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Lease Locally

Wednesday, May 16th, 2012

Narrow your focus

Do you need a firm with an “international platform” to do an office lease deal in Kansas City?

You don’t – you need a firm that will get market-best results because they know the metropolitan Kansas City market.

Let’s start by understanding that virtually all of the national firms proudly state they should represent you because they have a “global outsourcing platform” for services ranging from all forms of brokerage, property management, facility management, project management, capital markets, development, investment, valuation advisory services, and more. The inference being that a cast of thousands is at your beck and call to provide whatever services you need wherever in the world you need it.

So, are the big firms better?

I have been with big firms. I know how they work. The reality is that tenant reps typically operate in teams of one or two people. Some of these “teams” are exclusively dedicated to tenant representation. Some are doing both tenant rep and landlord rep. Either way, the team is small.

So, the comparison you need to make is between the teams consisting of the brokers who will represent you on the ground in Kansas City – not the thousands of corporate employees spread around the world. And it’s in your best interest to find a team that exclusively represents tenants and not landlords too.

Wally & Co. exclusively represents tenants. Our team used to be the tenant rep team at CBRE, and before that at Trammell Crow Company. We’re the same team that qualified for the TCC’s Top 40 Brokers. We do everything we did in those days, and more, for our clients today.

 

Call us. We’ll talk. You’ll understand our value.

Think Wally & Co. We negotiate leases on your terms.

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Being Proactive Pays

Friday, March 23rd, 2012

Plan ahead and win big

Do you ever wonder, “Why am I getting this email now”?

It’s because there are many “triggers” for needing real estate advice and it may not have any connection to when your lease expires. You may want to

 

 

  • Restructure the lease
  • Refurbish your space
  • Renew your lease
  • Expand your space
  • Shrink your space

A significant percentage of our business is in renewing tenants’ leases, often a couple of years before the official expiration date, and often with immediate savings as compared with your current contract rent.

The “art” is that we know how to show your landlord that renewing your lease at the lower current “market” rent may be better than the deal they would make with a replacement tenant.

I recorded a two-minute video about this topic.

Call us. We’ll talk. You’ll understand our value.

Think Wally & Co. We negotiate leases on your terms.

 

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To Look, or Not To Look?

Friday, February 10th, 2012

Is it ever too early to start looking for office space?

Have you ever wondered, ‘when should I start to look for office space?’

It’s almost never too early. I wrote a blog post entitled “Time is Your Friend,” that discusses the importance of giving your real estate deal plenty of time, and what can happen when you don’t.

The 2 things to remember are:

  • It’s better to start too early than too late for creating negotiating leverage, and
  • It may not have any connection to when your lease expires

Every situation is unique so strategies vary. But if you think you want, or need, to do something different with your lease or your space, chances are we’ve had experience doing it.

At Wally & Co., we can help you figure out your timetable and so much more.

Wally & Co. exclusively represent tenants.  Please call us to discuss your next project  and learn why Wally & Co. wants to be your partner, not just a vendor.

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Conflicts of Interest – Part 2: My Unique Viewpoint from the Other Side

Wednesday, March 2nd, 2011

In my last blog, I asked “Why you should care?” about conflicts of interest.   The subject of conflicts of interest is a difficult one.  It is difficult because it is not our style to speak negatively about our competitors.  We would rather earn the right to your business on our merits, not on the negatives of our competitors.

It is also difficult because the concept of “dual agency” (representing both sides in a transaction) is allowed by the Kansas and Missouri Real Estate Commissions, if it is disclosed.  So real estate conflicts of interest are acceptable in many persons’ eyes.

The reality is that conflicts of interest do matter because they cost you money.

Wally & Co. is structured to avoid conflicts of interest in several key ways.

First, no one in our firm lists property for sale or lease.  Our activities on behalf of clients are consistently focused on driving down occupancy costs of all types and negotiating the most favorable business terms.  Therefore, we aren’t ever in the situation that many agents get into where they are interchangeably advocating for higher prices when they are representing a landlord, and advocating for lower prices when they are representing a tenant.  To be in that position can erode the credibility, and more importantly, the negotiating strength, of an agent to the point of being ineffective.

Next, because we never represent a landlord, we are never concerned with the temptation, felt by many “dual agents”, that all landlords may be a prospective property-listing client in the future.  Such concerns may serve to soften that agent’s negotiating aggression on the part of a tenant rep client like you.

Wally & Co. exclusively represent tenants.  Please call us to discuss your next project and learn why Wally & Co. wants to be your partner, not just a vendor.

 

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Conflicts of Interest – Part 1: Why you should care?

