Tenant Representation Services for Corporate Clients

Is your Company’s lease expiring soon? Are you facing a big increase in your rental payments? Are you looking for the right real estate at the right price? Are you looking for someone that can represent your needs?

We have the market knowledge (so we can create leverage for your Company with Landlords and/or Sellers) and we provide transaction schedules, demographic studies, financial analysis, employee maps and service area maps to assist in identifying submarkets and properties. Saving our corporate clients between 15-25% off occupancy costs is typical although we have saved our clients much more.

When you hire CHOICE REALTY, you are hiring an experienced, CCIM-qualified Commercial Tenant Rep whose job it is to lower real estate costs, minimize occupancy risks, improve occupancy flexibility and control, and create a productive work environment. Visit our Testimonials page to learn how we’ve helped our clients.

Let us focus on your corporate real estate goals so you can focus on your core competency. Our goal is to ensure you make a Smart Choice in real estate. Make a better choice in commercial real estate services by calling Jonathan Lee, CCIM at 843-991-4848 to discuss your Company’s real estate needs. If you prefer to contact us via email, send us your contact information, along with a description of what type of property (office, retail, industrial, land, etc.) you need and we’ll be in touch within 12-24 hours.

A couple of scenarios arise when companies consider renegotiating their corporate leases. One scenario is simply from the standpoint that the lease expiration date is 12 to 24 months away, and the corporate tenant wishes to take advantage of a weak commercial real estate market now by locking in to a lower rental rate or negotiating space improvements, or both.

The first step is to determine what the tenant’s current building lease is worth. As an example, let’s say ABC Company is paying a full-service rental rate of $24 per square foot per year. If ABC Company leaves, then the Landlord will be looking at a minimum of 6 months downtime to market the space, advertise it and pay additional real estate commissions, equating to more than a $12/square foot/year loss. On top of this, the Landlord will more than likely have to provide new Tenant Improvements (in commercial real estate lingo, we call those TI’s) to a new corporate tenant of $10 to $15/square foot.

If ABC Company was willing to stay in their current space, they would be saving the Landlord $5/square foot in TI’s plus $12/square foot in marketing lease time, or a total of $17/square foot. Therefore, a reasonable negotiating point here is the current tenant, ABC Company, should get a portion of that $17, maybe half (half = $8.50), in the form of 2 months’ rent plus tenant improvement dollars to spruce up their space with new carpet, new paint or new signage. For some Tenant Reps, this would be the end of it. However, we like to conduct as much research on a building and its owner as possible to generate additional leverage and negotiating power.

Another scenario is that of the struggling company. Monthly expenses for real estate is usually the second highest expense line item, right behind employee salaries. Sometimes, all a company can do after it has discounted its products/services, reduced inventory and shaved the payroll, is to approach the landlord and advise them of the situation. Having a third party (Tenant Rep) negotiate on your behalf is often a wise choice to guide the renegotiation. Tenant Reps often eliminate the possibility of heated friction between landlord and tenant and have the market knowledge of the current commercial real estate climate and how it compares to the tenant’s current space terms.

Today’s market (1^st Quarter, 2010) of lowered prices and rental rate discounts, simply begs the question of what makes more sense—a commercial lease or purchasing space for one’s company. The only time that it is really appropriate to consider the Lease vs Own analysis, is when a company is considering a long-term (10+ years) lease commitment.

Which way? Lease or Purchase?

The Lease versus Own analysis is comprised of two considerations. One, is the straight financial analysis. This is where we compare the total cash outlays (after-tax) of the lease and of the purchase to determine the least costly solution. When we compare an owner’s or an investor’s cost of capital or opportunity cost with the internal rate of return (IRR) for differential cash flows between lease versus own numbers, we know that if the IRR is greater than the client’s opportunity cost, it makes more sense to buy. One must bear in mind, an investor’s personal situation, competencies, and goals can change the outcome of this analysis.

The other consideration is the qualitative data analysis. Lease advantages include the fact that a company can easily pick up and move at the end of the lease term. When they own a property, the timing of the sale may not be optimal and the market could be experiencing a downturn. Another consideration in leasing is focus–does the company want to be in the real estate property management business or not? It may be more prudent to lease and conserve what could be a 20% down payment for other uses to invest into the company.  

Leasing Corporate Real Estate: Advantages and Disadvantages

Financial Advantages of a Lease

Availability of Cash  

Most lease arrangements have fewer restrictions than loan agreements, providing flexible financing. In addition, leasing is well suited to piecemeal financing. A firm that is acquiring assets over time may find it more convenient to lease than to negotiate term loans or sell securities each time the firm makes a new capital outlay.

