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April 2009 |
Miller, Rubenstein,
Hoffman & Hawkinson
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Value added concessions for tenants
 A recent Reuters report cited office rents in the U.S. have
suffered the most drastic decline in seven years as a result of employment reductions and the ongoing credit market crisis. Effective rent, the total rent amount after considering concessions, has dropped 2% since just last quarter. In
summation, it is a tough time to be a landlord.
However, tenants seeking new leases or renewals in are in prime position to reap the benefits of today's market, and tenant representatives in markets across the country are working to secure for their tenants a number of value-added
concessions.
The most common lease concession is abated or discounted rent. A typical five-year lease could realize six or more months of rent benefits in today's environment. Other forms of financial incentive include reduced or eliminated annual rent
escalations, decreased security deposits, expense pass-through reductions and assumption of existing lease obligations. Some landlords have also become generous with tenant fit-up allowances, offering substantially more than recent market
standards to cover space planning/design, build-out, low voltage wiring and physical moving costs.
Other landlords, however, are facing severe cash shortages and cannot simply "throw money" at a prospective tenant to secure a lease. These landlords with liquidity challenges are increasingly looking for creative ways remain competitive
and lure prospective tenants while minimizing the up-front outlay of cash:
• Discounted parking is becoming a popular add-on in today's leasing market, especially for tenants in populated urban submarkets where parking cost is a major concern. For those companies with employees who commute via mass transit,
monthly or discounted passes and tickets can be an option as well.
• For large tenants, prominent exterior signage and naming rights are coveted value-adds for both tenant and landlord. For landlords, a well-recognized consumer brand on their property is a symbol of building quality and company
pride. For tenants, their logo on the outside of the top floor can be a great marketing tool. For smaller tenants, signage in the building lobby, exterior monuments and office park entrances can also provide significant value.
• When available, complimentary memberships and discounted dues at an on-site professional dining and/or athletic club can be quite attractive to tenants looking for a unique employee benefit.
In today's soft real estate market, tenants have an opportunity to secure unique economic and non-economic concessions. Smart tenants are looking beyond face rates when comparing potential buildings. With the help of a seasoned tenant
representative, they are evaluating both traditional and non-traditional ways to lower the costs and improve the benefits of their office space. Credit-worthy tenants can provide significant value to a commercial landlord in today's
uncertain economy. Make sure you are getting fairly rewarded in return.
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When outsourcing real estate services, exclusive tenant reps offer the most benefit
 Outsourcing business functions that are not within the scope
of a company's core competency is a standard business process, ranging from payroll to coffee delivery. Clearly, the role of some service providers is more crucial to maintaining steady operations than others.
When it comes to outsourcing real estate services, it is of the utmost importance that tenants give the strongest consideration to real estate firms and professionals who are dedicated solely to the needs of tenants and who do not also
have fiduciary responsibilities to serve landlords.
Of particular concern to tenants should be the allegiance of their outsourced real estate partners. Full service firms, while capable of handling an array of functions for tenants, by definition have conflicts of interest that they have to
manage. As a result of providing loyalty to their landlords for leasing, investment sales, property management and other services, it can be difficult to establish a true, non-biased relationship when recommending space options to tenants
and negotiating leases on their behalf.
Think about this: typically, close to 75% of a full-service firm's income is generated by landlord services, suggesting that tenant representation is considered an ancillary service at best. In challenging economic conditions, any company
would be wise to channel the majority of its business energy toward servicing the most productive revenue streams, thus making it even more beneficial for full-service firms to remain most loyal to their landlord clients.
CoreNet Global, an association of corporate real estate industry professionals, reported in a recent survey that real estate outsourcing is continuing to grow. Forecasted to be outsourced more often are needs like space selection, lease
administration and transaction management. What the survey didn't cover was the different levels of service that can be offered specifically by tenant representatives, and that they too are as multi-faceted, in terms of assisting tenants,
as full-service firms.
Lease administration involves the intricate study, tracking and abstracting of critical lease data. A sound lease administration practice envelopes how a company's lease terms--costs, dates, rights, options, escalations--impact its
occupancy day-to-day, and over the entire term. Tenant representatives, who function more as business consultants focused on real estate, are ideally suited for outsourced lease administration because they are constantly involved in
protecting the occupancy rights of their tenants and they will never be compromised by ongoing direct or indirect business relationships with a landlord.
Space selection is a tenant representative's specialty. They can assist clients with the entire process, from determining if new space is necessary to helping coordinate design, construction and a tenant's physical move itself. Going well
beyond simply helping you determine the most appropriate square footage and location of new office space, an un-conflicted tenant representative can help create a long-term strategic vision for how your firm uses its real property.
