankruptcy after being delisted on Nasdaq
- Cogent Communications terminating service in Russia
- How much space do you need for your office?
- Who do you need on your team in order to decide how much space you need?
- Are rents up or down?
- Landlords have representation, do you?
- Is subleased space the way to go? How much can you save by taking sublease space?
- Why are some companies expanding and others retracting?
- Are employers planning on employees returning to the office?
- Flex space and how is it being used?
- Where is the growth occurring?
Bob & Jan get to grill their new friend, David George, regarding what trends he is seeing regarding employees returning to the office and how those decisions get made.
- What purpose should the office serve?
- What's the narrative companies need to develop to identify benefits to both employees and the business of the new way of working - recognizing that there are constraints for both?
- What does the change journey look like?
- Will the pandemic cause a lasting impact on real estate needs and the design of the office/workplace?
Bob weighs in with his opinions on the following predictions for 2022:
- The U.S. won't see tangible changes to the supply chain this year, but companies will be better equipped to handle delays and shortages.
- Industrial developers will target large office campuses as new sources of industrial development opportunities.
- Hotels will capture record sales prices in 2022.
- The omicron variant, and others that may follow, will prompt employers to delay return-to-office plans and maintain flexibility with employees.
- The infrastructure bill will not have a meaningful impact on the CRE industry in 2022.
- The passing of social spending bills, like Build Back Better, may pose headwinds to CRE demand.
- Rising inflation will compound rising construction costs, resulting in a slowdown or cancellation of some developments.
- Office landlords will invest in hospitality-focused office renovations to lure employees back to the office.
- As residents continue to work from home in 2022, property managers will invest more heavily in technology, specifically in amenity spaces.
- CRE experts were mostly correct for the 2021 predictions but they definitely whiffed on some.
- Trends that popped up in 2021 that were surprising.
- High-paying ($80k+) jobs going remote? Hold on to your hat.
- How will small towns adapt to growing remote work force?
- When workers go back to the office, what will they care about?
- Industrial tenants are most likely to incur huge rent hikes when renewing their expiring leases - an average of 25%
- Elevator usage tells us info about Omnicron and the workplace - Kone elevator
- Ground leases becoming a popular finance tool and big players are taking advantage
- Office gaining momentum for big return in 2022, NAIOP predicts
- Pandemic subleasing trend declines as available square footage falls in Q3
- New office demand retreated in September (but doesn't it always?)
- WeWork adapting to new hybrid office environs with two levels: WeWork On Demand and WeWork All Access
- Industrial building off the charts
- Supply chain is getting better....albeit slowly
- No, Jan, was not drunk during the taping of this show!
- Where was the spoke moved from the hub-and-spoke model?
- Who let the dogs out....in the office?
- Companies are NOT establishing hybrid workplans
- Jobs report
- Workers quitting at record numbers
- Class AAA buildings being built
- Sublease markets are contracting...but barely
- Workers are back to the office at a higher rate than since the pandemic began
- What is shadow inflation
- What will take Libor's place
- Permitting in the City of Dallas...what a headache
- NAIOP sentiment index rising
- Pandemic highlighted just how important e-commerce is
- Top 500 retailers have generated a 45.3% increase in 2020 from previous year
- Huge need for last mile logistics in commercial real estate
- Property type has to center around supply chain
- Golden Triangle - Great Lakes → Texas → Florida
- Infrastructure bill in congress
- Food delivery (ghost kitchens)
- Netflix (film studios)
- Data centers
- JLL Short Stays = AirBNB for CRE?
- Two large companies (PwC & Glaxo/Smith/Kline) reducing their footprints - sizably
- WeWork update
- What happens to office buildings
- Employer survey
- CBRE new measure looking for signs of life
- Market conditions update
- Landlords slow to provide proposals
- Dallas-Fort Worth office leasing approaching a rebound?
- Chicago law firm drastically reduces it's footprint upon renewal.
- What Kastle System shows is actually happening in offices.
- Logistics system - help!
I recently read an article in the online magazine D CRE and it was commenting about the supposition that 30% of workers will quit their current job and either go elsewhere or leave their industries all together. I've actually heard a higher figure than that. Microsoft had a survey stating that 41% of the global workforce was contemplating a resignation. In April, according to that same article, 4 million US workers quit their jobs.
How can employers retain their employees? According to the Worth.com article leaders need to focus on employee experience, heightened communication, and relationship leadership where bonds are created beyond just the work being done and employee's place in the hierarchy.
The D CRE article had some suggested solutions:
- Recommended employees stay put.
- Stay in your geographic market (this helps to build your brand and relationships) - this can build your network net worth.
- Stay in your chosen career field.
- Stay with your current employer.
- Stay in your profession by studying it even further.
- Stay calm and focused on the 3 F 's - faith, family and friends.
Should you stalk your employees? Provocative question, right? In today's episode of the podcast we discuss why that is actually important to the overall health of the company.
What we recommend is that clients plot the home addresses of every employee on a map when considering where to put the office. And just to be clear, I'm not suggesting we invade anyone's privacy. We always ask the employers to just forward addresses - no names. We're just concerned with location - not surveilling anyone!
Smart, but realistically don't we just care about where the CEO lives? OK, now, that's old school thinking, but remarkably accurate for a long time. It still is in many cases. True, but more than ever, employers are:
- Paying attention to the needs of employees.
- Wooing them back to the office.
- Minimizing employee commutes - make them more bearable, especially with WFH.
- Sometimes, the results of the mapping are surprising. It can be eye opening.
Mapping can also show a business owner if they should open a second office or provide a coworking membership if a lot of employees are clustered together.
Also, to be considered, where do the company's clients office/live? And, who wins? The employees or the customers?
The FDA just gave full approval of the Pfizer vaccine. Many large companies have announced they will require their employees to be vaccinated to return to the office. Too Big Brother? Or a good solution to avoid an incubator for more infections?
Employers' view point would probably be - it's my company, it's my space, and my responsibility to ensure (as best I can) the safety and health of all my employees. Requiring them to be vaccinated/masked/tested is my choice. Employers' rights are as important as employees' rights. Just where does, however, one start and one end? And how do you balance them? Taking a hard line could mean you end up with no employees. In our company, we haven't made any absolute unilateral demands on our team members. As the pandemic has progressed, we went to Zoom meetings, then back to in-person, back to Zoom when someone's family member got covid, and then back to in-person.
Now, flip side. What about those that aren't in good health, took the vaccine as early as they could, but have to have that job? Should they be required to come to work if their cubemate isn't taking the same precautions? What if they're caring for an elderly parent at home and don't want to bring the virus home?
All extremely valid points, but get back to the original premise which is - do employers have the right to force their employees to get vaccinated? I think it is important for an employer to provide as safe an environment for their employees as possible. I mean, look at what landlords are currently going through to ensure a safe/clean environment for their tenants.
Personally, I don't think you can mandate this across the board. There are going to be exceptions to every rule and I think each company will have to decide this for themselves.
I saw a headline this week that the DFW office market is trending up. Again? We just had this conversation a few weeks ago. How is it different this time? The article was from D Magazine's CRE edition written by J. J. Leonard and he did a good job of slicing and dicing the data to reach that conclusion. I'm not sure, however, the numbers from CoStar would agree. First, he states that suburban markets are dominated by small and medium-sized businesses whereas downtown normally appeals to larger, national tenants. He correctly points out that national companies typically make policy that applies everywhere in the country and they are slow to change. Small and local companies can be more nimble in their decisions.
So getting back to local control (smaller tenants) appears to be what is driving the deal activity mentioned in the article. It says that absorption was positive for the first time in four quarters at the end of the 2nd quarter. CoStar says we've had 5 quarters of negative absorption.
