Jerry Roche

Friday, 26 December 2008 19:00

Who’s your landlord?

Whether you are becoming a new corporate tenant or renewing your lease, the current state of the economy can help you gain some concessions. But be sure your landlord can afford those concessions or you might find your building going into foreclosure.

“Find a building with an owner who is on solid financial footing, and find a space that will be efficient for your use,”advises Russ Johnson, Senior Vice President of Office Agency Leasing at Grubb & Ellis Company’s Dallas office.“Make sure you know who the landlord is, so you don’t get into a foreclosure situation. If your building does get fore-closed, read your lease, and try to develop a relationship with the bank or the business that buys it out of foreclosure.”

Smart Business talked to Johnson about opportunities that exist for tenants in this economy.

What is the state of rent/lease prices and availability in the Dallas area, compared to last year?

Last year, the economy was great, the real estate market was strong and a lot of buildings were traded at high prices. Face rates were up and free rent concessions down. Obviously, today we’re not in the same place as we were a year ago.

However, rent today is still comparatively stable in the Dallas/Fort Worth market. Face rents have not gone down, particularly in the Preston Center and Uptown submarkets. We have lower unemployment rates than the rest of the country, and local companies are still doing well.

Typically, real estate will lag one to two quarters behind the economy. Many property owners are still holding their face rates and using free rent to lower the effective rent over the term of the lease to make new leases.

In this unstable environment, I would caution against choosing the cheapest deal. If you’re ready to make a long-term commitment to a new location, you want to know who the ownership is. Tenants need the confidence that an owner will provide working elevators, functional heating and air-conditioning, no leaks,etc. The cheapest deal is not necessarily the best choice if the building owner is not able to provide these services.

How does the financial status of the prospective landlord affect long-term corporate planning?

If you’re going to sign a long-term lease, you will want to make sure that the landlord will be there for the term. You want to avoid a situation where the landlord does not have the capital to maintain and operate the building or the bank will take back the building. Banks are in the financial business, not the real estate business. That’s why it’s important to understand from whom you’re leasing space.

In this regard, your tenant representative (real estate broker) can be a valuable resource. He or she will be able to tell you the landlord’s reputation, where the landlord’s capital is coming from and the landlord’s history in terms of maintenance.

How does the current ‘tenant’s market’affect a company’s approach to finding the right property?

Dallas is made up of micro-markets. In places like Preston Center and Uptown/Turtle Creek, the buildings are fairly full, rates are firm and tenants get few concessions. If you go over to Stemmons Freeway or Las Colinas, vacancy rates are higher. Those are ‘tenant markets’ where a prospective tenant can find five or six different options.

In this economy, tenants who want to renew in place can negotiate for shorter terms. Your landlord should be willing to do a one- to two-year deal. If you are looking for a longer term (five years plus), tenants have a reasonably good chance of getting one month of free rent per year of term.

If your lease is expiring, your current landlord will be highly motivated to keep you in the building, because it’s easier than filling a vacant space.

What should a tenant do if a building goes into foreclosure?

Realize that the financial institution that foreclosed on the building wants your rent income and does not want you to leave. A lease protects you somewhat, because the financial institution becomes the landlord, and it must performas stipulated in the lease — keeping the doors open, lights on, air conditioning on, and so forth.

Another level of protection is an SNDA(subordination nondisturbance agreement) that is typically a rider to the lease document. In general, the SNDA stipulates that if the lender takes over the building after a landlord goes into default, the lender agrees to honor the lease. In more robust financial times, a tenant of less than a full floor would have a hard time getting an SNDA. But today, landlords have to be willing to offer them to smaller tenants.

RUSS JOHNSON is Senior Vice President of Office Agency Leasing at Grubb & Ellis Company’s Dallas office. Reach him at (972) 450-3239 or russ.johnson@grubb-ellis.com.

Tuesday, 25 November 2008 19:00

Wait ... or invest now?

The real estate market — thanks to the failure of Fannie Mae, Freddie Mac and other big lending institutions — is in total upheaval.

This turbulence, which has influenced the whole international economy, can have a tremendous impact on your business.

“At the end of day, make sure that the consumer — the person whose business relies on the product — gets it in a timely fashion and that the costs of delivery are as low as possible,” says Blake Anderson, SIOR, Senior Vice President in Grubb & Ellis Company’s Dallas office.

Smart Business talked to Anderson about making industrial real estate decisions in this economy.

How are companies that are contemplating a new facility coping with the current economic situation?

On the leasing side, there’s a tremendous slowdown in decision-making. Executives are saying that maybe they don’t need that brand-new distribution facility, if they can continue operating as they are today, thereby incurring less risk and keeping costs down. A lot of companies are just renewing leases for six months or a year instead of five to 10 years.

On the user acquisition side, instead of spending substantial dollars on moving and consolidation costs, CEOs and CFOs — who are compensated on bottom-line dollars — are keeping their purse strings tight.

