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: Knowing Your When
We see a lot of confusion in the market around when to begin negotiations. It’s not an insignificant consideration. In fact, when you begin can make a huge difference in the outcome. It’s understandable that tenants would not know when to start. Brokers are not always keen to start at the right time, since compensation is derived by transacting and the closer the tenant is to lease expiration, the faster it will need to transact (and the fewer options it will have). Good for the broker, bad for the tenant. This creates a misalignment of interests that discourages thoughtful consultation on the front end – the more time a broker spends on a project, the lower the compensation.
TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part VI: Negotiating the Lease
Leases vary by building, by market, and by market circumstances. In most major metros, when dealing with larger buildings, the lease document is sophisticated and complex, addressing a broad range of variables that will have a material impact on the occupier’s experience at the building, as well as its cost of occupancy. If you’ve done a good job negotiating the letter of intent, you should begin the lease negotiation phase from a position of relative strength. However, even when the letter of intent is fully maximized, there’s still a lot to negotiate in the lease.
TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part III: The Right Strategy
Once you’ve established the purpose of your physical workspace, and given careful thought to budget and schedule, it’s time to develop the right strategy. This is a vital step prior to market engagement. Good strategy is not always obvious. At a minimum, any effective real estate strategy will include simultaneous assessment of multiple deal scenarios. Why would this matter? For starters, negotiation outcomes are not known. At the beginning of the process, the favored outcome may be to stay in the existing space. However, as the process evolves over multiple rounds of negotiation, we often find that things change in ways that may cause the desired outcome to shift. For example, when the existing landlord offers terms that are materially less favorable than those achievable through relocation.
TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part I: The Purpose
In the years leading up to the pandemic, most medium and small companies defined their office space need based on headcount (current and projected), space programming, and industry/sector norms. The exercise was mostly formulaic. The primary differences in the offices of a small, regional law firm compared to those of an AM Law 100 firm would be scale, the cost of finishes, and the quality of the building and views. It was planning for the same outcome, just at different levels on the cost spectrum. Companies having a larger portfolio of offices would typically create a “workplace strategy” that included guidelines around programming (e.g., space layout, office size, critical adjacencies, growth factor, finishes, FF&E, etc.). These guidelines could then be used to inform the real estate process across geography.
TenantSee Weekly: The Office as Hotel
I participate in a lot of “conversations” on LinkedIn in which people argue that office buildings should be as flexible as hotels. I love to explore the possibilities, the idea the office can be something different, something better. But sometimes these conversations are so detached from reality it makes my head hurt.
TenantSee Weekly: Successful Negotiating Strategies for Office Tenants
Many business executives know how to negotiate. Indeed, it’s a vital skillset essential to advancement in nearly all careers. But not all negotiations are equal. Negotiating leases on behalf of office tenants, for example, is a specialized undertaking. As with all negotiations, successful tenant lease negotiations are highly correlated with understanding the motivations of the counterparty. This means knowing everything about the landlord, including the equity and debt positions, the investment thesis, the leasing dynamic at the building (vacancy, lease rollover, etc.), the value of any recently completed comparable lease transactions in the building and in the market, and the overall market dynamic. These factors are fundamental to assessing leverage. Yet even when these basic elements are in place, the act of exercising leverage also requires special skills.
TenantSee Weekly: The Negative Deal
Investors invest in office buildings to generate a positive return on their investment. Return is created in 2 primary ways, one is through ongoing profits generated from the individual leasing transactions completed within the project, and the other is through financing activities (taking on debt which allows the investor to pull equity from the investment or selling the asset). This TenantSee Weekly is focused on the first of these 2 scenarios, the one in which the landlord seeks to create positive cash flow through its leasing activities.
