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February 2010 |
Miller, Rubenstein,
Hoffman & Hawkinson
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Recovery signs still hazy
 The most recent employment report served only to clarify
that yes, there are still a lot of people out of work. Couple that with the existing state of the commercial real estate mortgage market, which will see at least another year of instability, and it's easy to conclude that by no means have
things in the commercial real estate world improved all that much.
Tenants today are experiencing rent and occupancy incentives unlike those found in other concession-rich markets. However, today's situation is more precarious because financially, the buildings in which many tenants do business are in
dire financial straits. Landlords are beginning to default on loans at an impressive rate, creating challenging legal situations for tenants. As a result, tenants are now more worried than ever about their landlords' viability and their
ability to perform on many of their lease obligations.
Space decisions need to also take into account the very future of a tenant's industry, which requires a complicated business analysis. Are economic factors on the horizon that will effect business the same way the automotive industry
bankruptcies impacted parts manufacturers and materials vendors? Corporate relocations, even to more affordable space, are expensive endeavors and need to be carefully timed with market conditions, which takes months of planning.
Today's conditions have also seen subleases rise from "suitable consideration" to "serious competitor." Companies who have suffered major losses are reaching out market-wide for a financial tourniquet, creating a notable sub-market of very
affordable occupancy options. Still, subleasing is full of hidden pitfalls and limitations.
The results of a Google news search for commercial real estate will display juxtaposed headlines that read "Commercial real estate industry starting to recover" and "Worst to come in US commercial real estate." Day by day the news changes
and confuses. That is why it is more critical than ever to lend exceptional credence to real estate decisions. There is still too much fog in the economy to make quick decisions about how to navigate the real estate market.
Tenant representatives should be looked upon as invaluable business advisors in times like these. Market insight, knowledge of how real estate impacts the balance sheet and their ability to create and meet occupancy objectives lead to
untold savings and improved business performance. While we can't recommend you not read the news, we can strongly encourage you to engage your tenant representative every time "real estate" is present on a meeting agenda.
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Redefining the green building
 There are green buildings, and there are buildings with
twenty story gardens growing on their facades.
The federal government, in Portland, OR, plans to create an exterior garden on the side of the soon-to-be-renovated Edith Green-Wendell Wyatt Federal Building in the heart of the city's downtown. The General Services Administration, which
handles leasing and real estate issues for the government, will include in its $133 million renovation what it is calling "vegetated fins" that will bloom bright in the warm seasons to produce energy-conserving shade and cooler interior
temperatures. In the fall and winter, the ground-to-roof garden will be dormant, allowing more natural light to envelope the building.
The project is considering multiple options to provide additional water to the hanging garden, including run off and recycled gray water from the building itself. If rainwater becomes a source, its utilization in conjunction with low-flow
plumbing fixtures will cut potable water usage by almost 70 percent.
Portland seems like the optimal locale for such a literal green building renovation, given its reputation for perpetuating the cause and serving as a hub for a number of environmental organizations. Every facet of the renovation is being
looked at with a "reuse and conserve" perspective. Consideration is being given to using the concrete panels that will be replaced by the plants for regional salmon habitat preservation efforts.
Solar panels are also being considered for use on the building and lighting plans have been designed that will use half of the energy currently needed to operate the building. In total, the completed renovation will end up saving close to
$280,000 per year in energy costs.
Green building and renovation efforts are finding traction nationwide as more examples of landlord and tenant cooperation find success. The "split incentive" idea was proven to work in the massive green retrofit of the Empire State
Building. Sean Niel, an economist and consultant to landlords on how to pay for green renovations, stated that tenants should not be required to pay for them. He added that it may be in their best interest to share some costs, however.
"Companies with global brands will want the halo effect of occupying green buildings, and the skill to discern useful retrofits that might be required under future regulations."
The Portland federal building is expected to be completed in 2013.
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Lease transactions demand face-to-face interaction
 There is a very sound argument for the negative impact our
increased use of electronic communications has on our ability to empathize with others and communicate face-to-face.
When dealing with critical business operations and negotiating transactions like a lease for commercial real estate, one-to-one interaction should become a priority, especially after weeks of e-mails and text messages about key components
of the lease have morphed into a morass of fluctuating numbers and vague confirmations. When discussing the business impact of a significant real estate transaction, no one can afford to be confused.
In person, we tend to choose our words more carefully and recognize the other party as an actual person. Thus, we can sense and respond to sincerity and force ourselves to state a case with more clarity.
Additionally, personal investments of time define the level of commitment everyone has to the transaction. Meetings create a sense of collective accountability to reach compromises and clear hurdles. Lease transactions involve a series of
crucial negotiations that are all related and underscored by the importance of long-term financial obligations by both parties.
Other benefits of personal meetings to finalize space negotiations involve the creation of documentation about key lease points and the opportunity to further involve third parties to the transaction, such as brokers, architects and
attorneys. Each party should also strategize their respective role to ensure that goals are met and the proper bridges get crossed, which is a role perfectly suited to the cross-industry expertise of your tenant representative.
Whether dealing with engineers over electrical capacity issues or addressing a disagreement about pass-through expenses with your landlord, tenant representatives can effectively assemble and oversee effective team meetings that will knock
down hurdles and move the transaction forward in a more effective matter than would be possible through a train of e-mail, lost attachments and poorly worded text messages.
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