Monday, February 7th, 2011

If you are a tenant, you should care. Why?  Because most real estate brokers represent both landlords and tenants. Think of it. When brokers represent landlords, they have a fiduciary duty to get the most expensive deal they can, i.e. the highest leasing rates, the lowest tenant finish allowances, the fewest concessions, etc. But when they represent tenants, they are supposed to do the opposite! Seriously? This would be like having the same law firm represent Bernie Madoff and his victims.

If you are a tenant you want to be represented by someone who has no loyalty to anyone except tenants. But often, that’s easier said than done.

Depending on what state you are in, without a legal statement declaring a specific kind of “agency”, John Doe’s firm, XYZ Realty, can equally represents all its clients, including landlords, while representing you, the tenant.  In fact, many states allow “dual agency” or “transaction brokerage” which in effect  allows them to assist both parties without being an agent or advocate for either party.

Simply stated, John Doe may not have a fiduciary duty to represent your interests.

This is when the full service firms start talking about the “Chinese Wall” they have erected to protect the interest of tenant clients from those of landlord clients.  A Chinese Wall is defined as, “The ethical barrier between different divisions of a financial (or other) institution to avoid conflict of interest.”

Here’s why Chinese Walls don’t work in practice:

What if John Doe represents you and he has a listing on a building at the same time?  It’s impossible for Mr. Doe to split himself, yet he owes a fiduciary duty to both you and a landlord.

What happens when John Doe goes to a weekly sales meeting at his full service firm, with brokers representing both landlords and tenants in attendance, and he is expected to report on his activities? Your deal gets discussed even if it may not be in your best interest.

Who does John Doe serve when the size of the commission(s) he will earn from a landlord client far outweighs the commission he will earn representing you the tenant?  Does he honor greed or ethics?

What does John Doe do when his boss (his state-licensed Broker) says, “Back off on how hard you are negotiating the terms for your tenant client because you are ruffling feathers with our landlord client.”  This really happens because XYZ Realty stands to make far more money from the landlord listing than it does from your tenant rep assignment.

I have been with big firms.  I know how they work.  The above is reality and conflicts of interest do matter because they cost you money.

Wally & Co. exclusively represent tenants.  Please call us to discuss your next project  and learn why Wally & Co. wants to be your partner, not just a vendor.

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Be Wary Of 20 Percent Discounts In Commercial Leasing

Tuesday, May 4th, 2010

The commercial leasing industry can be a very complex arena. With so many details to be considered in a typical lease agreement, it can be difficult to know whether you’re really getting a good deal. That is, without a good tenant rep.

There is a big red flag we warn all our clients about – the 20 percent discount promise.

Typically, this is a cold call scenario where the commercial leasing agent tries to get a meeting with a prospective client by offering a 20 percent discount. Of course this works because everyone wants to save money. So the agent gets the meeting. What the prospective client doesn’t know is this offer is just a quick way for the agent to get their foot in the door to engage the company for tenant representation services (plus the agent knows there’s no real way to prove they actually got the discount by the end of the deal).

The question you need to ask is, “20 percent discount off of what?” In simplest terms, the discount is taken off the monthly rental price, but if the landlord’s quoted rental rate is too high, the discount won’t amount to much. While the rent rate is important, the bigger issue is how much the landlord is willing to give to make the space meet your needs. So you may get 20 percent off the rent, but get an inadequate deal on the tenant finish allowance.

The truth is, the only way to analyze a deal is a holistic, across the board analysis, i.e. what is the rent price, yearly operating expenses, what tenant finish allowance are you getting, how much is the security deposit, etc. In order to judge the percent of savings you get you must dissect more than 20 components of the lease to find the true savings. Plus, every lease agreement is different – one tenant may get a big discount because of their size, another because the landlord has a large vacancy. So it’s tough to validate a broad statement like, “we can get you can get a 20 percent discount” because the circumstances from lease to lease are different.

It’s important to note that most of the people offering these discounts are not liars or cheats; they’re just oversimplifying the process. Why? Because cold calling is hard and they are trying to “hook” you with something simple and quick. Plus it’s almost impossible to know what discounts the tenant can get prior to being engaged and working on the deal. So be wary of an agent offering discounts before they even know what your current lease says. As always, it’s best to find a tenant representation partner who can analyze your lease agreement and find the real savings.

No leasing agent? Wally & Co. has you covered. We represent tenants and tenants only in commercial property leasing. We have no ties, no partnerships and no agreements with landlords. What does that mean to you? We’re your partner, not a vendor. That means we’ll find the space that suits your needs and comb through the lease and negotiate the best terms for you.

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Subleases Lurking In Southern Joco

Tuesday, May 4th, 2010

The above is the title of a front-page article in a recent Kansas City Business Journal.  The subtitle is, “Office space keeps lease rates down”.  The article uses the event of the latest piece of big sublease space coming to market – the 90,000 square foot former Fort Dodge Animal Health headquarters at Corporate Woods – as a discussion of how sublease space keeps popping up with a depressive effect on  rental rates and new development.  In fact one broker/developer was quoted saying these new spaces “hurt future development.”