To reach his conclusion, J. J. acknowledged that his numbers were fueled by Charles Schwab moving into its million SF campus. He also says that numbers all over the metroplex were trending positive. He says that if you remove JC Penney's bankruptcy-driven move-out of its 1.2 million-square-foot campus in Plano in the 1st quarter, absorption would be only slightly down, and Class A absorption would be over 600,000 square feet positive. But you can't do that, of course. If you keep Schwab in the mix, you have to do the same for Penney's. The article says the 2nd half of 2021 will have positive absorption and in that regard, CoStar agrees. In fact, CoStar is predicting that 2021 will end the year with 2.7 million SF of positive absorption and remain positive into the future. I'm hopeful that this will be true but with we've been over the last year and a half and with the current conditions of the delta variant, I'm skeptical.
Also, the article states that rental rates have increased again and now average $29.44. I'm not seeing that yet. CoStar says that overall rates fell 0.2% which means they are basically flat and they average $27.76. But average rates really don't tell the story. The truth is in the details. For example, I was doing some research on an area of Tarrant County the other day. This was for office condos. I found rental rates that varied from $17.50 to $28.00 for what looked like comparable buildings. An average rate of $22.75 would be very misleading because not a single building was quoting $22.75.
The tenant's market may be coming to an end.
No one ever got fired for buying IBM. That was the saying to justify buying PCs from IBM in the late 1980s. What does this have to do with negotiating office and warehouse leases? People that work for large corporations who make decisions about what consultant to hire or product to buy for sure thinks about the perceived risk of hiring or buying the wrong one. If it goes bad for some reason, can they be criticized for using the wrong one? What's the safe decision?
And, we definitely see this play out in commercial real estate. All the big shops have excellent CRE professionals and we do business with a lot of them. But there are a few reasons why I think a boutique firm is a better way to go.
- Boutiques aren't full service. Lots of people talk about how they are full service, as if that's a good thing. But it's not-why? Mainly because of conflicts of interest. When I was an asset manager and we listed a building for sale, the details of our leases (we called it the rent roll) mysteriously ended up in the hands of the tenant rep group of the listing company. And when I was outsourcing our leasing to the asset services divisions, I was told that they would put a tenant rep on my account because they know deals coming down the pike before anyone else and I'd get a crack at them before other landlords.
- The experience of the person actually handling the assignments. Let's say a company with 25 locations in the US hired one of the biggies. They will be assigned an account manager to be their primary contact. That person works with all the agents in the various cities to get the deal done. But the individuals in each of those cities are often junior agents who aren't that experienced. In a boutique shop, all the work will be handled by a highly experienced agent. If it's in the client's best interest, they will partner with the best person in the local market to help with the transaction - they aren't required to use someone in the same company.
- Building relationships is critical and that's often hard in a big shop.
Most of the independent brokers I know once worked for one of the biggies. I often ask them if they miss it. The answers is always no. I also ask if there is anything that the big companies did for their clients that an independent can't do. Every one has said no. I've mentioned before on this podcast that after 9 years on my own as a corporate real estate advisor I joined a regional firm because I had always wondered about that question - what are they doing for their clients that I'm not doing. I quickly learned the answer was nothing.
So, if you want to know your agent has no conflicts of interest and is highly experienced use an independent brokerage company.
It's time for another list of predictions that we can tear apart. Today, the top 10 commercial real estate predictions for 2021-even though we're half-way through the year! Let's see just how accurate these really have been so far.
I love tearing into these crystal ball projections to see what I agree with or not. A law firm in California, Allen Matkins, conducts an annual forecast event and publishes the top trends for the coming year according to CRE "experts". The list we'll discuss today was created in November 2020 - 8 to 9 months ago. How much do you think will look brilliant in hindsight versus what will look really stupid. By the way, shout out to The Tenant Advocate, Benjamin Osgood, for posting about this on Twitter. Here's our springboard list for discussion:
- Rapid But Uneven Market Recovery
- COVID-19 Will Bring a Widespread Expansion of Office Touchless Technology
- Employee Office Culture Will Return
- The Office of the Future Will Prioritize Collaboration
- Global Capital is Still Looking to Invest in the US
- COVID-19 is Accelerating Technology Trends That Were Already Occurring
- Leasing Transactions Continue to be Extremely Slow
- Renewals Will Dominate the Leasing Market for the Next Year
- Construction is Generally Moving Forward on Schedule
- Permitting Challenges are Widespread
One of the most desired characteristics in today's leasing world is flexibility. In today's podcast we discuss why flexibility is so important and why landlords charge extra for it.
Some companies are growing rapidly while others are shrinking-this is what makes flexibility in their leases so appealing. Companies have plans and may be waiting on that one big contract to be signed when, poof, it all vanishes overnight. In other cases, the new contract takes them by surprise and they have a hard time managing the growth. Flexibility, in some cases, is the difference between staying in business and failure. Much of the flexibility needed right now though doesn't have anything to do with whether the underlying business is going well or not. It's a function of working from home or other places, allowing people to live anywhere they like, hybrid working arrangements and employee reluctance to return to the office.
So, some of the ways tenants can achieve the ever-illusive flexibility:
- Lease more space than is needed initially and sublet it out until the company needs the space.
- Lease what is needed now and have a right to expand to a future date.
- Buy a membership in a coworking space (extreme flexibility, but most expensive option).
- Buy your own building and sublease out what's not needed. Non-renew tenants when you need the additional space.
- Secure a very short-term lease (again, usually a more expensive option).
- Hub and spoke model where the hub is an office but spokes are employees WFH or coworking.
I love the idea of touring buildings virtually - it can narrow the list quickly and people from all over the world can be a part of it! I recently read a BisNow article that cast doubts about whether virtual touring would still be necessary after Covid. They said it will be a mixed bag. The people they interviewed making the technology for virtual tours think it's here to stay, of course. Those companies saw huge adoption and growth in 2020. So they think it's here to stay. And, in some ways, I don't disagree. It seems like a new bar has been set. It used to be that still photos and floor plans were all that was expected. Now, a 3D floor plan allowing you to walk through the space on any computer in the world is the expectation. If a client can narrow the list of properties that they might have previously toured from 20 to 5, that saves money. Furthermore, they might only have local managers tour the properties in person avoiding a few people flying from the corporate office. That saves, airfare, hotels, rental cars and food. That can really add up.
That said, there is no substitute for being there in person. And the cost is a rounding error. But the virtual tour might be good enough for out-of-towners. I think it will depend on the proximity of the decision makers and their priorities at the time.
Virtual touring has been used in residential and multi-family for years now and those people are often local. I read that 85% of home buyers search houses online and tour them virtually before ever touring one in person. I do see the use of virtual tours continuing and growing in commercial, but never to the extend it's used in residential. We used it here at REATA over the last year. When a client decided to sublease their space, we created the 3D or 360-degree floor plan and tour. We also had one client from the coast do a virtual tour where my smart phone was on a gimbal and the clients were watching through a Zoom connection. It was also nice because it was recorded so people who missed the tour could watch it later. The downside to that, however, is that we never had all the decision makers in one place at one time focused on the decision. It created a disjointed process that took longer than it might have had everyone been together in person.
So, while a virtual tour can definitely help to eliminate major issues, it definitely doesn't encompass the feel. I've looked at homes online before that once I got to the actual premises it showed very differently. To quote the article, "I've definitely seen a lot of these videos, and basically, the only thing it helps me with is OK, you know, I can tell whether the space is a hellhole, but that's about it". And I don't know that I disagree. A good photographer can make anything look good. I can't imagine having a client make a final decision using only virtual tours without having someone tour it and shoot it with their own equipment. That said, virtual still serves a purpose. While touring in person a client can whip out their phone and take pics/or videos of things they liked or didn't to job their memories later.
New technology developed during Covid specifically allows for this-we have been testing an app that replaces tour books and allows all participants to take photos and video and upload them to a common place on the app for that building. Everyone can then see what everyone else is thinking. This technology was developed in warp speed during Covid. It's definitely not market ready but it shows where things are headed and is further confirmation that virtual touring will be one tool that is here to stay.
10 reasons why you should relocate your business to DFW? Seriously?? I'm limited to 10? Come be our neighbors...you'll like it!
Let's dive right in:
- Central Time Zone - with the advent of constant shipping/traveling/gotta be there now being centrally located in the country is highly desirable. Distribution of good is faster and cheaper and travel is more convenient.
