Several financial institutions and
bankers are saying that the current
subprime meltdown may last two to three years and create job losses in the
neighborhood of 20,000.
This situation begs for good real estate
brokers who specialize in tenant representation. Such brokers can advise their
clients about funding tenant improvement
dollars, providing quality management and
security services, handling build-to-suit
deals, and coping with ownership changes.
“Another factor before agreeing to a new
lease is identifying what other tenants
occupy space in the building,” says Jim
Vanderslice, Senior Vice President of
Grubb & Ellis Company’s Office Services
Group in Dallas. “A-level tenants are those
whose occupancy is one person per 250
square feet, while B-level tenants have a
density of one per 100 to 125 square feet.
Over-occupancy by B-level tenants can
cause numerous system malfunctions —
like waiting five minutes for an elevator or
facing a parking lot that’s full to capacity
every day.”
Smart Business talked to Vanderslice
about real estate considerations, before
and after the subprime meltdown.
Why hire a real estate broker?
A prospective tenant should not hire just
any real estate broker, but one who is experienced and who specializes in representing tenants. Finding space is easy, but it
ultimately pays to have someone who
understands the nuances of the problems
that can occur and who can offer advice on
how to protect yourself as much as possible.
Also, hire someone the owner will take
seriously; in other words, someone who
knows what they are talking about.
How long before the current lease ends
should a tenant begin seeking a new location?
Because of current economic conditions,
a lot of space will be coming back on the market in the next 12 to 24 months, so
there will be a tremendous amount of sub-lease space and opportunities. All the jockeying for tenants will create more leverage
for them to negotiate price.
If your needs are for an occupancy of
20,000 square feet or smaller, you should
start 12 months in advance. If your space
needs are larger, then start 18 to 24 months
in advance.
How should finding a suitable location be
pursued?
If you hire a broker, be sure he or she analyzes the possibly problematic issues so
you don’t opt for the cheapest rent or the
most convenient building location.
Once a location is determined, then identify the owner(s) and manager(s) of the
buildings being considered. You need a
current profile of owners and the long-term
objectives for ownership, if any. You have
to determine what other tenants in the
marketplace are competing for space and
the quality of the buildings as they sit. You
have to assume prospective buildings must
be in play because of all the trades in the
last year.
Also, be aware that ownership fully investigates credit information on a tenant, and
that there’s a lot of default language in the
lease aimed at the tenant. Each ownership
profile stands on its own, but an experienced broker will still want to create a
lease that protects the tenant as much as
possible — without having to go to court.
What economic pressures are being placed
on owners/landlords?
A lot of credit issues and easy capital
have influenced the commercial real estate
market lately. They have placed economic
pressures on owners, but there’s still an 18-month to 36-month window to work
through a lot of them.
A landlord can cut a lot of expenses and
still maintain minimum services required
under the lease. But usually, there’s some
fall-off of services when there’s pressure to
cut expenses as much as possible.
Also, you should beware of situations
where the rent goes to an alternate payee
or when building ownership changes. As
buildings trade hands, there’s an Estoppel
Certificate that forces the tenant to
acknowledge terms of the lease. When presented this document, the tenant should
get a broker to look at the lease and be sure
the terms line up with the Estoppel
Certificate. If there are any issues or problems with the lease, the time to put them in
front of the owner is before you sign the
Estoppel Certificate. It gives you — the
tenant — some leverage.
When the market was strong, no one really paid attention to the owner or manager,
but that has changed. The good, established landlords or owners will still be in
demand. But with a lesser landlord/owner,
the tenant sometimes has no recourse
except a lawsuit — and that’s something an
experienced broker can help you avoid.
JIM VANDERSLICE is Senior Vice President of Grubb & Ellis
Company’s Office Services Group in Dallas. Reach him at (972)
450-3335 or [email protected].
