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TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part VI: Negotiating the Lease

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 IV: Implementing an Effective Market Process

TenantSee Weekly: Modern Workplace Planning:  Solving for Experience  Part IV:  Implementing an Effective Market Process

You’ve identified the purpose behind your physical space needs, you’ve created a thorough project budget and schedule, and you’ve developed the right strategy.  It’s now time to implement a market process. 
 
What is “…a market process”?  In the context of office leasing, market process is how you engage the market.  It ties to your strategy, with sensitivity to the objectives you seek to accomplish.  The market is where you implement your strategy, where you take it from theory to reality.
 

TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part I: The Purpose

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: Successful Negotiating Strategies for Office Tenants

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

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.

TenantSee Weekly: Translating the Lease

TenantSee Weekly: Translating the Lease

Recently, we completed a lease for a client in a small San Francisco building.  The transaction was negotiated to provide our client with a tenant improvement allowance, and the right to manage their construction.  Because the client is a design firm, this approach suited them well.  They understand design and construction and can leverage relationships to mitigate cost.  The ownership of this building is not an institution, its management team lacks the sophistication you would otherwise see with professionals working for larger institutional owners.  The lease provided the landlord with the right to approve the plans prior to construction, but it notably lacked a specific mechanism for communicating such approval.  Our client provided detailed plans.  They received a few minor comments/questions to which they responded promptly.  Otherwise, the landlord agreed to the project schedule and let them commence their construction – implicit approval.  During the construction, the client invited the management team to attend weekly meetings, to walk the space and generally sought to keep them informed (under no obligation to do so).  Despite a few bumps along the way (the building had non-compliance in a few areas and a small amount of hazmat was discovered), the project was successfully completed.  However, after moving into the space, the landlord sent a letter stating numerous elements of the construction had been completed without its approval, and the space must be restored at the end of the lease term (an undertaking which would cost hundreds of thousands of dollars).  Naturally, our client was concerned.  Thankfully, they sent us the letter and asked for our guidance.