Flexibility                  

Leasing can provide more flexibility for many owners who may need cash to invest in their main business (salaries, equipment, etc.). It may be more prudent and profitable to use financing capabilities to run the core business than to invest in real estate to house the business. Avoidance of a downpayment frees up that money for other uses. Opportunity costs are important considerations for an investor.

Tax Relief                   

Leasing can provide some tax relief as the lessee can deduct the full amount of the lease payment for tax purposes.

Other Advantages of a Lease

Low Risk of Obsolescence            

A lessee avoids the risks of obsolescence associated with ownership. If the actual salvage value is less than originally expected, the lessor bears the cost.

Stability of Costs      

Leasing tends to smooth out expenses for a lessee. Lease payments are a continual outlay and earnings tend to appear more stable when assets are leased than owned.

Spatial Mobility        

Leasing provides more flexibility if a company expands or contracts. It also allows mobility if a firm wishes to relocate.

Cash Flow                  

Most companies run on cash flow and are valued on cash flow. It is unfortunate when a business purchases property and loses money on the sale of the business due to reduced sales caused by lower inventory, equipment, training, etc.

Location                    

Leasing can allow the user to be at a premier location that would be unaffordable otherwise.

Focus                          

Leasing allows concentration on the primary business without the distraction of managing real estate.

Financial Disadvantages of a Lease

Cost                            

For a firm with strong earnings records, good access to credit, and ability to take advantage of tax benefits of ownership, leasing is often more expensive. Individuals and smaller firms may find that leasing and borrowing terms are approximately equal.

Loss of the asset’s salvage value            

A lessee may have difficulty getting approval to make property improvements on leased real estate. If the improvements substantially alter the property or reduce the potential range of uses, the lessor may be reluctant to permit them. Potential uses can range from technological changes, physical changes to accommodate staff or cosmetic changes to impress clients.

Contractual Penalties                    

If a leased property becomes obsolete, a lessee may still be obligated to pay for the lease and may not cancel it without paying a penalty.

Taxation                    

Leasing provides limited tax relief.

Appreciation             

Leasing does not provide participation in property appreciation.

Other Disadvantages of a Lease

Control                      

Leasing does not allow control of other tenants. New neighboring tenants may not conform to the type of image the lessee seeks.

Operational control

Lessees have no control over business amenities. A Lessor might cancel the lease on an inexpensive sandwich shop that was attractive to the lessee’s employees. New building personnel may not provide the same level of service as the lessee originally enjoyed.

Changes                     

The lessee may have to accept changes to the space that the lessor requires but the lessee opposes due to the disruption of its business.

Owning Corporate Real Estate: Advantages and Disadvantages

Financial Advantages of Owning

Tax Savings                

The owner of a property is entitled to the tax savings resulting from cost-recovery rules, mortgage interest, and the cost of tenant improvements during the holding period and when the property is sold.

Appreciation             

The owner of an asset is entitled to all of the appreciation in value.

Income                       

Income from tenants can be used to pay the mortgage on the property or may be used to fund the owner’s principal business or for other investments.

Other Advantages of Owning

Control                      

The user/investor who owns a building has, within the law, freedom to operate its building as it sees fit. Being able to control the appearance of a site and take advantage of the prestige of its location may be important to certain companies. Ownership allows control over costs.

Financial Disadvantages of Owning

Initial Capital Outlay            

Cash downpayments to acquire a property may divert cash that could be used to finance the company’s operations or other investments.

Financing                   

Often a company’s ability to obtain a loan will not only depend on its financial condition, but also will depend on the financial marketplace.

Liability                      

A mortgage loan can affect the balance sheet (increasing long-term debt) and the related debt restrictions imposed by lenders.

Legal Compliance     

Compliance with changes in laws or zoning may be unforeseen, costly, and unavoidable.

Other Disadvantages of Owning

Risks                           

There are risks to owning, such as potential damage, obsolescence, and the inability to sell at preferred prices at the right time.

Responsibility           

The lessor is responsible for the safety and well-being of tenants, employees and the public within and outside the building.

Inflexibility                

Space may be inflexible and cannot be enlarged or reduced depending on business fluctuations or other forces.

sources: User Decision Analysis for Commercial Investment Real Estate, Commercial Investment Real Estate Institute (CCIM)1999.

Too often, we hear of the company that was approached by their landlord to renew their corporate lease, and the company owner, CFO, or CEO simply signs the renewal and gets on with their day. Companies that operate in this manner are doing themselves and their shareholders a disservice. They are leaving thousands of dollars on the table.