Okay, but what about the positive effects for tenants resulting from an increasing supply of quality office space in one of the metropolitan area’s most desirable office submarkets?  Or the fact that some tenants may be motivated to move, expand or renew by greater supply and lower rental rates?  Or that the availability of numerous big blocks of contiguous space in quality buildings may attract new businesses simply because it boasts attractive rates?

It’s all about timing and perspective.

The worst timing I recall was in the late 1990’s and early 2000’s because there was single digit vacancy and high tenant demand, resulting in high rental rates.  Kansas City lost some deals because there wasn’t any quality space to lease and/or the tenants couldn’t afford it anyway.  Ironically, low unemployment here made recruiting difficult, creating a second hurdle to new business attraction.

Perspective-wise, while landlords and tenants need each other, the Business Journal article seems to suggest that what’s bad for developers/landlords is bad for Kansas City.  Because we exclusively represent tenants, including one that just leased 175,000 square feet of sublease space at the Sprint Campus, we think more choices and lower rates are a good thing.

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Lease Traps: Why Legal Counsel Is Not Enough

Wednesday, March 17th, 2010

Before signing any kind of binding contract, it is smart to have an attorney review it to find items that may not be in your best interest. Signing a commercial lease agreement is no different, but there may be items hidden in the lease that are outside your attorney’s responsibility. This is why we always say that you need a team that includes (at minimum) an exclusive tenant representative and your attorney representing you.

A landlord’s attorney and leasing agent obviously have the landlord’s best interests in mind when drafting leasing agreements. Because of this, there may be terms that add costs and fees in the lease allowing the landlord to get as much money from their tenants as possible – often in unexpected ways. Most of the time these lease traps aren’t necessarily sinister in nature, (sometimes they are just human error) but it’s the landlord agent’s job to capitalize on these items. That’s why it’s absolutely imperative that tenants hire representation of their own to protect them from these traps. Here are 5 of the top traps.

5 Common Lease Traps

  1. Size of Premises
    How do you know that you are really occupying the total square feet your lease says you have?  You should have the space calculation verified rather than take it on faith. Imagine your lease defines your space as being 20,000 square feet, but it is really 19,500 square feet.  At $20.00 per square foot on a 5-year lease, that’s a $50,000 overcharge!
  2. Operating Expenses
    Most office leases are defined as “full service” – meaning that operating expenses, real estate taxes and insurance (to name a few) are included in the base rent per square foot. For example, if the base rent is $20.00 per square foot, and the operating expense “base year” is estimated at $9.00 per square foot, many tenants think that implies that the expenses really are $9.00 per square foot. But the base year may be based on last year, or may be an estimate of next year, but is not a promise. So if the expenses were really $10.00 per square foot when the landlord’s agent put $9.00 in the lease, you are really paying a $1.00 higher rent without knowing it until later. The treatment of operating expenses is one of the trickiest terms in a lease, and one of the areas where we can add the greatest value in representing you.
  3. Services and Utilities
    Make sure you understand what services and utilities are included in your lease and when they are delivered. Many landlord agents describe deals that are contradicted in the leases. Some leases read that they only supply electricity or elevator services during “normal business hours.” Historically, this isn’t what has happened, but in these tougher times, a few landlords are now stating tenants must pay for electricity use after normal hours based on a meter they want to install and monitor. So, your staff is working late on a project a few nights a month, and your landlord sends you a bill for extra electricity. But what about the janitor that comes in at night, cleans your space and has the lights on? Should you get a bill? I think not, but you need to have a professional assess services and utilities to evaluate efficiency and help you predict (or avoid) costs.
  4. Construction Management Fees
    Many leases are written to include an obligation to hire a construction management company to oversee the build out of your space. In concept, I recommend this too. After all, how good are you at construction management when you do it every 5 or 10 years? But many leases demand that you hire a firm that is associated with the landlord and/or the landlord’s agent at a fee that is excessive. It all becomes a profit center for someone who has no fiduciary duty to the tenant. Example: The required construction management fee is 4% of the cost of the job on top of the contractor’s own fees. On a 20,000 square-foot tenant finish project at $40.00/sf, the 4% fee is $32,000 for someone more loyal to the landlord than to you.
  5. Do you have to pay to leave a space?
    Buried in many leases, usually in the Termination or Surrender section, is language that reads, “Tenant shall surrender to landlord the Leased Premises, broom clean, in good condition and repair, ordinary wear and tear excepted, together with all improvements constructed by Landlord thereon: provided, however, landlord may require Tenant to remove all such alterations, improvements or changes to the Leased Premises and restore the Leased Premises to as good of condition as existed prior to the commencement of the Lease Term.”  As your tenant rep, we can usually get this section limited or deleted in advance. Otherwise, you may be moving or already moved into a new space and the landlord notifies you that you must remove the walls, carpeting, cabling, and more from your old space at your expense! This is the kind of surprise we can prevent from happening when we represent you.