Transaction management involves the oversight of all the intricate processes that constitute the acquisition of real estate. This entails negotiating for space best suited for a client at the lowest overall cost as well as ensuring that
deadlines for documentation are met, budgets remain intact and that the landlord is remaining true to the written and implied facets of the agreement. Because of the increasing complexity of lease transactions and the role real estate
plays in daily operations, tenant representatives are ideally suited to provide transaction oversight. Their knowledge of other industry professionals and vendors can be invaluable to their clients even well after the lease is signed.
Whether it is space selection, lease administration, transaction management or any other outsourced real estate service, companies that choose to work with professionals who practice tenant representation exclusively can rest assured that
their advice will never be compromised in favor of a landlord client or prospective landlord client who might represent significant business to a full service brokerage firm. A competent tenant rep will always offer objective and unbiased
advice to best serve the interests of its clients exclusively.
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Software company promotes alternative energy
 Just outside Research Triangle Park in Cary, North Carolina,
lies the world's largest privately held software firm, SAS and subject of more than one "60 Minutes" segment for its innovative approach to treating employees. However, the statistics software company's next 15 minutes may come as a result
of its five acre, 1-megawatt photovoltaic solar farm.
Considered a leader in practical employee perks, like no cost childcare, an on-campus dental office, walking trail network and soccer field, SAS is now taking a stand against global warming. According to a report on EarthTimes.org, the
company's solar array will cut its carbon dioxide emissions by more than 1,600 tons (equal to 167,000 gallons of gasoline) a year as it generates 1.7 million kilowatt-hours of power.
Making this green effort even more unique is the maintenance plan for its surrounding landscape. Instead of the typical battalion of two-stroke leaf blowers and noisy John Deeres, the surrounding greenery will be kept in check by a team of
real weedeaters, as the company will employ a small flock of sheep to graze along the rows of solar panels.
In a continuing effort to ensure its role in bettering the community, SAS is also selling some of the power generated to Progress Energy, a Raleigh-based Fortune 250 energy company. The solar system consists of 5,400 panels which are
constantly repositioned by a connected GPS unit to ensure sun exposure is always at a maximum and increasing energy production by 30 percent.
But SAS's green efforts don't stop there. The company is also underway with one of two 38,000 square foot cloud computing facilities that will consist of two 10,000 square foot server farms and is being built to LEED standards for water
and energy consumption. Cloud computing, or "hosted solutions," provides access to applications, software and technology resources via the Internet. Yahoo, Google and IBM are also currently underway with cloud computing efforts.
SAS's Canadian headquarters in Toronto successfully built to LEED standards in 2006, so it's no surprise that the company's current expansion effort, a 280,000 square foot office and customer meeting center on its 300-acre Cary campus, is
also being designed to LEED specifications.
To those in the Raleigh-Durham area, SAS is a household name. Not only does it employ more than 4,200 at its headquarters, its CEO, Dr. Jim Goodnight, was raised in North Carolina and was a professor at NC State University. He is also on
Forbes' list of the top 100 billionaires.
However, the sometimes reclusive Goodnight would rather be known for recognitions like placement on the list of the 100 Most Influential in Business Ethics by Eithisphere.com. He was named to the list's Design and Sustainability category
for his company's Sustainability Management product, a software application that helps organizations measure and manage their environmental impact.
According to an article in Site Selection magazine, the renewable energy sector (solar and wind) is poised for major expansion in the U.S. The article stated that our country's solar industry infrastructure was substantially amplified when
Dow Corning's Hemlock Semiconductor announced a $1.2 billion investment in a solar power product manufacturing plant in Tennessee and a $1 billion expansion of its headquarters in Saginaw County, Michigan.
Coupled with the leadership of corporate entities like SAS, announcements similar to those from Hemlock may start to become more common. And even though there will always be the need for crude oil consumption, there is plenty of room in
our economy--and environment--for mass-produced alternative energies.
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Rubenstein recognized as "Top Ten" tenant rep in Atlanta market
 We are pleased to announce that David Rubenstein, Principal
with The Miller Richmond Company, was recognized last month as a "Top Ten Producer" by the Atlanta Commercial Board of Realtors. Out of all of the 2009 Million Dollar Club recipients, David was ranked as the 8th highest grossing office
tenant representative based on leasing and sales volume of $31,145,758 in 2008.
It is also worth noting that The Miller Richmond Company was the only brokerage firm among the Top Ten Producers devoted exclusively to tenant representation. We stand by our belief that the only way to objectively represent tenants is by
refusing to accept listings or assignments from commercial landlords. The way we see it, avoiding conflicts of interest is just good business.
In today's challenging economy, most real estate service providers are struggling. By staying true to our core principal of exclusive tenant representation, 2008 was one of The Miller Richmond Company's most successful years ever. We are
proud of our success and that David has achieved such a high distinction.
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