What benefits are obtained through ‘value engineering’?

‘Value engineering’ your facility is taking a conservative approach in making your facility functionally sound but not spending extravagantly. One or two years ago, tenant representatives were asking landlords for high-end everything, from lights to flooring to dock equipment. Today, with construction costs being so high, some landlords are willing to amortize those costs back into the lease but only if the tenant has strong or substantial credit. My clients are often setting aside tenant improvement dollars for future use to keep overall occupancy costs down.

Value engineering has to be the theme now that companies are learning to operate on a tighter budget. If the C-level people making the decisions are wasting money, they are not doing their job.

How important today is a company’s logistics team in choosing the right location?

Logistics is how the product gets to the consumer efficiently, quickly and with the lowest costs possible. Fifty percent of the cost of logistics is transportation. Labor is about 17 percent. Rent is just 4 to 5 percent.

With the rising cost of transportation, it’s even more important to bring a logistics team into the decision-making process from day one, because a difference of 50 miles can change the economics tremendously.

A logistics team and its expert advisers must look at potential locations based on labor costs, labor availability, incentives, ease of doing business, access to major thoroughfares, and access to intermodal and/or freight rail. Those are key elements in making a sound decision.

Can good values still be found in the industrial real estate market?

There is very little on the market as far as investment real estate. However, off-market deals from owners who find themselves in must-sell situations are increasing in numbers each day.

Conversely, there are a lot of great lease deals. If tenants are looking to renew, they’ll find great concessions. Because landlords don’t want vacancies, they are being very accommodating, especially with shorter terms, while still asking for market rental rates. This is not the time to have empty buildings.

What kind of terms are banks offering nowadays — if any at all?

‘If any at all’ is the key. Most big lenders have completely shut down most of their lending — even to AAA-type borrowers — until the beginning of ’09. There’s simply too much risk involved.

Lending sources are offering 60 percent debt with 40 percent equity — or 70-30 if the lender is 100 percent confident in the borrower’s ability to repay the loan. Though we are starting to see more defaults, it’s nothing like the housing market. Largely, the defaults are limited to manufacturing-type buildings.

Do you believe that now is the time to invest in industrial real estate, or should investors wait?

There are obviously different levels of investors. If you’re flush with cash and you can gather information from a market expert on a particular opportunity, this is a great time to find that off-market deal. But you have to make sure the asset is in a great location and it’s functionally sound.

For big institutional buyers who are just buying cash-flow-type assets, I don’t see many opportunities; the best opportunities are for the small local or regional investor who can find the off-market deal.

BLAKE ANDERSON, SIOR, is Senior Vice President in Grubb & Ellis Company’s Dallas office. Reach him at (972) 450-3207 or blake.anderson@grubb-ellis.com.

Thursday, 25 September 2008 20:00

Employee privacy rights

Employer monitoring of electronic communications is an active area of the law that is clearly unsettled, even though 130 million workers send 2.8 billion e-mail messages each day. Thus, privacy issues in the workplace are becoming more complex.

“The $64,000 question is how much privacy does an employee really have when he is sitting at a desk in an office provided by his employer, particularly when he is using communication equipment or electronic systems provided by his employer,” asks Steven I. Farbman, Of Counsel to Jackson Lewis LLP.

“It’s an important question because new technologies have been developing so rapidly, and people are becoming more and more comfortable using these technologies outside of work. What are the limits to their use while at work?”

Smart Business talked with Farbman about how to protect your company from litigation involving employee privacy issues.

In what legal arenas can employee privacy problems arise?

Privacy issues can be implicated in any number of areas, from the obligation to protect Social Security numbers and private health information to the monitoring of job activity. Most people think of employee privacy issues in terms of the latter, which can run the gamut from e-mail and Internet usage to blogging, instant messaging, telephone use and even video surveillance.

For public or government employees, there is a clear right to privacy that comes directly from the U.S. Constitution and the Bill of Rights. However, that right does not apply to employees of private, non-government employers. Over the years, a number of federal and state laws have been enacted that address privacy rights in all workplaces. Among these are the federal Electronic Communications Privacy Act of 1986 (ECPA), which generally prohibits the ‘interception’ of electronic communications, and the Stored Communications Act, which prohibits unauthorized intrusions into stored electronic information. A number of states have enacted wiretapping statutes, which generally prohibit the recording of conversations without consent. Beyond this, the common law right of privacy is being defined and refined in the courts on a case-by-case basis.

Are there exceptions to these federal laws?

Employer monitoring of employee e-mails and Web site access generally will not run afoul of the ECPA for two reasons. First, such employer monitoring likely does not meet the ECPA’s definition of ‘intercept.’ Second, the ECPA contains an ‘ordinary course of business’ exception that gives an employer the right to access an employee’s e-mail if the messages are maintained on a system provided by the employer.