- DFW Airport - having a huge, international airport that flies practically anywhere is invaluable to business owners. You can fly anywhere in North and Central America within about 3 hours or less. It's the 4th busiest airport in the world based on passenger travel behind 2 in China and Atlanta. It's interesting, of the top 15 airports in the world, 9 are in China, 1 in Japan and 5 in the US - Atlanta, DFW, Denver and LAX. A great airport like that is a huge economic engine for the region.
- Low Taxes (corporate & individual) - Texas has always prided itself on having no income tax. That said, we do have a higher property tax rate, but the net is still heavily advantaged to us. Corporate taxes incentives are normally given away like candy whenever a big company states they wish to move to a city in Texas. If you look at the total tax burden paid by individuals in the US, guess which state is #1 (and not in a good way) - NY. Hawaii, Vermont, Maine and Connecticut or Minnesota (depending on the source) round out the top 5. Texas is #30 according to Wallethub.com and #47 according to TaxFoundation.org. Corporate taxes are a little different. South Dakota & Wyoming tie for 1st, then Missouri, North Carolina and South Carolina are the top 5 according to Taxfoundation.org. Texas is #47.
- Low Cost of Living - housing, food, taxes (again-see above), transportation-just across the board we rate better than most big areas. NYC is the worst in the US followed by SF, Anchorage, Honolulu and Brooklyn. Dallas is #52 according to Numbeo.com
- Labor Force - we've always had a wealth of blue collar workers, financial and oil and gas workers etc. While Austin is now called "Silicon Hills" for the tech companies it's attracting, DFW is one of the top cities in terms of high-quality tech worker availability.
- Weather - normally, Texas is a more moderate climate than other locales, but of late, it's hard to predict the weather anywhere! 120 degrees in Seattle recently? All said, we still experience more sunshine and less rain, sleet and snow than many metropolitan areas. This translate to more reliable transportation of people and goods and a smoother overall economy.
- Education - while I know you are referencing our big universities and their panoply of disciplines, I also would point out that there are lots of other educational venues locally from tech to real estate to hospitality to culinary.
- Cultural Opportunities - DFW area is the home to many one-of-a-kind culture venues from the Kimball and Amon Carter Museums in Fort Worth to the Nasher Sculpture Center in Downtown Dallas. There are far too many to name.
- Quality of Life - DFW is highly liveable with lots of things to do and the weather to allow you to do it.
- Pro-Business Attitude of People and Governments - one of the best reasons to live here are people's attitudes. Government and schools understand that businesses and the jobs they create are what attracts people to DFW. People move here with no jobs just because of the reputation.
You've heard a ton of talk, including on this podcast, about WFH, returning to work or a hybrid of the two. But before you use the great reset of 2020 as the excuse to pull the trigger on shedding some overhead costs (think office space), there are 8 things you might want to consider first.
OK, first things first, we are going back to the office, correct? For the most part, I think yes, the majority of people will go back. Will it look different? Yes, for sure. Some companies will go back in full, others will expand, others will do the hybrid thing and others will reduce or go totally remote.
The first thing to be considered before you pull the trigger would be - what do you want to be when you grow up? What are your long term goals and objectives for your company? We always start with this because it drives every other decision. So big picture - what do you envision for your company in the future, 3, 5 or 10 years? Will you be growing or shrinking, getting into new businesses, growing through acquisition or planning to be acquired? What customers are you targeting, where are they located and how do you plan to reach them? There will need to be a lot of communication among management, ownership, customers and even employees upfront to accomplish all this.
The second thing to consider would be the workforce plan. What's the impact of the big picture plan on headcount? What's the change to the numbers, where will those people be located, do they need an office, a cube, or just an internet connection? If they need an office or cube, where does it need to be and does it need to be dedicated to that person full-time or can it be shared? How many days a week will people come to the office? Companies will also need to take into account the collaboration space and meeting space. If they are potentially changing the way they use their office space, they need to rethink what the office is even for. There is a mind-shift that will be needed. That mind-shift changes the way the business is operated which then changes the way space is used. All that should be taken into account when determining what the office will look like and who needs what resources and accommodations.
The third item would be to generate a space program. This space plan allows you to translate the workforce plan into an office size plan. It shows you the approximate size of space needed in each location. This allows your tenant rep to determine what options are available and provide estimates of the cost.
The fourth item to consider would be lawyers and human resources. Make sure your plan can be properly and legally implemented. You may need to re-write employees handbooks and policies.
Item number five would be to create a plan for the employee experience. Now more than ever, employers want to make a strong case for why employees should come back to the office. Make their workforce want to come back to the office. This includes the office space itself, a clear hybrid plan for splitting time between home and office, amenities (in the space, the building and the area), and the safety of being in the office.
Number six is communication. More than every, stay in touch with employees, understand their thoughts, feelings, fears and goals.
Number seven is to make sure your technology infrastructure is set up for the coming changes.
Number eight is when to go and speak with your landlord....this is a really important point and there isn't a single right answer, honestly. It really depends on what the plan is and how much time is left on the current lease.
Just read a jobs report in the NYT and the headline made me feel good and then the article left me confused. So, here's the headline: U.S. Jobs Report for June Shows a Gain of 850,000, Better Than Expected. That's great news, right? But, as I've heard before.....read on. While they do state that 850,000 more people were hired, it also states unemployment rose to 5.9%. Reuters states that "employment is about 6.8 million jobs below its peak in February 2020". They giveth and they taketh away.
What does that actually mean and how will that affect CRE? Basically, it means that we are still in a recession as far as full employment goes. We lost jobs due to the pandemic that have yet to be restored. That said, we are on a non-farm hiring uptick which bodes well for the coming months. NYT states that full employment should be reached by mid-2022. One would assume a lot of the employment gains must have been in the hospitality sector what with the bars, restaurants, hotels and travel opening back up. However, the article also states that some of those displaced hospitality workers have moved over to the industrial sector which is going gang-busters.
Reading on, another quote from Reuters that was a real head-scratcher: "Construction payrolls contracted for the third straight month. Though the sector remains supported by robust demand for housing, scarcity of workers and expensive raw materials like framing lumber are hampering homebuilding". I head that one home builder has temporarily placed a hold on all new home orders for a year to a year and half due to inventory.
Crazy, and wow, is this affecting CRE! We recently were working with a client who's in the process of moving to a new location. I've mentioned this example previously, but it bears repeating in this context. The landlord had promised a turnkey construction where they would pay for the full project cost, but when the landlord got quotes from GCs, the landlord re-traded the deal to a fixed allowance. Some contractors won't guarantee their bids more than about 20 minutes!
Some labor shortages are expected to ease after schools reopen in the fall. I would imagine day care for the average family during the pandemic has been nothing short of scary. So let's get granular about what all this means for CRE.
As always, it depends on which sector of CRE you are referencing. Industrial sales and leasing are going through the roof, literally! Reference episode #58 where we discuss the impact of e-commerce on the industrial market. Distribution centers, warehouses, manufacturing, and light industrial are all booming. Whether owning or leasing, it's a hot market and inventory is low.
Office, not so much. Take a listen to episode #59 tp see what I mean. While landlords are talking an optimistic game, the statistics don't seem to support that. If you're an owner, it's a scary time unless you have large, secured, credited tenants. For tenants, it's a good time to negotiate a lease - maybe not quite as good as a few months ago, but you should still be able to get a good deal for your company. Hospitality and retail - I'll just say I'm glad we don't work in those property types!
Last week I saw a headline that said "The DFW Office Market Rebound is Underway". The article was a Cushman & Wakefield second quarter report and in it one of their tenant rep brokers was quoted as saying, "While absorption numbers were negative for the second quarter, the DFW office market rebound is underway, and activity has picked up significantly in the last 30 days". The article went on to say that according to the firm's data, net absorption was negative 895,503 SF with Class B space accounting for 762,004 of that negative absorption.