As professional Tenant Reps, we follow a process that generates results for our corporate tenant clients. In our Needs Analysis discussion, we determine what the client wants to do, is willing to do, and what are their needs? Does the space need a facelift? Does the company need options for flexibility? Understanding how the corporate real estate fits into the long term needs of the company is the focus and then determining how market opportunities translates into achieving that focus is our priority.

Even if a company is 90% certain they intend to renew their lease, giving consideration to other opportunities in the market is worthwhile, particularly when a company starts the process early. Starting early can provide a company the time it needs to make a smart real estate decision. Depending on what cycle the real estate market is currently experiencing determines what type opportunities exist and what reasonable alternatives exist for the client. For example, if Landlords are offering one month free for every year of committed lease term, this is a negotiating point to bring back to one’s current landlord for further discussion.

Once the alternatives are determined, the next step is to determine what the client’s current building lease is worth. Let’s use a fictitious company scenario: ABC Company is paying a full-service rental rate of $24 per square foot per year. If ABC Company leaves, then the Landlord will be looking at a minimum of 6 months downtime to market the space, advertise it and pay additional real estate commissions, equating to more than a $12/square foot/year loss. On top of this, the Landlord will more than likely have to provide new Tenant Improvements (in commercial real estate lingo, we call that TI’s) to a new corporate tenant of $10 to $15/square foot.

If ABC Company was willing to stay in their current space, they would be saving the Landlord $5/square foot in TI’s plus $12/square foot in marketing lease time, or a total of $17/square foot. Therefore, a reasonable negotiating point here is the current tenant, ABC Company, should get a portion of that $17, maybe half (half = $8.50), in the form of 2 months’ rent plus tenant improvement dollars to spruce up their space with new carpet, new paint or new signage. For some Tenant Reps, this would be the end of it. However, we like to conduct as much research on a building and its owner as possible to generate additional leverage and negotiating power.

Finding out what types of transactions have been done previously is valuable information. Using the Boy Scouts of America motto, “Be Prepared,” this rings true in all Tenant Rep negotiations. Having an attorney run a title search on the property can determine if any loans exist on the property and that payments are current. If the current lease agreement doesn’t already have it, be certain to attain a subordinated non-disturbance and attornment agreement, which protects your interests in the event of a foreclosure.

Lastly, it’s important to advise your current landlord that you are considering alternative spaces available in the marketplace. Many times a company’s current landlord will generate an initial proposal that hardly warrants serious consideration. It is the landlord that takes your “shopping the market,” seriously, and steps up to the plate with an enticing offer that can trump all other alternatives. As we narrow the choices to the top three or four space alternatives, sometimes the current space has already been eliminated, while other times the current space proposal comes up on top as one worthy of a second look. Renewing a corporate lease requires taking the necessary steps to generate interest from the current landlord as well as alternative landlords. The best method to achieve a level playing field with one’s current landlord is to consider all existing and reasonable space alternatives.

• Lease Abstracts & Lease Reviews: Oftentimes, a Lease Agreement is 40+ pages of confusing legalese. Our abstracts cut through to the core and condense the information into a concise report.

Critical Dates: Receive user-defined email notifications of Lease “events” such as burn-off of letters of credit; exercise of option dates, expiration dates; rate escalations; CPI adjustments

Document Management: Using our web-based docs management system, we provide password-protected client access to contacts, critical clauses and options, recurring charges and information on security deposit(s).

Lease Details: The details are condensed with information related to abatements, allowances, insurance, late fees, notices and other charges

• Lease vs. Purchase Analysis:

• Transaction Schedules & Timelines: (click here to go to New Leases process & timeline)

• Demographic & Lifestyle Research: Based on the profiles of the people that your company provides services/products or who work at your company, we provide detailed demographic and lifestyle data including age, education, income, and lifestyle characteristics to assist in site selection and location preferences.

• Strategic Space Programming: Working with multi-location clients on national space requirements, one of the long-term planning initiatives we implement is establishing basic space standards. This provides more control over interior space planning and reduces time and efforts spent in decision making.

Acquisitions / Dispositions

• Sales / Purchases
• New Leases
• Subleasing
• Renegotiating Leases
• Lease Dispute Resolutions
• Lease Renewals
• Lease Buy-Outs
• Sale & Leasebacks
• Multiple Location Transactions

Ancillary Corporate Real Estate Services

• FF & E Preferred Vendor Selections
• Commercial Real Estate Lenders
• Lease Review & Critical Date Checklists
• Employee Benefits Analysis
• Property & Casualty Insurance Analysis
• Corporate Art Collections