However, the employer’s interception must be in the ordinary course of business, a standard that is not necessarily satisfied simply by maintaining a general policy of monitoring. This ‘ordinary course of business’ exception also applies to the monitoring of employee telephone calls.

The Stored Communications Act has an even broader exception. An employer may access stored e-mails on electronic services it provides. But, this exception is not universal. For example, there is no protection for intrusion on systems hosted by third parties, such as when an employee accesses his or her own personal Web-based e-mail account through the company system. For this reason, employers should be wary of accessing information not contained on their internal networks without the user’s authorization.

How can employers protect themselves from litigation over employee privacy rights?

The touchstone in analyzing this type of litigation is whether an employee had a reasonable expectation of privacy in his or her use of the company’s technology. Therefore, employers should strive to appropriately limit or reduce the employee’s expectation of privacy without significantly and negatively impacting employee morale. This can be done with a detailed and clearly written electronic communications policy.

Such a policy not only should explain what systems are available, but also should spell out the employee’s obligations and put employees on notice that, among other things, the company equipment, including telephones, computers and electronic systems, is designed primarily for business use only; and the company has the right to access and monitor those systems, including the e-mail system. Also, do not communicate to employees that the systems are strictly for business usage, because the National Labor Relations Act protects certain communications between employees that may otherwise be chilled by such a restriction.

Historically, how have courts balanced an employee’s right to privacy against an employer’s right to protect the company?

The courts try to balance the employer’s right to information about its employees and their job-related activities against the employee’s reasonable expectation of privacy in the workplace, and they do this on a case-by-case basis. In one case, an employer committed to employees that all e-mail would remain confidential and privileged, yet its IT department accessed e-mails and found evidence that led to the termination of an employee. The court still found that, on the particular facts, there was no ‘reasonable expectation of privacy’ in that case.

Many similar cases suggest that the rights of employers in this area are not to be minimized. Broad judicial interpretations of enacted privacy legislation favor legitimate monitoring practices by employers, and many elements of common law claims are difficult for employees to prove.

STEVEN I. FARBMAN is Of Counsel to Jackson Lewis LLP. Reach him at (412) 232-0219 or farbmans@jacksonlewis.com.

Tuesday, 26 August 2008 20:00

A study in tax savings

By partaking in a cost segregation study, your company can recognize significant tax savings in real, permanent dollars. Although the overall concepts have existed for some time, certain court cases and rule simplifications have made cost segregation increasingly popular. Also, the green movement in construction and recent tax law changes like the Economic Stimulus Act have added additional considerations.

“A large percentage of the companies we meet with move forward with cost segregation,” says Peter A. Bellini, CPA, a principal at Skoda Minotti, a Cleveland-based firm of CPAs and business and financial advisers.

Smart Business spoke to Bellini about how cost segregation identifies, segregates and reclassifies the physical assets of your business that qualify for shorter, depreciable tax lives.

What is cost segregation?

Cost segregation is an IRS-approved method of reclassifying components and improvements of a commercial building from real estate to personal property. The process allows the assets to be depreciated on a five-, seven- or 15-year schedule instead of the traditional 27.5- or 39-year depreciation schedule of real property. The results will greatly reduce a company’s taxable income and increase its cash flow.

IRS rulings over the past several years and administrative changes have allowed taxpayers to take advantage of these previously understated depreciation expenses on property already in service by utilizing a change in accounting methods that no longer requires the need to amend tax returns. New construction, buildings purchased in the current year, or any building placed in service after 1986 are eligible. Substantially large lease-hold improvements are also eligible.

What does a cost segregation study do, and how can it help a business?

Cost segregation uses an engineering-based study and analyzes construction documents, blueprints, invoices and other relevant information to determine which components of the facility can be depreciated over a shorter time period.

As instructed by the IRS Code, commercial real property must be depreciated over 39 years. Many of the components can be classified as personal property and depreciated over five, seven or — in the case of land improvements — 15 years. By depreciating personal property and land improvements over shorter lives, a company is able to recognize significant deductions and tax savings on its current and future tax returns.

What qualifies for a shorter depreciation?

Cost segregation studies the components of real estate, separating out personal property that qualifies for a shorter depreciation life, including equipment, machinery, computers, carpeting, cabinetry, special lighting, generators, landscaping, parking lots, windows, site preparation, razing of an existing structure, cabling, subfloors and much more.

What do you need to get started?

It’s very easy for companies to obtain an initial cost analysis and an estimate of savings. If it’s an existing structure, the cost segregation specialist will need a description of the building, capitalized costs and current depreciation schedules. In the case of new construction, the developer or investor group usually works directly with the specialist near the end of construction to analyze construction costs, blueprints and specifications. Eventually, construction invoices, depreciation schedules, appraisals, a site inspection and photographs of construction components also will be needed.

How have recent tax law changes affected cost segregation?