Sorry, but the above stats just don't ring true for me-how can you still have negative absorption and say the market is rebounding? Other stats quoted in the article were:
- 1.2 million SF of new construction came online in the second quarter with 4.6 million SF of office space still under construction
- The vacancy rate in the second quarter was 22.1%
They followed this info with a quote from one of their leasing agents: "We've seen a steady increase in activity since the first quarter, and we expect it to continue through the end of the year. Companies are coming back to the office in full, and those that did short-term deals are back out in the market ready for longer-term commitments. Dallas is in a very good spot right now".
Frankly, I'm not so optimistic. I often look to CoStar for market rates. How do their numbers compare to what C&W is saying?
- 5.3 million SF negative absorption in the last 12 months - 5 quarters in a row
- Total activity averaged 25.8 million SF 2017-2019
- Sublease space is still at 9.3 million SF - stable
- Construction 4.2 million SF delivered in last 12 months - 7.1 million SF underway
- 18% vacancy - 3% subleases available
- Rental rates fell 0.2%
Bottom line for me is I still don't see the basis for a headline like DFW office market rebounding. I still think companies overall will continue to shed space. That should keep downward pressure on rental rates. We aren't seeing them fall much, however.
Have you been to a grocery store in the last year and seen a store employee rushing around looking at a list and filling a basket? That's e-commerce in a brick-and-mortar store.
So, let's define e-commerce. Most people think they know, but never really stop to define it. It's really nothing more than ordering something on the internet and having it delivered to your home, office or wherever. The example used above of a e-shopper inside a brick-and-mortar would be a hybrid case. While the ordering was done online, the fulfillment is being done from a brick-and-mortar store and the groceries may be picked up by the customer or delivered to their house. So is that e-commerce or brick-and-mortar? It's both, really. But it has definitely changed retail and provided another option for how to shop.
120 years ago most people grew their own food because most people didn't live in cities. They could buy things through catalogs which had limited delivery available. They could order by mail or by phone if one was available. They could go to a store the next time they were in the nearest town. But that store had limited inventory/selection.
The industrial revolution started attracting people to cities and more people started buying from stores. Catalogs were still available, of course. Walmart's big innovation was their distribution system to towns large and small with stores much larger than the average retailer with far greater selection. That's why they were so successful.
The digital revolution created another way to order. Consumers can still pick up the item from the brick-and-mortar store, but they can also have it delivered to their home or office. What's fundamentally different in that scenario from the catalog days in 1892? The mechanism to order the products and the speed of delivery. And it's that last part that's the real story of e-commerce over the last 10-15 years. But mostly, in 2020.
E-commerce as a percentage of total retail sales was only 4% in 2010 and had risen to 11% in Q1, 2020, just before Covid hit. It peaked at 16% in Q3 of 2020, but has fallen back to 13% in Q1 in 2021 as brick-and-mortar retail has opened back up. All these numbers are per Statista.com.
How will all of this inventory be managed and stored in distribution centers going forward?
Red flags. They are everywhere in life. An email shows up with a suspicious link. A call comes in trying to sell you a car warranty (do they know I drive a 10-year old car with 110,000 miles on it?). On today's episode Bob and Jan discuss red flags when it comes to your commercial real estate lease and what to do about them.
Today's topic aligns closely with a podcast we had two weeks ago regarding operating expenses - the bane of a tenant's life! Most of these red flags tie directly back to operating expenses in one way or the other.
- A significant jump in operating expenses (also known as additional rent).
- Change in property ownership/property management.
- Building undergoing capital improvements or renovations.
- Your lease is commencing/expiring.
- Sizable shifts in building occupancy levels.
- No or unlimited backup supplied to annual reconciliation statements.
- Building or landlord is in financial straits.
Is the return to the office happening faster than expected? If so, what's the impact on landlords, tenants and investors? On today's podcast Bob and Jan peer into the crystal ball one more time!
It seems that most return to the office announcements were expected to take place either July 1 or after Labor Day. But some people say it's happening faster than expected with many companies, including large institutional lenders, having their employees roll back in this summer. I'm not actually seeing it widespread but I do agree that there is a lot of talk about having employees return to the office sooner. We certainly have clients doing so and we've seen announcements from large companies like JP Morgan and Google which have moved up their return to work dates to mid summer.
This is likely due to a faster than expected vaccine roll out and removal of city and state restrictions....at least that's the analysis in a WealthManagement.com article. It's definitely been a bumpy ride, but they quoted a CBRE survey that shows companies returning to a more normal occupancy throughout 2021.
I just don't think anyone knows what "normal" will look like in the future. I saw a headline a few weeks ago saying that there's a study to support whatever opinion you have about the future. A JLL broker was quoted in the WealthManagement.com article saying that the talk "of dramatically reducing office space has softened in recent months". That's anecdotal. I'm not sure the market data would support that position.
Texas cities have had a higher percentage of employees back to the office throughout the pandemic. The Kastle Systems Back-to-Work Barometer has Dallas still at the top with Houston and Austin close behind. It's been that way the whole time and remains so. But the increase in the last 3-4 months hasn't been that much - maybe only a 3-5% increase. The top 10 markets in the country for Kastle averages only around 29% at the end of May which is up only a couple of percentage points.
When you sign a lease you focus on what the condition of the space will be when you move in because you want it to reflect the image of the company and be a great place for employees and customers. But few people consider what the space will look like at the end of the lease after they move out. Failure to address that may create major headaches in the future. What do most leases say the condition of the space must be after the tenant moves out? First, it depends on the type of building as to what language is normal. Industrial and office won't be the same. You would expect offices to be more strict, but it's actually the opposite. Office leases often use the broom swept or broom clean term, but industrial leases often have a whole separate exhibit that's a full page or two of all the things the tenant must do to the space when they move out.
OK, define broom clean - broom clean just means that everything has been moved out of the space and it has been swept or vacuumed. The condition is subject to normal wear and tear, of course. But that may just be the beginning. Who defines "broom clean" and "normal wear and tear"?
Again, protect yourself by negotiating the original lease correctly. Review all clauses pertaining to move out condition carefully.
Avogroup had a good article the other day regarding two ways to protect yourself on operating expense pass throughs from your landlord. On today's podcast, we dive deep!
Let's start with a definition: what are operating expenses? They are the monies required to run a commercial building. They can include, common area maintenance, security, electricity, taxes, insurance, etc. The landlord pays those fees and then turns around, divies them up among the tenants and bills each one their prorata share. The two avenues of protection are:
- Always nail down your tenants' responsibilities when the lease is written. This requires a very thorough examination of just how the operating expense portion of the lease is written. You want to make sure that the costs that are actually passed through to the tenant reflect maintenance and operation costs, not ownership costs. Ownership could involve refinancing, marketing the property for lease or sale, legal costs, accounting fees, etc.
- Audit, audit, audit - early and often! Make sure the lease states that you have the right to audit the landlords' books prior to paying any additional expenses. And then do it! By starting off your leasing relationship this way, it basically puts the landlord on notice that you will be looking over their shoulder and things had better line up! Also, some leases will prevent you from auditing the books after a certain period of time so make sure you handle this in a timely fashion.
We get the privilege of introducing our dear friend, Nick McCalmont-Woods, with McCalmont-Woods Real Estate in London, to the podcast today. Nick describes how CRE is conducted 'across the pond' and has great stories to tell. Like how he met us for the first time! And our all-time favorite story of how MAGA is missing one letter....
Lease structure in the UK is totally different then in the US and Nick walks us through their process. Length of leases, breaks versus renewals, rent structures, how tenant reps are compensated, who pays the broker, etc. Also discussed are market conditions and Nick's latest venture called FIDES Network - how it works - and how it's all so important with the advent of Covid.
Just how do Landlords and Tenants ever agree on tenant finish out? Who pays for what? Can the tenant do anything they want in the space? What happens if the project doesn't finish on time?
First, TIs stand for Tenant Improvements - it just means the improvements needed in a space to make it suitable for a tenant to conduct its business. Occasionally, small tenant or those in a rush will lease space that's already finished out and ready to occupy. These suites are called spec suites and landlords have been building these in office buildings for years. In fact, a few landlords have built new buildings and finished out the entire building with spec suites from the beginning. This type product is probably less than 4% of the total office market, however.
