Want to know the secret to getting
better locations, lower rates,
greater incentives, and smoother transitions for your real estate projects?
Start early. Tenants give themselves a huge
advantage when they start planning real
estate projects well in advance with the
help of a skilled tenant advisor.
“Once a real estate need is identified, the
project should become part of the company’s long-term planning objectives” says
Henry Jaffe, advisor with CresaPartners.
Smart Business spoke with Jaffe about
how to improve the success of your real
estate projects through early planning.
When should you start a real estate project?
Many factors influence when tenants
should begin a project. In general, to
ensure the greatest costs savings, tenants
should begin any real estate project at least
18 months prior to the lease expiration.
Build-to-suite projects should realistically
start 18 to 24 months before lease expiration. The start date on new construction
projects are primarily driven by the type
and extent of the building and the local permitting requirements.
Why should tenants start real estate projects
early?
The most educated and informed tenants
will ultimately structure the most favorable
terms for their contemplated renewal or
relocation. Time can be tenants’ most useful negotiating leverage tool. A competitive
environment increases their leverage and
ultimately decreases potential total occupancy costs by up to 20 to 30 percent. This
means, for example, if a company leases
24,000 square feet for $20 over five years, it
saves from $480,000 to $720,000. Waiting to
begin the process will eliminate options
and weaken tenants’ negotiating position.
Also, working on an extended timeline
ensures that there is a proper cushion at
each step of the process. When tenants
have their space secured well before their
lease expiration, they can still meet their
projected deadlines, even if the build out or
other components of the process experience delays. This keeps tenants in a secure
position where they can make the best
decisions.
What professionals should be involved in
real estate projects from the beginning?
Companies can make sure they begin real
estate projects on time by assembling a
competent, focused project team. Dedicated experts ensure accountability. The
composition of the project team depends
on each situation. Due to the complexities
of commercial real estate transactions and
the significant financial obligation at stake,
businesses should consider hiring a tenant
advisor to help guide the project and
involve the appropriate professionals.
- Tenant advisor: The lead on the team
and the person who has ultimate responsibility for the success of a project. He or she
will develop the plan for the project and
put together the best team to implement
that plan, making sure that the ultimate
solution best supports your business.
In addition to the tenant advisor, the following professionals could be involved in
the process:
- Space planner: These professionals
determine companies’ actual space
requirements and how they fit into
prospective locations. Bringing space planners onto the team early in the process
ensures that businesses have a clear idea of their true real estate needs and that the
space truly meets their operational needs. - Project managers: They take responsibility for the schedule and budget in a project. They will participate in the planning
phase and oversee the construction and
relocation portion of the project, and play
a vital role in ensuring that the construction allowance is sufficient. - IT professionals: It is vital to include
the company’s IT group in the process
from the very beginning. Often this group
is engaged late in the process, which leads
to increased costs or, worse yet, project
delays while waiting for phone or data
services to become functional. - Facilities or operations managers:
Some companies employ them to oversee
their buildings and grounds. When businesses have these professionals on staff,
tenant advisors work in tandem with them
to complete the real estate project. - Executives: It’s essential that high-level
executives play a key role in real estate
projects from the initial stages. Their guidance ensures that the project meets the
overall business needs of the organization.
What are the first steps in a project?
After a needs analysis is completed that
defines tenants’ operational objectives and
financial goals, an opportunity analysis is
created displaying current market conditions, relocation alternatives, renewal
opportunities and potential space savings.
A needs analysis clearly lays out the big
picture of what companies want to achieve
from a real estate standpoint relative to
their business objectives. This could
include goals like increasing square
footage, decreasing real estate holdings, or
integrating a new space program.
An opportunity analysis helps tenants
craft an action plan based on a comprehensive awareness of their options within
their market. This deliverable provides
companies with a decision support tool to
pursue the best solution for their business.
HENRY JAFFE is an advisor with CresaPartners. Reach him at
(610) 825-6546 or [email protected].