Beyond tax refunds to individuals, there was one substantive pronouncement of the Economic Stimulus Act of 2008. It altered Section 179 to increase ‘immediate depreciation expensing’ to $250,000 per year from $125,000 and to restore a 50 percent bonus depreciation. Those new pronouncements only apply to new construction and new, major remodeling.

But, what they do is enhance the value of implementing a cost segregation program. If you’re doing a major remodel or constructing a building this year, you would be absolutely remiss if you didn’t perform a cost segregation study. It would be a major, major oversight.

How has the green movement in construction affected cost segregation?

Organizations today are being more environmentally conscientious, even though the materials for ‘green’ buildings are more expensive. But, if you go down that path, there are more components that qualify for shorter depreciation lives, like solar-energy panels. I should mention that other tax credits not pertaining to cost segregation are also available if you build green.

PETER A. BELLINI, CPA, is a principal in the tax department at Skoda Minotti. Reach him at petebellini@skodaminotti.com or (440) 449-6800.

Saturday, 26 July 2008 20:00

Find the right warehouse

According to at least one expert analyst, the demand for warehouse space in the Detroit metro area is poised to grow. That’s contrary to the current direction of the economy.

“I take an optimistic view,” says Dan Labes, senior vice president of the Industrial Division at Detroit’s Grubb & Ellis Co. “I believe that — because of increasing cost of transportation and fuel — the demand for warehouse space may actually increase to get the product closer to the customer.”

Smart Business talked to Labes about finding the proper warehouse property.

What is the current availability of warehousing facilities here?

There are approximately 20 million square feet of Class A distribution space in the Detroit metro area. Class A is defined as newer properties with a 30-foot or greater ceiling height, multiple dock doors — approximately one per 5,000 square feet — and high-density (ESFR) sprinklers to allow users to rack the full height.

Some users require Class A space, but then some tenants with razor-thin margins want Class B space, of which about 30 million to 50 million square feet exists. These are older buildings with ceiling heights of 18 feet to 24 feet and one dock door per 10,000 to 20,000 square feet. Many of these buildings do not have updated, efficient lighting and heating, but they’re still very functional for warehouse space.

Most of the available warehouse facilities are located in western and southern Wayne County. Land there is less expensive, close to the airport, close to the rail and close to the interstates that link Michigan to Ohio, Indiana and Illinois.

When selecting warehouse facilities, what are some factors that might positively or negatively affect a potential deal?

Location and price always apply.

Even though some tenants need Class A space and are willing to pay for it, the Class B buildings that deliver the cheapest rates are usually the first to go.

Some tenants have a requirement for trailer storage, so buildings that can provide on-site trailer parking seem to fare better. Other nice features are heating/ cooling systems with climate controls, good lighting and upgraded sprinklers. State-of-the-art lighting and insulation in a building’s walls and roof also are in demand because of increased energy costs. Dock doors on newer buildings have grown from being 8-by-8 feet in older buildings to 10-by-10 feet in newer buildings. Truck courts with more maneuvering area are now more popular because trucks have gotten longer over the past 15 years.

Other factors that can impact a deal include:

  • percentage of office space

  • column spacing

  • flex space

  • floor loading specifications

Though markets like Kansas City, St. Louis and Chicago are serviced by rail, the number of transactions here that rely on rail are few and far between. Of all the ‘spec’ buildings that have been constructed here in the last 10 years, none of them are rail-served — and that’s more than 10 million square feet of Class A space. Rail use in the future might increase with the increased costs of transportation and fuel but that remains to be seen.

About how many facilities does a company review before making a final decision?

Three to six, typically, and it can take up to two years to finalize a lease. Six to 12 months is the average.

Many, many transactions are contracted-related. In those instances, the broker is dealing with logistics companies that must first negotiate purchase orders with their customers. If that third party loses a contract, it no longer needs the warehouse space. In one instance, it took 18 months for two companies to finalize a contract.

In general, a company should allow anywhere from four to 12 weeks to identify a new facility, negotiate business points and legal terms and move in. Of course, this schedule is highly dependent on the specific search being conducted and can vary based on any of the following: availability of product in the market, scope and duration of work to be completed by the owner or tenant, complexity of the requirement and size of the company performing the search.

A good rule of thumb is to start earlier rather than later.

In what areas can a potential tenant seek negotiating leverage before signing a lease for a warehouse?

Everything’s negotiable. Important negotiating factors include the creditworthiness of the prospective tenant, length of lease, special improvements that must be made, expansion rights and even an early termination option.

DAN LABES is senior vice president of the Industrial Division at Grubb & Ellis Co. and member of its Global Logistics Group. Reach him at (248) 357-6578 or dan.labes@grubb-ellis.com.

Wednesday, 25 June 2008 20:00

Dire consequences

On Dec. 1, 2006, the Federal Rules of Civil Procedures were amended to formally include a section on discovery of electronically stored information (ESI).