What are the steps needed in determining how to finish out the tenants' space?
- Need assessment - space program
- Timing available
- Property tour
- Space planning - architect
- Negotiate how it will work and who pays for what-turnkey vs allowance
It is published that 80% of companies stay in the same place and extend their lease when their lease expires. Why is that? The main reason is that it's the path of least resistance-it's easier and causes virtually no disruption to the business. Today we have 8 tips for helping people decide whether to stay and extend their lease or move:
- Start with the corporate goals and objectives.
- Evaluate the current space.
- Zero-based space planning.
- Client-centric or employee-centric business?
- What image to you want in an office?
- What is the budget?
- Critical features needed in the lease.
- Create a strategy to execute on this vision.
How much of your office do you actually use? And I don't mean now but before Covid. A recent study suggests that office occupancy may not have been used to the extent previously thought. This study, by VergeSense, found that office spaces were greatly underutilized before Covid. And not just a little bit. We're talking only 30% utilized. As a caveat, VergeSense's business is office utilization and transformation consulting. So, they may have a dog in this race. They tracked this info using deep-learning sensors which count people as they move throughout the office. The study also states that the average utilization of offices in January of 2021 was only 7.9%. The study claims that office space is now being used more collaboratively since the pandemic with a 15% increase in the amount of overall utilization dedicated to collaborative work. So, we still need office space just build it out differently? Utilization and allocation are two different things. The study points out there is a mismatch between how much space is allocated for different uses and the utilization of those spaces. The 83% of office space allocated for individual work was only utilized 28% while the 17% allocated for collaborative work was used 35%. Going forward what is one's advice? Be careful how you finish out your office space and ask yourself and your team some hard questions-do we want to pay for individual offices and cubes so employees come to work and sit alone sending email to other employees and clients? What activities can only be done in the office? Who needs to come to the office to do their job and how many days a week? Who wants to come to the office versus stay at home, and much more.
A few weeks ago, we discussed 7 questions you should ask before hiring a broker. That was episode 45. Today on episode 49 we'll discuss 8 more questions that you should ask before hiring a tenant rep broker.
- Current state of the market.
- Is it better to extend my lease, in the same building, or move?
- What should I expect for free rent and a tenant improvements allowance?
- How long a lease should I sign?
- Should I buy instead of lease? How do I evaluate both options?
- How early should I start? How long should it take to get moved into a new building?
- What happens if I break the lease?
- What should I do to get prepared before we start?
Covid kicking it down the road is a weird title, but, it's a great concept. On today's podcast we'll discuss what it is and just how that panned out for one specific REATA client now that the year is expiring.
Last year we recommended to several REATA clients that they extend their leases for only 12 months. We did this because demand for office space had not only evaporated, but had gone negative meaning companies were giving back space faster than they were leasing it. At the same time, there was about 8 million square feet of office space still under construction. So it's the classic supply and demand discussion. Supply is increasing while demand is not only down, but non-existent. Therefore, rents must fall.
As you might expect landlords hated this. Short-term leases don't really add value to the building and it gives tenants greater flexibility to find other options whether that's other buildings or going to work from home. But several landlords agreed to 1-year extensions. Some said they wouldn't do anything less than 3 years, but ended up agreeing to 18-24 month extensions.
In one specific case last year, we were working with a client to expand and extend their lease either in their current building or one down the street. It was going to be either a 5 or 7 year lease. When Covid hit we immediately called the client to discuss the situation and we recommended that we halt all negotiations and reconsider everything. The client had lost a couple of employees just before Covid and they are in the financial services industry. As you may remember, the stock market fell precipitously in the early days of Covid. So we made the recommendation to just extend their lease, where they were, for 12 months. They didn't need to expand right away and needed time to stabilize their employee base as well as their client base.
The client was all for this idea - they didn't know that extending for only a year was even a possibility. So the idea of signing a long-term lease commitment for MORE space right at the time when the future was so uncertain scared them to death - understandably.
Listen to the podcast to hear what ended up happening for this client!
We joined ATR 5 years ago and it has been a hit - for us and with our clients! Listen to today's podcast to learn all the ins and outs of being global.
- ATR = Alliance of Tenant Representatives www.alltenrep.com
- All independent brokerages with no conflicts of interest - no one represents landlords
- Increased knowledge
- Increased market knowledge
- Ability to help our clients grow and expand beyond our region of expertise
- Strong ethics
Bob got to tour VariSpaces yesterday and came back to the office with a wealth of knowledge. From humble beginnings of a retrofit standup desktop to all their current offerings, Vari is a model to be studied and enjoyed!
- Fully adjustable desks
- Chairs
- Lighting
- Phone booths
- Monitor stands
- Couches
- Other office furniture
- Movable walls
- Spaces for lease
How well do you really know someone before you hire them? Or better yet, how well should you know them? What questions should you ask before hiring a tenant rep broker? Today we'll give you 7 questions you must ask and we'll answer these questions for REATA as well.
- How long have you been in the commercial real estate business?
- Are you a tenant rep exclusively? What about the rest of the firm? And should I even care?
- How long have you been a tenant rep exclusively?
- What is your area of geographic specialty? And what percentage of your business does this represent?
- What types of buildings do you specialize in? What percentage of your business do these represent?
- Do you have any experience in my specific industry or type of business?
- Can you provide references?
Most of the time we talk about how to negotiate better office leases on this podcast. But today, we're going to talk about the Supply Chain - how its reliability became invaluable during Covid-19 and how its weaknesses showed up in a recent winter storm in Texas and how that affected industrial real estate. When you could no longer go to Wal-Mart, Jeff (Mr. Bezos to you) could bring it to your doorstep. Well, yes in the first case, no in the second. Listen to today's podcast to discover 5 forces shaping logistics real estate.
Prologis had an interesting article recently about logistics real estate demand and what they see in the future. Prologis is a large owner of industrial and logistics real estate. They say that decisions surrounding supply chains are becoming more holistic and data-driven then ever before and that we'll see huge demand for these properties in the future.
They are absolutely right-we're seeing the impact of this throughout the DFW area with giant warehouses popping up from Alliance airport in the far northwest to Waxahachie in the south. Doing a quick search on CoStar for available warehouses with 500,000 square feet or more showed 16 properties that could accommodate that, already on the ground. But here's the kicker, there were another 12 properties under construction and another 42 somewhere in the planning process. There is clearly incredible demand for this type of property.
Prologis mentioned 5 forces that will be shaping logistics real estate in the future. They are:
- The long-term structural growth rate of logistics real estate has risen.
- Technology and demographics are transforming retail.
- Logistics best practices are going global.
- Location matters more than ever for logistics real estate consumers.
- The price elasticity of demand has decreased.
It would appear that the industrial surge will continue to grow in the near and distant future.
You've probably heard that folks are leaving the big city downtown and moving to the burbs. With so much good about downtown, public transportation with light rail, restaurants, shopping, hotels, live/work/play, performing arts, museums, parks etc why would anyone want to leave downtown??
While it is the right place to be for many companies, the suburbs may be the better choice for others. Here are a few reasons/tips:
- Lower cost - rent?, parking, commuting costs, company subsidizes these
- Spread out - possible lower cost may allow you to lease more space and spread people, a move gives you the opportunity to redesign the office regardless of where you move, you might even want to consider a different product type like flex or a closed big-box store
- Closer to home - maybe, map out where employees live, less time in the car, save money and time, easier to recruit
- Closer to customers - maybe, map this one out too
- Smaller satellite offices - if employees and/or customers are spread out, maybe your offices should be too
- Less time in elevators - shorter buildings mean shorter elevator rides and/or taking the stairs
- Easier parking - fewer parking garages, but out in the elements
- Amenities - give employees a reason to come back to the office
- Hire an architect - this will help assess your needs before you start the search
- Hire a tenant rep broker - especially in today's environment, having a broker to represent you and your office needs is crucial. Leases are being changed in the way they're written and you need an expert to advocate on your behalf
- Talk to your employees - be sure you know what's most important to them
- Move with pros and get insured - just think of all the wasted productive time your employees could have had working instead of packing up and moving, workers comp exposure! Leave this job to the pros, hire a moving company and make sure they and you are insured
Granite Properties and Common Desk have teamed up to provide a new solution for post-Covid, return to work, offices.
