TenantSee Weekly: The Value of Your Lease
People sometimes (mistakenly) think office building values are based on location and architectural design (appearance). These are contributing factors, however, in most urban centers, investors use the income capitalization approach to valuation. Here, the building is valued on current and projected net operating income (“NOI”). To be sure, location and design will translate to differing levels of NOI. But other variables play a key role, as well. For example, the landlord’s cost basis which impacts its ability to lease space at market pricing. Where a landlord has paid too much for the asset, the underlying rental economics of the market may result in net negative leasing outcomes, causing the landlord to lose deals to other assets which have a lower cost basis and can productively transact at market.
TenantSee Weekly: Sell Your Occupancy by Leveraging Options
Negotiating a great office leasing outcome requires engagement with multiple prospective landlords over multiple rounds of negotiation. It’s not just about having options; it’s about using them to create leverage.
TenantSee Weekly: I Was Told We'd Be Discussing the Office...
AI has summarized capitalism for me as follows:
“…an economic system where private individuals and corporations own and control the means of production, such as property, businesses, and industries. In capitalism, the core principles are profit motive, private property, and market competition. The government's role is limited to taxation and standard regulatory laws, and individuals are given the freedom to operate their businesses and manage their income as they choose.”
TenantSee Weekly: Friday
Walking the near empty streets of downtown San Francisco on this beautiful August Friday, inspired us to ask our friend ChatGPT to craft a poem about the economic impact of workless Fridays. Enjoy!
TenantSee Weekly: What Comes Next For Office
We’ve noticed an interesting shift in how companies are thinking about their offices. For some time now, many companies have resolved to employ a hybrid approach to workplace, having employees work in office for a designated number of days each week. In many cases, this solution was chosen more for how it seemingly struck a compromise between employers who wanted employees in the office and employees who sought freedom to choose. To date, companies have been relatively lax in enforcing their workplace plan. What’s changed? Leadership is now becoming increasingly frustrated at spending on underutilized real estate. Companies track space usage, and they don’t like what they’re seeing. The occupancy reality is often way below what it would otherwise be if employees were following the hybrid work policy. The company leasing 10,000 sf to accommodate an average of 10 workers each day is (painfully) aware of the wasted spend.
TenantSee Weekly: Reinvention
Physical places, buildings, towns, cities, and even entire countries are always changing. Sometimes the change is progressive and less noticeable, sometimes it's more extreme and jarring. Near where I grew up is the town of White River Junction, Vermont. When I was a child, the town was mired in hard times. But it wasn’t always this way.
TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part VII: Design and Construction
One common mistake tenants and their advisors make when negotiating the office lease is failure to properly account for design and construction implications. These are important considerations. Space design plays a vital role in determining the efficacy of the space, how it translates in terms of value to the employees. Construction is expensive, representing a material component of the tenant’s total occupancy cost. Gaining understanding about design and construction at the right time in the transaction process provides useful data in the context of effective negotiations.
TenantSee Weekly: Conflict in Tenant Advisory
Years ago, I was a partner at The Staubach Company, one of the industry’s most prominent tenant-only advisory firms. The Staubach Company was a highly ethical business, full of skilled tenant advisors. One of the firm’s core value propositions was that its advisory services were free of conflict. The conflict narrative is powerful in how it seemingly separates the conflict-free advisor from most other brokerage firms which serve both occupiers and landlords. Tenant-only firms often differentiate themselves with statements like, “…when you hire us, you never have to be concerned that we’re beholden to a landlord who pays us millions of dollars each year in fees”; or “…we fight harder for you because we’re not concerned about our relationship with the landlord”. To the unknowing audience, these statements can make it seem that all so-called “full-service” firms (those with diverse practices) are incapable of providing ethical, conflict-free occupier advisory services. When you consider the spectrum of tenant-only firms is very small, as a sales tactic, this is a brilliant approach in that it significantly narrows the competitive landscape, making it more probably the tenant-only firm will be hired.