“Higher-lever management and IT people must become educated on what this change really means well in advance of any litigation being filed by or against their company,” says Ronald S. Hodges, a partner and head of the litigation department at Shulman Hodges & Bastian LLP. “Consequences could be dire if they do not comply with this new statute.”

Smart Business talked to Hodges about those ‘dire consequences.’

What challenges face corporate managers?

The overwhelming majority of companies interviewed in surveys appear to be grossly unprepared to meet the standards enunciated under this code section. They either do not know about it or they know about it but do not have the systems in place, or they know about it, have the systems in place, but do not know what is required of them in case of potential or actual litigation.

The important thing for higher management to understand is that there are severe consequences if it does not have systems in place to address this issue once the company has reason to believe a claim is possible. The compliance standard is whether litigation is reasonably foreseeable. It is not triggered by the filing of a lawsuit; it is triggered by an event that a reasonable person would believe may lead to a lawsuit.

From a preventive standpoint, upper-level management must meet with inside general counsel who has litigation experience, or an outside litigation firm that has federal court experience. The particular statute that is wreaking the most havoc pertains to federal court litigation, but California has similar provisions for issues relating to e-discovery.

What are some of the ‘dire consequences’ to which you refer?

Many executives are putting their heads in the sand, claiming it is just not cost-effective to implement the procedures necessary to comply. But frankly, those costs are a drop in the bucket compared to the potential consequences; to wit:

  • A party that does not comply may be responsible for paying the other side’s attorney fees for the time incurred obtaining information that was not properly maintained.

  • In the case itself, a judge may rule that the party complying with rules gets certain inferences drawn in its favor over the party that has not complied.

  • If there’s intentional destruction of information or an intentional ignoring of this code section, the court can ultimately dismiss the claim or rule in favor of the other side.

What are some sanctions that the court may impose?

In the Coleman case against Morgan Stanley, which didn’t comply with this particular code section, the court allowed adverse-inference sanctions, which resulted in the jury awarding the plaintiff $1.4 billion.

It is very important to keep in mind that the sanctions are not limited to findings against the company. Courts also have held upper-level management personally liable for some of these sanctions. For instance, in a case against Phillip Morris, executives were sanctioned $2.75 million, and each executive was personally sanctioned $250,000.

How can CEOs and senior-level management be proactive?

First, protocol involving ESI should always be specified in the employee handbook.

Keep in mind that it is still appropriate to dispose of ESI in the ordinary course of business. The issue is making sure that you have an ‘ordinary course of business’ or a normal protocol. The more you can show to the court that you have mechanisms in place, along with checks and balances, the better you will be able to demonstrate that you’ve acted reasonably in attempting to maintain these documents. There also must be a periodic audit of the company’s IT department — by general or outside counsel — to ensure compliance and to monitor the system.

What should a company do if a lawsuit is filed against it tomorrow?

When notified of pending litigation, a company should immediately issue a litigation hold memo or hold letter to all employees. The memo should state that all documents relating to that issue be preserved and that electronically stored documents not be deleted. Further, it should direct the IT person to not deviate from normal document-retention policies and to disarm automatic delete features so as to preserve the relevant ESI. Certainly, general or outside counsel should at least review the memorandum to assure that the necessary legal language is included and that the warnings are sufficiently stern.

What effect has this had on litigation?

The e-discovery section is being used as a strategic sword. Frankly, you will be colored in a very unfavorable light from the onset of the case if opposing counsel is able to prove that you have either intentionally destroyed electronically stored documents or have failed to make any effort to preserve them.

Because this amendment has been in effect for a year and a half, companies can no longer claim ignorance with any level of reasonableness. As is often said, ignorance of the law is not an excuse for not obeying it.

RONALD S. HODGES is a partner and head of the litigation department at Shulman Hodges & Bastian LLP. Reach him at rhodges@shbllp.com or (949) 340-3400.

Monday, 26 May 2008 20:00

Leveraging negotiations

Negotiating a competitive real estate lease renewal or restructuring of any kind requires strategic planning and that you understand the market conditions that will impact the building owners’ decisions. Timing and knowledge are the critical factors.

“Moving your place of business is always an option, though renewing or extending a lease can be the best value for you and the landlord,” says Cameron Tapley, senior vice president and member of the Tenant Advisory Group at Grubb & Ellis Company. “If you stay, the landlord avoids potential lost rent and costly tenant improvements typically experienced as a result of your departure. The tenant avoids the disruption and cost of a move and your broker should be able to recapture some of the landlord’s savings. Whether you’re negotiating a real estate renewal or any kind of transaction, it is important that you or your representative start your negotiations early and understand the big picture, market conditions and the impact the transaction will have on everyone involved.”

Smart Business talked to Tapley about lease renegotiations.

Are lease negotiations for renewals handled the same as new leases?