- Hub-and-spoke model
- Lease main HQ in one of Granite's buildings
- Receive a G.O. Pass which allows employees to use any of Common Desk's 8 co-working locations
- Flexibility
- Landlord responsiveness
- Tenant survey
- Granite's Evolve platform - a broad collection of customer-centric office solutions assisting companies to adapt to changing business needs
- Spec suites
- Menu of options
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Going it alone
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Ignoring the neighborhood
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Betting on the future
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Not using an attorney
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Assuming that your employees want to come to the office
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Overlooking subleases
Listen to Jan & Bob discuss each of these 6 things in detail. Now, more than ever, is the time to NOT make a mistake in your next office lease.
Recently the Dallas Business Journal quoted a CBRE study which claimed vacancy rate, in DFW, at the end of 2020, was 23.4%. Listen to Bob and Jan discuss if this is good, bad, or even accurate.
- 23.4% office vacancy rate after 4 quarters of negative absorption
- CBRE's numbers differ from what CoStar shows
- Markets hit hardest: Far North Dallas (-1.44M SF); Las Colinas (-955K SF); and Dallas CBD (-826 SF)
- Markets which fared best: Richardson (+241K SF); Preston Center (+123K SF); and Mid-Cities (+55K SF)
- More coming....4.2 million square feet of new space still under construction
- Rental rates increasing??
- Why aren't rental rates falling?
- What did the Congressional Budget Office have to say?
In recently reading an article in the Harvard Business Review by Brian Kropp, I enjoyed learning what his 9 predictions for upcoming trends will be in the work force for 2021 and beyond.
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Employers will shift from managing the employee experience to much more.
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More companies will adopt positions on societal and political debates.
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Gender-wage gap to increase.
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Companies will be limited in their ability to monitor employees.
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Flexibility will shift from location to time.
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Companies to provide COVID vaccines and all that will entail.
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Mental health support to become much more prevalent.
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Renting talent as needs arise.
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States to begin attracting individual workers not just large corporations.
There have never been so many options available to companies for their office space. How do you decide among them and is your tenant rep able to advise you on all the options?
The options are definitely plentiful. Before discussing the best solution, we recommend that companies consider broader issues like
- corporate goals,
- geography,
- control, and
- product type
Are tenant reps able to guide a company through this process?
Are you suggesting a different way of doing business?
Does that mean they won’t always get paid with a commission?
- The "Internet of Things" is abbreviated to LoT
- Simpler compliance with social distancing protocols
- Improved productivity
- Healthier, more comfortable work environment
- A greener workplace with reduced operating costs
- Streamlined asset management and purchasing
- Alexa - play Confessions of a Recovering Landlord podcast
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Communication issues with partially-remote workforces
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Decision inclusion
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Optics
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Bob's take....loneliness
Can these obstacles be overcome? Absolutely.
- Fiduciary
- Intermediary - Dual Agency
- Sharing an attorney
- Know who represents whom
- IABS - Information About Brokerage Services
- Intermediary, with assignments (still a bad idea)
- Special documentation
- Conflicts of interest
- Don't be unrepresented - on either side of the equation
- Sublease space available now tops the 9 million square feet mark
- Available sublease space has increased by almost 50% since January, 2020
- Subleases make up 15-20% of all space available in North Texas today
- Total available sublease space stands at 180 million square feet nationally
- Landlords just now getting aggressive against sublease negotiations
- Landlord blocking subleases
- Subleases, on average, are 15.5% less than for direct lease space
- Loss of amenities for returning tenants
- DFW has topped the market in return-to-work tenants
- Property taxes are paid by the landlord but passed through to the tenant
- Operating expenses
- Tenant's prorata share
- Property tax division
- Taxes assessed
- Special assessments
- Improvement districts
- Property tax consultants
- Franchise taxes
- Sale of building in the middle of the tenant's lease term
- Protest tax value
- Controllable expenses cap
- Tax consultants
- Sales/Mergers
- Assignment/Sublease
- Right of recapture
- Terminate Lease
- Increasing building value
- Negotiate
- Add conditions
- Force the landlord to be reasonable
- Selling stock of company
- Publicly traded firms
- Give notice early
- Indemnity
- Other tenants' rights
- Expect fees
- Consider future business goals
Timeline for moving
Considerations of move impact
Selecting movers, IT, architects, space planners, etc
Budget and tracking expenses
Giving notice to current landlord
Get acquainted with new location
Facilitating employees
Planning press releases
Certificates of Insurance
Walkthroughs - old location & new
- Evaluating lease proposals
- Excel spreadsheets
- Client goals & objectives
- Long/Short List
- RFPs versus LOIs
- Analysis
- Best metric
- Flat rate equivalent
- Building preference
Andy Jones, President, Jones Commercial Interiors is our guest today.
- Established in 1996, Jones Commercial Interiors is one of Dallas' fast growing and most innovative interior design firms. JCI's specialty is custom design of tenant spaces including office, industrial and retail.
- Growing the business, helping clients during COVID.
- Retro fitting office space for employee return.
- Interior designers/architects - what's the difference?
- Safe separation design.
- Space plan process.
- Trivia - Andy is a pilot.
- Commercial real estate, in general, slow to embrace technology
- 45% of all CRE employees are 55 or older
- Only 4% of all CRE employees are 19-24
- E-Signatures
- CRM
- Databases
- CoStar
- REATA is technologically advanced!
- Come work with us!
- Looking to hire a Transaction Coordinator
- Call Jan at 972-677-0028 or email her at Jan@TexasTenantRep.com
Our guest on this episode is Steve Potts with the Potts Law Group (www.PottsLawGroup.com). Steve is an attorney and an expert on negotiating commercial leases from the tenant’s perspective.
What is the number 1 thing people should do first when negotiating a lease?
Why have an attorney in the first place?
Once a tenant and their tenant rep negotiate the business terms, isn’t that the time when an attorney should be brought into the picture?
One of the most talked about clauses in light of COVID has been force majeure. What is that and how does it work in practice?
Landlords are evaluating tenant credit more than ever and it’s likely to increase personal guarantees. What are your thoughts on those?
As tenant reps, we review leases and recommend lots of changes. But since we aren’t attorneys, we can’t offer specific language to properly document those recommendations. In fact, there are certain clauses we really don’t read at all. Indemnification is one of those. I almost always see attorneys make changes to this clause. Why?
Leases contain many, many time periods requiring tenants to do things by a certain time or something bad happens. Can you discuss some of those?
We often see landlords’ insurance requirements stated in the lease, but the actual coverage carried by the tenant doesn’t always match that. Have you seen this discrepancy come back to haunt tenants?
Is there a particular clause in commercial leases which causes tenants the most grief if not properly worded?
Is there a horror story of when a tenant didn’t take your advice and it ended in disaster?
What are the two most important recommendations you have for companies leasing space?
Thanks for listening to another episode of the Confessions of a Recovering Landlord podcast. And a big shout out to today’s guest, Mr. Steve Potts with Potts Law Group (www.PottsLawGroup.com).
At REATA Commercial Realty, we exclusively serve companies that lease or purchase office and warehouse space. We never represent landlords. Find us at www.TexasTenantRep.com or call us at 972-667-0028.
Is there increased demand for industrial space?
How is demand affecting new construction?
Why is DFW so attractive for industrial tenants?
What’s creating the demand?
Is the demand primarily from Jeff Bezos and Elon Musk?
At REATA Commercial Realty, we exclusively serve companies that lease or purchase office and warehouse space. We never represent landlords. Find us at www.TexasTenantRep.com or call us at 972-667-0028.
