TenantSee Weekly: A Good Desk
Did you know the modern desk dates to 2000 BC? It was used by ancient Egyptian scribes. Over the centuries, the desk has evolved, often to keep pace with new technologies. For example, the steel desks of the early 20th century were designed, in part, to provide better support for heavy typewriters.
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: Taxis and the Offices
Technology replaces that which it improves.
Not long ago, the streets of San Francisco were full of taxis. Simply by raising your arm, you could hail a taxi in minutes. Then, Uber and Lyft created their apps. Their intention was always to disrupt an industry that hadn’t changed in decades. Initially, many taxi drivers transitioned to become Uber and Lyft drivers, likely anticipating the technology would shift, not replace their work. But that’s not how this is turning out. Autonomous vehicles will replace human-driven, human transport solutions in major cities where taxi drivers once thrived.
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: The Ingredients Matter
Strategy is to occupier real estate what a recipe is to a great meal. A recipe is more than the sum of its parts. It’s about how each ingredient is prepared, how and when it’s added to the mix. As with any recipe in which there are primary ingredients, vital to its success, similarly, every great strategy requires 3 main parts:
TenantSee Weekly: From Blend and Extend to End and Extend
The so called “blend and extend” deal structure has a number of applications, among them a scenario in which a landlord might account for a downward adjustment to a tenant’s rent by amortizing the value of the adjustment with interest into a new term. Say, for example, a tenant has 3 years remaining on a lease and the market value for the space has dropped from $75/sf to $60/sf. The landlord would adjust the rate to market ($60/sf) and spread the $15/sf differential over the new term. If the interest rate were 8%, and the term 7-years, this would add $2.80/sf to the rent.
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: Where Does It Hurt?
Office lease negotiations typically cause pain for one party because leverage is rarely balanced such that the outcome is a true win/win. Sure, the actual winner will suggest the other party also won (after all, they got the deal), but sometimes winning feels a lot like losing. That’s OK. Markets ebb and flow. What matters is that you know how you’re hurting the other party.