If you do a good job of negotiating the initial lease, renewals are pretty simple. You just need to establish and agree on fair market value and then document the terms of the extension. However, it is always a good idea to identify and partially negotiate a couple of viable alternatives to ensure that you can create a competitive negotiating environment.

What actions should a company normally take prior to engaging in negotiations to renew or renegotiate a lease?

Develop a strategic plan with a timeline based on the future needs of your company and get started early. Get a proposal from the landlord early — 12 to 30 months in advance of lease expiration depending upon the term — so you are able to determine if the owners are tuned into the local market conditions and if they have any internal issues that may affect their ability to offer competitive lease terms.

Your planning should also include an evaluation of the efficiency of your space. Talk with your operational department heads for help in that evaluation; this typically reduces the size of the requirement.

Can a lease really be flexible?

Yes, but if you take away control from the landlord, it will cost you. The value you represent, as a tenant, is based on the confidence that landlord has in your ability to meet your commitments and how predictable your rental stream is. The strength of your company’s financials and business will determine the level of confidence, which is more or less fixed at the time of the negotiations. The predictability aspect is dependent upon the lease terms. The more flexible the lease is for the tenant, the less predictable that rental stream is. Examples are:

  • Right to increase or decrease the size of the space

  • Right to terminate

  • Right of first refusal

  • The right to renew

  • Limiting restrictions in the assignment language

Termination options are a great bargaining chip. However, termination fees are made up of the unamortized commissions and improvement costs. With that in mind, if you are able to find a space that needs minimal improvements, you can reduce those fees.

You should also request the right to relocate within a landlord’s properties. This could allow you to increase or decrease the size of your space during the lease term.

What in a lease is negotiable?

Everything, at a price. Before entering into negotiations, I recommend that you analyze how the lease terms will affect both sides. Though a transaction may ultimately be weighted to one side or the other’s advantage as a result of market conditions, it has to make good business sense to all. The mistake that many tenants make is to focus solely on the rate rather than weigh all the economic and control aspects as a whole.

How can a company gain leverage in its negotiations?

Fear is a part of all negotiations, otherwise it is a dictate, not a negotiation. A broker’s job is to minimize the client’s fear by providing viable options and enough time to get his or her clients comfortable with their decision.

Most decision-makers feel that their decisions are rationally based rather than emotional. In many aspects they are, however, when you are in the middle of negotiations and feel exposed as a result of a poor leverage position, you are anything but rational. Just keep in mind, if both parties are willing to execute an agreement that would be considered reasonable by both parties, you should have no problem bringing your negotiations to a successful close.

CAMERON TAPLEY is senior vice president in Grubb & Ellis Company’s Dallas office. Reach him at cameron.tapley@grubb-ellis.com or (972) 450-3237.

Friday, 25 April 2008 20:00

Where to meet?

Once a tentative schedule has been determined, corporate meeting planners must choose where the meeting or event will be held. That responsibility is often trickier than it sounds.

“The most important tip is to do your homework on possible facilities and make on-site visits,” says Joe Folk, general manager of the Professional Education and Conference Center at Kent State University’s Stark Campus.

Smart Business talked with Folk about the surprising impact that a venue can have on the success of a company event.

How, indeed, does the choice of venue affect a company event?

So many times, meeting planners think that if they find a room with tables, it’ll be a successful meeting. But the right choice of venue is paramount. From a management standpoint, it’s much easier to add nice food and beverages to a conference center than to try to convert a restaurant/ballroom into a conference center. Also, conference centers will supply event planners, which take care of all the details — making the corporate meeting planner’s job so much easier. Your choice of venue should also be adapted to the number of people attending your meeting or function. Not all venues can offer the right seating arrangements for larger events. For instance, Kent State Stark specializes in small- to medium-sized events because the facility was designed for such events. Other factors that can help determine the right site include the availability of audiovisual support, computers, customized floor plans, ergonomic seating and standardized break stations.

What should be included in the agenda for a company event?

For corporate meeting planners, it’s a pretty cut-and-dried formula. One of the first things that they need to understand is what time the facility opens in the morning. They also need to ascertain when the break station is available — here, usually a half-hour before the meeting is scheduled to begin with continuous service throughout the day. It’s important, too, for them to space out the morning break, lunch, the afternoon break and the end of the meeting. Attendees will be in a distraction-free environment for up to eight hours, but many of them might still want to stay in contact with their offices via phone or e-mail.

What other tips can you offer in-house corporate event planners?