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Conduct maintenance and updates to HVAC systems
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Install ultraviolet lighting in bathrooms
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Remove porous materials, such as carpeting
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Add signs and visual reminders to promote social distancing and single-direction foot traffic
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Eliminate communal food and drink offerings such as coffee machines and water coolers
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Ramp up cleaning with janitorial and maintenance providers
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Place sanitizing dispensers throughout the office and reception areas
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Stagger work hours or days to reduce the density of people allow telework
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Replace elevator doors and buttons with a touchless experience
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Reconfigure desks, tables, and chairs
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Install a countertop shield barrier at reception desks
REATA Commercial Realty - exclusively serving companies that lease or purchase office and warehouse space. We never represent landlords. Find us at www.TexasTenantRep.com or call us at 972-667-0028.
While rent and common area maintenance are the big obvious charges, there could be many other potential expenses that could surprise you.
- Rent increases
- Late fees & interest
- Operating expenses increases
- Capital improvements
- Insurance coverage
- Parking
- Remeasurement of the building
- Above-standard services
- TI costs above allowance
- Approval, consulting & attorney fees
- After-hours move-in
- Option fees
- Rent tax
- Expiration of the lease
At REATA Commercial Realty, we exclusively serve companies that lease or purchase office and warehouse properties. We never represent landlords. Find us at www.TexasTenantRep.com or call us at 972-667-0028.
Why Commercial Leases are Getting Shorter?
How does this impact building values for landlords?
What does this mean for tenants?
The article to which we refer in this episode can be found here.
The Confessions of a Recovering Landlord podcast is brought to you by REATA Commercial Realty. We exclusively serve companies that lease or purchase office and warehouse buildings. We never represent landlords. Find us at www.TexasTenantRep.com or call us at 972-667-0028.
Please subscribe and leave us a 5-star rating to help other people find us too. Thanks.
Brian Hutson of Assured Partners is our guest this week to talk all things insurance. Landlords require so much insurance in leases. Why and is that good or bad for tenants? Brian explains it all to us. It sounds boring, but Brian makes it very tangible and interesting. He's the only guy we know with a college degree in insurance.
Commercial general liability insurance
Auto liability
Excess liability/umbrella liability
Property insurance
Worker's compensation/employer's liability
Business interruption
Waiver of subrogation
Indemnification
What insurance protects you in a pandemic?
And so much more
The Confessions of a Recovering Landlord podcast is sponsored by REATA Commercial Realty, which exclusively serves companies that lease or purchase office and warehouse space. We never represent landlords. Call us at 972-667-0028.
No joke, the Dallas Morning News headline read: “Office Rents Are Headed Lower Because of the Pandemic”
Key take-aways Bob & Jan discuss in this episode:
· Only 2% of commercial real estate firm execs thought office rents would rise
· 77% said they expect more lease concessions as landlords try to lure tenants
· Office leasing in the 2nd quarter fell by 14 million SF in US
· DFW was 2 million SF negative.
· Tenants are expected to pause lease decisions for the foreseeable future
· They will opt for shorter-term renewals instead
· Almost half of the real estate execs expect warehouse leasing to rise
Bottom line:
If you lease office space, delay long-term decisions if possible.
If you lease warehouse space, it's business as usual, for now.
At REATA Commercial Realty, we exclusively serve companies that lease or purchase office and warehouse properties. We never represent landlords. Find us at www.TexasTenantRep.com or call us at 972-667-0028.
6 Amenities Tenants Will Want Post COVID-19
1 - Strong Connectivity
2: Touch-less technology
3: Better ventilation systems
4: Safer materials
5: Traditional amenities with a safe spin
6: Smart cleaning technology
Who’s gonna pay for all this?
What will it take to get you back in your office? We'd love to hear your thoughts:
· Are you currently working from home and is it temporary or permanent?
· Do you plan to return to the office and, if so, when?
· What will it take to make you comfortable there?
· Will all your employees return or will have staggered work schedules alternating between home and office?
· What changes do you plan to make in the office before returning?
The Confessions of a Recovering Landlord podcast is brought to you by REATA Commercial Realty, where we exclusively serve companies that lease or purchase office, medical and warehouse space. You can find us at www.TexasTenantRep.com or call us at 972-667-0028.
Why you, the tenant, are NOT the landlord’s primary client…and who is.
Who is the landlord’s secondary client and why.
Who is the landlord’s third place client and why.
How can tenants improve their leverage and influence with landlords to improve where they are in the pecking order?
The good news is that users of office and warehouse properties are REATA’s FIRST, most important and ONLY client! At REATA Commercial Realty, we exclusively serve companies and non-profits that lease or purchase office and warehouse space. We never represent landlords. Find us at www.TexasTenantRep.com or call us at 972-667-0028.
In 1597, Sir Francis Bacon is quoted as saying - “Knowledge is Power.” That’s as true today as it was when he said it and it’s our topic today on the Confessions of a Recovering Landlord podcast.
Can you think of a single situation in which you’re better off when you know less than the person trying to sell you something?
The landlord counts on the fact that you aren’t in the real estate business. That means limited market knowledge.
The less you know, the more the landlord can take advantage.
It’s especially true when renewing an existing lease.
There is a dramatic disparity in knowledge.
Professional landlords with professional leasing agents and professional property managers do hundreds of lease deals a year.
Tenants usually do 1 or only a few deals every 5 years.
Whether you intend on moving or not, you need knowledge from inside the market every time you do a lease.
So what’s the best way for a tenant to get the knowledge they don’t have?
Is it more important than ever now with the world of COVID-19?!?
REATA Commercial Realty, Inc. is our sponsor. Find out more at www.TexasTenantRep.com or call 972-677-0028.
Why is it important to talk about how the office reflects the culture of the company?
How do you “create” this feeling?
What about an open plan where everyone is on a wide-open floor?
What if wellness and health are part of your company's core values?
Designs in new buildings
Other things that impact culture in the office
How does all this change with COVID?
Learn more about REATA Commercial Realty, Inc. at www.TexasTenantRep.com or call us at 972-677-0028.
The top 10 list was published by Bisnow but was created by The Counselors of Real Estate.
No. 10: Environmental, Social and Governance
No. 9: Infrastructure
No. 8: Technology and Workflow
No. 7: Space Utilization
No. 6: The Flow of People
No. 5: Affordable Housing
No. 4: The Public and Private Debt Bomb
No. 3: Capital Markets Disruption
No. 2: Economic Renewal
No. 1: The Coronavirus – Duh!
Learn more about REATA Commercial Realty, Inc. at www.TexasTenantRep.com or call us at 972-677-0028.
In today's episode, we interview Charlene Aldridge of Aldridge Kerr & Associates and Tracy Voltin of CoSource, Inc. They have joined forces to offer companies a process for determining how they plan and implement a return to the office.
Tracy Voltin is President of CoSource, Inc. whose primary focus is office space and fit up strategy and implementation.
Charlene Aldridge is the President of Aldridge, Kerr & Associates, Inc., an operational consulting firm that delivers solutions in process optimization, documentation, operational analysis, facilitation, business continuity planning, and change management to improve efficiency and business performance for clients.
Fun Fact: Charlene and Tracy worked for the same Insurance company up until they started their own businesses 24 and 23 years ago, respectively.
This week Bob & Jan discuss the various ways that tenants of office buildings are dealing with returning to their offices.
- Business as usual
- Split schedules
- Some at home, some at the office
- Office for meetings and conferences only
- Procedures for cleaning
On part 2 next week, we'll interview two experts on processes and procedures to consider once you have decided to definitely re-open the office.
Commercial lease credit – What is it? How do you get it?
In this episode, Bob & Jan discuss how a landlord underwrites a lease from a credit perspective. Some of the issues/questions they address include:
The definition of lease credit. What does that even mean?
Is it like a personal credit score?
What specifically does a landlord look for when reviewing a tenant’s credit?
Examples.
The difference between public and privately-held companies.
What about flow-through entities like S-corporations and LLC’s?
What do you do to get the landlord comfortable with start-ups?