There are numerous other potential traps in a typical commercial lease. Your attorney’s role is to catch the legal problems, but they can’t be expected to know all the ever-changing ‘market’ fees and practices. It often takes a professional trained in commercial leasing to give tenants the most protection from hidden terms.

No tenant representative? Wally & Company has you covered. We represent tenants and tenants only in commercial property leasing. We have no ties, no partnerships and no agreements with landlords. What does that mean to you? We’re your partner, not a vendor. That means we’ll find the space that suits your needs and comb through the lease and negotiate the best terms for you.

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No Vacancy Or Know Vacancy?

Wednesday, March 17th, 2010

Vacancy is the most quoted indicator about the health of the commercial real estate market. Every broker recites percentage of vacancy as the statistic to describe market conditions.  We track vacancy too and take it very seriously, but we track vacancy of buildings our clients want – specifically Class A and Class B, non-owner occupied buildings.  Why is this important?  The reasons are many, but here are two big reasons.

First, building owners and their agents like it when vacancy rates are lower.  In their minds, low vacancy equals low supply.  Low supply means higher rates.  If an owner’s agent can make you believe that supply is low, they believe they can justify higher rates per square foot.   The most widely subscribed to indexes track vacancy among Class A, B and C buildings and owner-occupied buildings.  So the Sprint Campus (4 million sf) and the Black & Veatch headquarters (500,000 sf), get factored into the numbers as 4,500,000 square feet at 100% occupancy.  This artificially drives the vacancy down favoring owners’ story.  Since we track only Class A and Class B, non-owner occupied buildings, our vacancy study more accurately reflects true vacancy of the buildings our clients will be attracted to.  Today, our vacancy analysis for the Kansas City metro area shows a 9% higher vacancy than the most widely subscribed to index (22% vs. 13%).  We use this fact to our clients’ advantage.

Secondly, if your firm needed 25,000 square feet of space, the most important numbers to know are about vacancy for spaces 25,000 square feet or bigger.  If the market is 25% vacant, but there are few 25,000 square-foot spaces to choose from, the vacancy rate doesn’t help you much.

So to best advise our clients, we keep our own proprietary database so we know vacancy.  Just another way we’re your partner, not a vendor.

Please call us so we can have a ‘no obligation’ meeting to discuss your space needs now.

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The Cheapest Rate Per Square Foot Does Not Mean That Is The cheapest Space!

Wednesday, March 17th, 2010

In this month’s newsletter article, I wrote about making sure you verify that the size of your space is truly what your lease says it is.  It’s easy to understand that you shouldn’t pay for more space than what you really occupy, but how is it that “the cheapest rate per square foot doesn’t mean that is the cheapest space?”  Here’s a situation I have seen many times in my 30-year career.

During the early phase of representing you, we prepare a space program (space summary for non-architects) about your space needs.  It summarizes numbers and sizes of needed private offices, conference facilities, reception areas, file/workroom areas, systems furniture areas, training rooms, etc.  All these rooms are summed up, a percentage estimate for corridors is added on and we get a guesstimate of how many square feet to search for.  When we narrow the list down of your favorites, we ask each leasing agent to prepare a ‘test fit’ applying your firm’s space program to each space.  Then what happens?

Let’s use the example that your space program indicates you need 25,000 square feet.  Never does it lay out that way in real s

paces.   Buildings are dissimilar in many ways – size of floors, shape of floors, bay depths of floors – so no two buildings are equally efficient for your space program.  Building A may require 29,000 square feet to fit all your space needs, while Building B may need only 26,000 square feet (about 10% less) to work.  Let’s expand the example to say that Building A has a quoted rental rate of $22.50/sf and Building B has a quoted rental rate of $25.00/sf.   What happens on a 5-year lease?

Building A    29,000sf X $22.50/sf X 5 years = $3,262,500 total base rent
Building B    26,000sf X $25.00/sf X 5 years = $3,250,000 total base rent

As you can see, the initial guess that Building B would be too expensive is wrong because, for your space, Building B is more efficient.  Put another way, sometimes the cheapest rate per square foot doesn’t mean that’s the cheapest space.

It’s these kinds of analyses that we sort through every day for the clients we represent.  Just another way we’re your partner, not a vendor.

Please call us so we can have a ‘no obligation’ meeting to discuss your space needs now.

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