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Commercial Marketplace 1999


Commercial Marketplace 1999
February 18, 1999

The six most costly leasing mistakes

Puget Sound Properties

Every executive who reads the paper knows how tight the commercial real estate market is. And most know how important a good facility is to the bottom line. But most executives only get involved in leasing property when their lease expires, once every five to seven years. As a result, when it comes time to negotiate this important transaction, the average executive is ill prepared and may have a difficult time in the process. This leads to mistakes that can turn into serious problems.

Here are the six most mistakes that tenants can make:

Costly mistake #1

The first costly mistake most tenants make is failing to put the right team of professionals together. An office relocation will require a team of three individuals: a real estate broker who will help locate space and negotiate the lease, an architect to design the space to meet the tenants needs and a project coordinator to work with service providers such as telecommunications, movers, contractors and property managers.

Be aware that just about anyone can obtain a real estate license so you may need to do a little research to find a broker capable of implementing your relocation. A good starting point is to talk with people in your industry that have recently moved. These people should be able to give you some names of brokers. Interview several and check references. Once you have selected a broker to work with, it is important to get an agreement stating that the broker represents your interests and not those of the landlord.

A good broker can help you find architects to interview. You will want to work with an architect that has experience designing space for tenants in your industry. In selecting a project coordinator, most firms use someone from within their company to handle this assignment. This can be very challenging because the project manager will be faced with a myriad of important and unfamiliar details that must fit together. Successful relocations generally go unnoticed, but even the smallest disruptions in the status quo will fill the complaint box. For this reason, hiring an experienced consultant that specializes in managing tenant relocations may help you avoid a lot of unanticipated problems.

Costly mistake #2

The second most costly mistake is the failure to do a complete analysis of your companys space needs and adequately plan for future needs.

What specifically does your company need in its new facility and what are your priorities? Do you, for example, need to compete for more qualified employees? Do you anticipate the need to increase or reduce your space?

Its important to establish tradeoffs once you have your wish list in place. Leasing tradeoffs fall into one of three general categories: location, economics and building amenities.

As a practical matter, you will want to prioritize these tradeoffs so that your company ends up getting whats essential to your organization. A good broker will help your company uncover these needs and help you put together a strategic plan that incorporates current and future needs. This will give your company a good idea of what it is really looking for when you go out to look for space.

Costly mistake #3

The third most costly mistake is failure to adequately survey all available space, or wasting time on the wrong property. Its important that you review every property in the marketplace, not just your brokers listings. This will ensure that you dont miss the right property. Have your broker screen properties based on the needs assessment that you conducted earlier. This will ensure that you wont waste time on the wrong property.

Costly mistake #4

The fourth most costly mistake is failure to create a competitive environment for lease negotiations. You will get the best deal on your next lease when the landlords you are dealing with want your business and feel they have to compete for it. To foster this kind of competitive environment, tenants should take the following steps:

Always have more than one alternative. Even in the tightest market, your broker should be able to come up with at least two or three different properties that meet your needs. In the unlikely event that there truly is only one space for your company, tenants should have a back up plan to delay the move until the right space becomes available. Your broker and architect should be able to come up with ways to increase space efficiency and negotiate a hold over in your current facility if thats whats required.

Actively promote your company to your new landlord. Remember that real estate is not a liquid asset and credit risk avoidance is important to landlords. While your company may not be IBM or the next Microsoft, there are certainly some unique benefits that you have that make you attractive to a new landlord. Finally, avoid the temptation to focus your negotiations only on the most appealing property. Keeping your options open will foster a competitive negotiating process that will give you leverage to cut the very best deal for your company.

Costly mistake #5

The fifth most costly mistake is the failure to provide adequate time and resources for the entire process, including construction and the move. A tenant must have the resources to design and negotiate office space that meets the companys needs and must have the time to design and construct the office space prior to move in. What otherwise would seem a very simple and straightforward process, can become quite complicated when dealing with landlords and building departments.

Your needs will bounce up against constraints and deadlines brought about by the negotiated tenant improvement allowance, building code requirements, permit approval process, construction costs and lease deadlines. It is imperative at this point that your project coordinator, real estate broker and architect pull together to make certain that your needs are addressed within the scope of these constraints and deadlines.

Costly mistake #6

The sixth most costly mistake is not having enough time to complete the relocation process. The management of time is obviously important to the relocation process and sufficient time is required to avoid all the costly mistakes pointed out in this article. Summarized below is an estimate of the time frames you can expect for both smaller office relocations requiring less design and build out, as well as larger, more complicated space requirements.

Can you do it quicker? Without a doubt. You can complete some lease transactions in as little as a few weeks, but dont under allocate time for more complex assignments. If you are involved in a build-to-suit where construction of a new building shell is required, you will want to add at least another six to nine months to put up the building, plus whatever additional time is required to secure the building permit.

Every relocation is different, but a few facts hold true for all. Follow the steps that have been outlined here and you are on the right track to getting the best office space for your company.

Eric Postle is a founding partner of Puget Sound Properties Commercial Real Estate Services, L.L.C. He specializes in corporate real estate services and tenant representation.


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