During your on-site visit, ask for an audio-visual demonstration, because technology can enhance the presentations. Each facility is different; what one facility calls ‘high-tech’ is standard for another. Next, ask for a list of past clients to use as references, then make a couple of phone calls to see if the site lived up to its billing. You should make certain that your event planner is scheduled to be at the facility during your event. You want him or her to be available, in order to assist with any last-minute or ongoing details. You can also ask if the on-site chef and the culinary staff can cater to special dietary needs. And don’t be afraid to sit down and have lunch there, to sample the food and see how the servers treat you. Ask about other events scheduled concurrently with yours. For instance, we cater to trade shows and exhibits for businesses like The Timken Company and job fairs for organizations like the Canton Chamber of Commerce. You don’t want a huge trade show and your meetings to be scheduled at the same time because you don’t want 500 job seekers going through the building while you’re trying to conduct your meeting. Other questions to ask during your visit include: Is the staff friendly, is the facility clean and comfortable, and is the staff willing to work with you on the schedule?

Is certification important?

Corporate meeting planners should look for the IACC (International Association of Conference Centers) seal and affiliation. The IACC gives you a third-party auditing system, ensuring top-notch technology, facilities and service.

What social functions can complement educational functions?

On-site social functions include a pre-seminar breakfast and a post-seminar reception or dinner. Those give participants the opportunity to meet in a more comfortable environment for networking. The conference center’s staff generally will not take responsibility for off-site activities, but they can introduce you to personnel from the local visitor’s bureau.

What kind of post-event feedback is needed from attendees?

First, the meeting planner should ask attendees whether the event was a good use of their time. For trade shows and exhibits, it’s a good sign of a successful event if the exhibitors/vendors are willing to come back next year. Then, you should offer an appraisal of the facility to your contact person. Let him or her know if it was easy to park and get into the building, whether the food was up to expectations, whether your audiovisual needs were met. How pleasing was the room? Were the room temperature and lighting comfortable? It’s our job to deliver what we promise — to not only meet expectations but to exceed them.

JOE FOLK is general manager of the Professional Education and Conference Center at Kent State University’s Stark Campus. Reach him at (330) 244-3506 or jfolk1@kent.edu.

Wednesday, 26 March 2008 20:00

Clamping down

In the near future, failure to comply with Internal Revenue Service regulations that were proposed last summer could result in significant tax problems for employers and employees. These regulations would have a profound impact on the cafeteria benefit programs of most employers, covered under IRS Code Section 125.

“While the previous regulations were unclear, outdated and generally not enforced, the new proposed regulations are very specific and would provide the IRS with powerful enforcement tools,” says Kurt Smidansky, a partner at Jackson Lewis LLP.

“In certain respects, the proposed rules are even more stringent than the rules applicable to 401(k) and other qualified retirement plans,” adds Jason Rothman, an associate at Jackson Lewis specializing in work-place law.

The IRS will issue final regulations sometime in the future, which may or may not relax some of the proposed requirements, including the possible extension of the effective date (Jan. 1, 2009). Still, employers need to consider the effects of the proposed regulations on their cafeteria plans based on the current requirements and effective date.

Smart Business talked to both Rothman and Smidansky about some of the key issues employers need to address in their cafeteria plan documentation and operation.

Why use the term ‘cafeteria’ when referring to Section 125?

Generally, a cafeteria plan is a tax code vehicle that allows employees to elect to have salary contributed on a pretax basis toward certain employer-provided welfare benefits. The plan contains options from which employees can pick and choose — similar to going through a cafeteria line. The idea for the name of the code section stems from employees having a menu of choices. For example, pretax employee contributions toward medical coverage, including flexible spending arrangements, group-term life insurance, dependent care assistance programs and adoption assistance programs, are required to be made under a cafeteria plan in order to qualify for the pretax treatment.

How would the proposed regulations affect cafeteria plans?

They contain very explicit and detailed requirements as to what must be included in the written cafeteria plan document:

  • A description of all benefits under the plan

  • The rules for eligibility to participate, specifically requiring that all participants be employees

  • The procedure governing employee elections and that all elections are irrevocable — subject to certain exceptions for a change in status

  • How employer contributions are made to the cafeteria plan and the maximum amount of elective contributions

  • The plan year

  • The use-it-or-lose-it and uniform coverage rules — if the cafeteria plan contains a flexible spending arrangement

  • Grace period requirements, if applicable

The proposed rules also appear to require plan amendments to be adopted prior to the date they are effective, meaning plan changes will need to be documented before implementation. The regulations also provide guidance on cafeteria plan nondiscrimination rules that would make them more enforceable. One troublesome aspect requires testing to be done at the end of the year, with no ability to go back and fix problems that might have created a failed test. Testing would be the responsibility of the employer.

Why should employers be concerned with these regulations?

Even one minor failure to satisfy Code Section 125 would trigger disqualification of the entire arrangement, thereby re-characterizing salary contributions under the plan as made on an after-tax — rather than pretax — basis. In addition, not having the ability to fix problems would place a heavy burden on employers to structure programs that are predesigned to comply with all of the rules.

Wouldn’t the regulations unfairly penalize employees, who have no hand in compliance, rather than employers?

