“Location, location, location” is
more cliché than constructive
when it comes to office leasing
decisions. Finding the right location, negotiating terms, designing and building the
space and moving in typically takes nine to
18 months in the best of circumstances.
The process can easily take much longer,
especially in a tight, active market like
Tampa Bay where appropriate space can
be difficult to locate, contractors are overworked and landlords are in a strong negotiating position.
That’s why an estimated 75 percent of
Fortune 500 companies use tenant representative brokers to manage the space
selection and negotiation processes,
according to Jeffrey Lanning, office specialist with Colliers Arnold Commercial
Real Estate Services in Tampa.
Lanning spoke with Smart Business about factors to consider in a lease, potential hidden costs and the role of tenant representative brokers.
What are some important lease considerations that businesses may not be aware of?
A main reason businesses move is dissatisfaction with their landlord/building management. Landlords are differentiated by
how quickly management responds to
maintenance requests; whether there is on-site management that can respond to emergencies, maintenance of the building’s
appearance and mechanical systems; and
their aggressiveness in charging tenants for
routine maintenance. Management fees
and operating expenses can vary significantly among similar properties.
Lesser-known factors include how much
debt the facility is carrying, whether critical maintenance and improvements have
been performed or deferred, the makeup
of the current tenant base, security and
construction in the area.
Why isn’t base rent a true indicator of lease
cost?
Landlords structure their leases one of
three basic ways:
Full service, which covers everything
for the tenant except their phone and
Modified gross, in which the tenant also
pays his or her own electric bill and janitorial fees
Triple net, which has the lowest base
rent, but the tenant pays separately for all
operating expenses including, but not limited to, building insurance, property taxes,
maintenance for common areas, electric
and janitorial.
There are still a lot of variables within
these categories. For example, if it is a full-service lease, there may be a separate
charge for electricity and air conditioning
used after normal office hours. There may
be separate charges for parking, overtime
for certain types of maintenance and other
operating expenses. Other items that lead
to the overall value of the lease are rights of
refusal on expansion space, renewal options, repairs, improvements and replacement clauses, termination clauses, etc.
Traditional office buildings are full service, but even that doesn’t make it simple for
the tenant. Full-service leases still have
pass-through costs that change every year.
Pass-through costs are for all operating
expenses such as building insurance, property taxes, maintenance for common areas,
electric and janitorial.
Recently, insurance has become a big variable. In the last year-and-a-half, it has
increased 200 percent to as much as 1,000
percent.
Pass-through expenses can be capped
and negotiated.
What role does a tenant rep broker play?
The tenant rep broker is there to protect
your interests. He or she will find appropriate properties, further investigate the buildings, negotiate the lease, and can manage renewals because they know various conditions and terms in different submarkets. He
or she also knows which landlords are more
willing to negotiate. Tenant rep brokers
make sense for leases of 2,000 square feet or
more.
If a business is thinking about moving, the
tenant rep broker should be involved very
early. He or she will provide a detailed analysis of the client’s needs and can immediately rule out some buildings and landlords.
The broker will also save the business a lot
of time in lease negotiations. We tell our
clients to expect the moving process to take
nine to 18 months. They often think it won’t
take that long, but that is a realistic number.
What should businesses look for in a tenant
representative broker?
Expertise in both the geographic area
and the product type. A firm that did a
great job for you with industrial leasing in
Atlanta isn’t necessarily good at finding
office space in Tampa. Local experts know
about the buildings in the area, which
saves time and money. They also know
who the good and bad landlords are, who’s
moving and what space might be coming
available. In a tight market, you can’t afford
to work with an inexperienced representative that slows down the process, because
it could easily cost you a critical opportunity.
JEFFREY LANNING is an office specialist and tenant representative broker with Colliers Arnold Commercial Real Estate Services, which was founded in the Tampa Bay area more than 30
years ago. Reach him at [email protected] or (813)
221-2290.