Letters of credit, cash deposits, personal guarantees, pre-paid rent, transfer costs to tenants.
Does subleasing figure into this in any way?
What should a tenant do to get their credit ready when thinking about future leases?
At REATA Commercial Realty, we exclusively serve companies that lease or purchase office space. You can find us at www.TexasTenantRep.comor call us at 972-667-0028.
So you’ve signed a lease and moved in. Will you ever hear from your broker again? What should you expect of your tenant rep after the lease is signed?
In this episode, Bob & Jan discuss the following questions:
What should a tenant expect from their broker after they move into the space?
Does REATA have a special tool or system to handle this? REATA LeaseTrac
5 primary aspects to the REATA LeaseTrac system:
Just the Facts
Safety Check
Lease Doctor On-Call
Expense Hawk
Market Manager
Are the landlord’s charges usually accurate?
What are the most common mistakes you see property managers make when calculating what the tenant should pay?
The Confessions of a Recovering Landlord podcast is brought to you by REATA Commercial Realty, where we exclusively serve companies that lease or purchase office, medical and warehouse space. You can find us at www.TexasTenantRep.com or call us at 972-667-0028.
Your office building may be growing and you don’t even know it. How is that possible? Today’s episode takes a deep dive into rentable square footage and usable square footage. What’s the difference and why should you care? We discuss lots of questions like:
How can a building grow? That sounds ridiculous. Can it be true?
Who decides how to measure a building?
Leases use the terms rentable SF and usable SF. What’s the difference?
If a tenant takes a tape measure and measures each room and adds them up, will that equal the usable SF?
What’s included in the common area? Is that generally agreed upon in the industry?
Are new amenities like fitness centers, conference rooms, tenant lounges, etc. considered common areas?
Can rentable and usable be the same number?
Is 5,000 SF in a single-tenant building better than in a multi-tenant building because it doesn’t have common area?
Once a landlord remeasures a building, can they just change the square footage in the lease unilaterally?
How can a tenant protect themselves from the risk of this happening?
When a tenant is evaluating buildings, should they be more concerned about rentable or usable?
Thanks to our sponsor, REATA Commercial Realty, Inc., which is a tenant advisory firm exclusively representing companies and non-profits which lease or purchase office, medical, flex and warehouse space in the Dallas Fort Worth area.
commercialrealestate #officespace #officelease #tenantrep #tenantrepresentation #officebuilding #office #squarefeet #cad #landlord #tenant #dfw #dallas #plano #richardson #addison #fortworth #irving #lascolinas #mckinney #carrollton #farmersbranch #coppell
If you need office space, or it’s time to renew your current lease, or you want to consider buying a building, should you use a tenant rep? In this episode we address these questions and plenty more!
Why should someone use a tenant rep, and, what exactly does a tenant rep do?
Conflicts of interest.
How can someone know who represents who in a transaction?
Can’t a broker represent both parties to a lease or sale?
Can’t the agent work exclusively on one deal for the tenant and exclusively on another deal for the landlord?
Does a conflict of interest occur only if a broker tries to represent both sides of the same transaction?
What does a company have to do to make sure they have a broker work exclusively for them?
Doesn’t the landlord’s rep know the building better than the tenant rep does?
Shouldn’t companies use more than one tenant rep to be sure they don’t miss something in the market?
It seems like there is a lot of specialization within commercial real estate. Why is that?
How should a tenant interact with their landlord once they hire a tenant rep?
What does it cost to use a tenant rep?
What if the landlord offers to pay the tenant the commission if they don’t use a tenant rep?
What issues do tenant reps negotiate in addition to the rental rate?
So how does someone find the right tenant rep to help them?
Many people pick their tenant rep based on who they know from college or the country club. Is that a good idea?
If someone has a great relationship with their landlord, should they still engage a tenant rep?
Once the lease is negotiated, does a tenant rep’s service end?
Thanks to our sponsor, REATA Commercial Realty, Inc., which is a tenant advisory firm exclusively representing companies and non-profits which lease or purchase office, medical, flex and warehouse space.
On today’s episode, Bob & Jan talk about rental rates. How much should they be? How to know if you have a good one? What’s with all the different ways they are quoted?
The most important question first: how much does it cost to lease office space?
- Consider factors such as the size of the space, location, quality of building, length of lease, credit of tenant, and lots of other things.
- Averages hide the truth.
How does someone know if they have a good rental rate?
- Work the process.
- If looking at moving...
- If just renewing...
- Always make the landlord compete for your business.
Rental rates are quoted in many ways – full service, triple net, plus electricity – what’s the difference?
- Think of rates as being on a spectrum
- The shell game.
Why do some buildings quote rents one way while others quote them another way?
How can a tenant know which is the best rate structure for them?
- Rate structure doesn’t matter – total cost does
- Compare all options on apples-to-apples basis
Thanks to our sponsor - REATA Commercial Realty, Inc. – the experts in guiding companies and non-profits through questions like:
- Should we stay in the same building or move?
- Should we continue to lease or buy?
Learn more at www.TexasTenantRep.com or call 972-677-0028.
As companies lay-off employees or close offices, they don’t need all their office space and seek to sublease it. In this episode, we flesh out why someone would want to sublease and the pros and cons of doing so from the perspectives of both the company disposing of its excess space and the company taking over the space. We’ll discuss questions such as:
- What’s the difference between subleasing and assigning a lease?
- When might someone want to sublease their space?
- When might someone want to assign their space?
- Will today’s environment (COVID19) will lead to more subleases being available on the market?
- What are the benefits of subleasing/assigning for the sublessor/sublandlord?
- What about for the subtenant/sublessee?
- What are the risks of subleasing/assigning for the sublessor/sublandlord?
- What are the risks of subleasing/assigning for the subtenant/sublessee?
- What’s the process to sublease your space?
- Can the subtenant sub-sublease if they no longer need the space?
Thanks to our sponsor, REATA Commercial Realty, Inc., which is a tenant advisory firm exclusively representing companies and non-profits which lease or purchase office, medical and warehouse space.
Business owners often ask us whether they should consider buying a building instead of continuing to “throw away money” leasing. Today's show answers that question.
The reasons we hear for why people don't buy usually include: I don’t want to be a landlord, I don’t have the down payment, I want to keep the money in the business where it will earn a higher return, I don’t want to be “stuck” owning a building (prefer the “flexibility” of a lease), and I don’t know how large the company will get. Are these concerns well-founded? Definitely, but we discuss 8 reasons why buying may make sense for your company.
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Long-term cost may be less
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Customize for the long-term
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Equity build-up
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Appreciation
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Low-interest rates
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Flexibility
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Multiple Assets
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Accounting Treatment
Learn more about our sponsor REATA Commercial Realty, Inc. at www.TexasTenantRep.com or call 972-677-0028.
What will be the lasting impact of the COVID crisis on office space? Bob and Jan discuss many aspects of this including:
- Office space configuration
- Flexibility of office needs
- Landlord preferences - what will they expect differently
- Insurance considerations - business interruption and new coverages
- Rental rates
- Building operating expenses
- Parking and commuting
This podcast is sponsored by REATA Commercial Realty, Inc. - www.texastenantrep.com - which exclusively represents companies which lease or buy office and warehouse space. We never represent the landlord.
officespace #officelease #covid-19 #commercialrealestate #rentalrates #office #warehouse #dallas #plano #richardson #addison #allen #mckinney #frisco #carrollton #irving #coppell #realestate
Exercising a renewal option in a commercial lease is almost always a bad idea. It leaves so many negotiable issues on the table. But there's a better way. Renegotiate. This episode talks about how to go about that.
Bob and Jan discuss what options are available to tenants when negotiating lease extensions, expansions or reductions in a market where rental rates are expected to fall.
In this episode, we explore the ways that landlords are responding to tenants that request rent relief during the COVID-19 crisis.
COVID-19 has brought this week’s topic front and center in many people’s mind. Learn how to approach your landlord if you need rent relief.
When should you get started planning for your lease expiration? What are the initial steps recommended?