Construction Costs Continue to Rise

If your company is expecting to build out new office space this year, watch out. Commercial construction costs will continue to increase in 2007 by an average of 6% to 8%, according to the chief economist of the Associated General Contractors of America. The increases are being driven by international demand for materials, higher energy costs, and limited domestic supplies. Labor costs are also expected to increase 5% to 6%.

The downturn in residential construction has taken some pressure off products that are also used in commercial construction, including copper, plastics, plywood and gypsum, used in wallboard. Had single-family home stayed strong, commercial construction costs might have gone up 10% as they did in 2004. Still, gypsum prices have been increasing 20% a year, and milled copper and brass 30% a year, so even if prices moderate, there is still the threat of price spikes. And materials specific to commercial construction, such as certain types of wiring and plumbing, will not have relief from the housing slowdown. Bottlenecks in supply and higher transport prices are also in the picture.

For tenants anticipating construction, advance planning becomes even more important. Negotiating a "turn-key" tenant improvement arrangement with a landlord can help insulate a tenant from cost overruns. However, it is critical that space plans are agreed to prior to lease execution. The level of detail is also crucial. The more developed the plans and finish narrative, the more a tenant is protected from a landlord's self-serving interpretation of the work required if and when they hit a budget snag.

Keeping a Lid on Expenses (Part II)

Last month we pointed out that operating costs are a volatile and potentially costly component of what you will eventually pay for an office lease. And while it may be possible to negotiate a cap on some operating expenses, real estate taxes and insurance may have to be dealt with in other ways. Here are some ideas.

With real estate taxes, a tenant can often negotiate language that requires the landlord to do regular tax protests to ensure that the assessment is not over-inflated. Additionally, it is very reasonable for a lease to exclude tax increases due to specific tenant improvements that technically may increase overall property value but do not benefit other tenants in the building. On the flip side, typical lease language often requires the tenant who installs such above-standard improvements to exclusively reimburse the landlord for the tax increase directly resulting.

With property insurance, after September 11, 2001, costs in general and especially in the northeast have skyrocketed due to the inclusion of terrorism coverage. If it is a legitimate landlord expense and the lease allows for insurance pass throughs, there is not much a tenant can do.

However a well-represented tenant can make sure the landlord does not carry excessive insurance. The best way to do this is to only allow for insurance that is required by the mortgagor and/or typically found in comparable buildings in the market. For example, earthquake and flood insurance can often be excluded when appropriate. And finally, rent loss insurance should be excluded as a pass through expense since it provides no value to building tenants and exists exclusively for the benefit of the landlord.

Will Your Cell Phone Work Overseas?

For those who have become dependent on their cell phones, it can be a big shock to land in Europe or Asia and find their American cell phone is useless. But there are American phones that will work overseas, and other options such as rental available. It just takes a little research before you leave on your international trip.

First thing to check is whether your phone already has the capability of working overseas. It needs to use the GSM system. In the U.S., only phones from T-Mobile and Cingular (now becoming AT&T) use GSM. And even then, the international GSM frequencies are different, so you need to make sure your three-band or four-band GSM phone has the right frequencies for where you are traveling. And make sure to activate the international calling option.

If you don't have a GSM phone, you can rent or buy one. Rentals usually are the most affordable way to go if you're only making one trip overseas. But by the time you rent a phone three times year, buying one becomes cheaper. You can find providers on the Internet.

Another thing to research ahead of time is the rates for international calls. Even if your American phone works overseas, you may not like the calling plans available. Luckily GSM phones use something called a SIM card to hold account information, and they are fairly easy to switch out. So you can have a different calling plan while overseas, even a different plan for each country.

The Miller Richmond Company Adds New Associates, Launches New Web Site

The Miller Richmond Company is pleased to announce that Julie Pollak and April Farner have joined the firm. Both Julie and April bring unique backgrounds, client relationships and skill-sets to the firm. To learn more about Julie and April and see the newly launched Miller Richmond web site, please visit www.millerrichmond.com.