The IRS’s proposal is harsh. The employer would be affected by losing a lot of credibility in the eyes of the employees, plus it would have a withholding mess on its hands. But the real sting is on the employees, who would not receive a favorable tax treatment if their company’s plan were disqualified.

What must employers do?

They need to review and analyze their cafeteria plans to determine the impact of the new proposed regulations. Attention to the actual plan document is a must, as the failure to have a properly drafted plan would disqualify the plan. Employers who sponsor cafeteria plans also need to check how their plans will likely perform under the year-end nondiscrimination testing to make sure they comply with the new requirements. Additionally, cafeteria plans with a flexible spending arrangement would have to deal with several additional requirements. Because disqualification would result in taxation to employees of all benefits provided under the cafeteria plan, it is in the best interest of an employer and its employees to take action prior to Dec. 31, 2008.

JASON ROTHMAN is an associate at Jackson Lewis LLP, where he represents management in workplace law and related litigation. Reach him at (216) 750-0418 or jason.rothman@jacksonlewis.com. KURT SMIDANSKY is a partner at Jackson Lewis LLP. Reach him at (216) 750-0404 or smidanskyk@jacksonlewis.com.

Wednesday, 26 March 2008 20:00

The elusive sheepskin

Colleges and universities anticipate a 17 percent growth in enrollment over the next 10 years, much of it in the “adult learner” category (adults 25 to 64). Many of these students will receive financing from the companies for which they work.

“Forty percent of people in the work force participate in some form of continuing education,” says Dr. Patricia A. Book, vice president for regional development at Kent State University. “Employees with high school diplomas earn an average of $29,000 per year, while those with bachelor’s degrees earn $54,000. The work force understands the value of investing in education and training.”

So, too, does business and industry, Book adds. “Employers are spending more on work force training and education,” she says. “Nationally, 60 million adult students receive some kind of support from their employers.”

Smart Business spoke with Book about why employers should support degree-completion programs for valued employees.

How do degree-completion programs help our regional economy?

Higher education is necessary for economic growth here in Northeast Ohio. Per capita personal income — which approximates regional standard of living — is directly tied to degree attainment, particularly completion of bachelor’s degrees. The more education, the more likely people are to get the jobs that the new knowledge economy is creating.

In today’s work environment, the skills and competencies developed through continuing higher education — technical and problem-solving skills as well as creativity and the ability to innovate — are needed to keep ahead of global competitors. Even people with degrees need to keep learning throughout their careers. The bigger picture is that Northeast Ohio won’t be able to compete as a region if we don’t have the human capital and talent to fill the types of jobs that are being created. And, as a region and state, we are lagging behind.

Why should employers offer degree-completion programs as an employee benefit?

There is a direct correlation between investing in continuing education and retention of employees. When you invest in employees, they invest in you. Because employees develop current knowledge, critical thinking and creative abilities through continuing education, they can better help your company address challenges and develop strategies for success. Many companies see their investment in education and training as enhancing their ability to attract talent.

Has there been a change in degree-completion programs over time?

The most common content areas are management and supervision — for those who only have a technical background or degree — and business practices. But institutions across the region are developing new degrees that respond to the needs of the work force in areas as diverse as radiologic technology, bioscience, manufacturing technology and a host of health-related occupations like occupational therapy, physical therapy and nursing. Educational providers are adjusting their curricula to provide new programs, and modifying existing degrees, developing new tracks within those degrees and creating companion degrees that focus on the kind of talent that businesses need.

Is technical knowledge stressed?

The promising graduates coming out of universities — particularly at the baccalaureate and graduate levels — are people who can lead and transfer knowledge. Scientists are increasingly commercializing research and technology to create new businesses in advanced materials and the biosciences. Yes, an important component is technical knowledge, but equally important are creativity and innovation — the kinds of things we need as a country to remain competitive in the global economy. So scientists, engineers and other high-tech employees need that broader background provided by the foundational bachelor’s degree. But we as a nation also need to produce scientists and leaders who have master’s degrees or doctorates in research-based fields like engineering, science, medicine, biology and chemistry.

How do online courses fit in to degree-completion programs?

Because of the flexibility and new methodologies for delivering education, forecasts predict more and more students opting for full-time online enrollment. Institutions understand that adult learners have major commitments to work and family, so they cannot easily commit to the daytime class schedule of a traditional student. Online classes and shorter courses make it easier for adult students to arrange their studies around their work and personal lives. But online courses that engage both the instructor and student have to be well designed and rigorous to ensure quality.

Should upper management also consider degree-completion programs?

Absolutely. Management development is a huge need and probably the most dominant area in continuing higher education. Most universities and some colleges offer an executive MBA program tailored to senior executives. It can keep top talent on the cutting edge of business management and strategy — including an international component.

DR. PATRICIA A. BOOK is vice president for regional development at Kent State University. Reach her at (330) 672-8540 or pbook1@kent.edu.

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