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January 2010 |
Miller, Rubenstein,
Hoffman & Hawkinson
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Zombie buildings can be scary for tenants
 If a movie was to be made about the state of the
commercial real estate industry, it would probably have to be in the horror genre. The plot?
Zombie buildings.
Like the slow-moving creatures at the drive-in, zombie buildings have relatively normal looking exteriors--but not much going on inside. They are dormant, empty shells.
For tenants, the allure of a gleaming new office property that offers terrific incentives and all kinds of build-out flexibility may be difficult to resist. However, tenants should give serious consideration before agreeing to be a one of
just a few, or the only, tenant in a zombie building.
First, tenants need to thoroughly examine the financial wherewithal of the landlord. A long-standing empty building may signify that a serious financial matter may be pending, which can lead to an almost endless list of occupancy
complications and distractions. Most importantly, tenants need to be wary of ownership changes, through a distressed sale or foreclosure, that can also present myriad problems.
Tenants should understand that operating in a zombie building could negatively impact their brand. For example, if the building is not profitable, how much attention will be given to its amenities? Will security be on hand? Will its
facility services team keep up landscaping and maintenance? Potential clients view these deficiencies as a reflection on a tenant's approach to business. Even worse, they could see it as a sign that the tenant, not just the landlord, is on
the verge of collapse.
A zombie building may also have a very vague future. Lobby posters and sidewalk placards may showcase a thriving mixed use neighborhood with eclectic shops and appealing exterior spaces. However, every day the building remains empty and
landlord dollars are lost, those plans become less recognizable. Eventually, the pretty pictures come down and less appealing, more affordable plans take shape, completely changing the identity of what its few tenants signed on for.
The attractive concessions and "blank canvas" appeal of an empty building should not outweigh the importance of securing space in an established property with a reputable, stable landlord. Concessions can be found market wide, and
employees will always be better off working in an active environment where neighboring businesses help form a building's image and appeal.
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Don't Get Spaced Out: Know the Size of Your Leasehold
 Tenants tend to focus heavily on the "usable" square
footage that an office space offers when evaluating locations. Usable square footage consists of the area specifically located within the exterior walls defining that space. It's basically what you see entering the space.
But what about the lobby, common area restrooms, corridors and mechanical rooms? These areas are used by tenants as well, and most landlords expect to receive rent on the common areas in their building. Typically, the usable square
footage of a space it adjusted up by a "loss factor" or "add-on factor" which is a percentage increase in the usable square footage to account for the tenant's share of these common areas. Loss factors are typically different for full
floor tenants than they are for multi-floor tenants since full floor tenants actually use much of the floor area within their suite that would otherwise be necessary for common corridors found on a multiple tenant floor. For example, full
floor tenants will likely see a loss factor of 8-11% where tenants on multi-tenant floors will typically incur a loss factor of 13-18%. All of this, of course, depends upon the size and design of a particular building.
When a tenant's loss factor is added to its usable square footage, a "rentable" square footage amount is determined. Rentable square footage is most critical as it is the measurement that is used in determining the monthly or annual rent
that a tenant owes. Therefore, it is important that both parties to a lease recognize how much rentable square footage the tenant is occupying and how that amount of space is determined.
The most common method of measuring office space is the American National Standards Institute/Building Owners and Managers Association (ANSI/BOMA) Standard. BOMA spells out how each space should be measured and what areas are to be
included or excluded from a reasonable measurement. Should space be measured from wall surface to wall surface or should the centerline of each wall be used? While a tenant should pay for its pro rata share of a building corridors, is it
fair to make a tenant pay for vertical penetrations such as stairwells and mechanical shafts? BOMA answers these questions and more. Furthermore, keep in mind that BOMA standards change from time to time, so it is important that your
lease spells out which version of BOMA is to be used.
Depending upon your measurement methodology, the size of your space (and in turn the rent you pay) can vary significantly. In fact, two identical spaces in different buildings with the same quoted rental rate can result in very different
payment obligations based on your landlord's calculation of rentable square feet. Once your methodology and loss factors are established, do not forget to have your space verified by a qualified architect especially if your demising walls
are changing as a result of construction. The results can save significant money over the life of a lease.
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Office temperature is important to tenants
 A new study published by CareerBuilder brought to light
that one of the primary complaints among office professionals is the ambient temperature of their workspace.
Some employees like it cold. Others want it warm. It's a tough balance, especially if it leads to angst among team members.
So how should those responsible for real estate decisions factor in a facet of occupancy that can be, well, a real hot button?
Wasted energy from outdated HVAC systems is one of the first items addressed when discussing environmental improvements throughout the commercial real estate industry. Unfortunately, upgrading an HVAC system is one of the last big ticket
items a landlord wants to tackle, especially during such difficult financial times. However, case studies have shown that smart HVAC systems, while expensive, can quickly demonstrate a return on investment.
Therefore, when considering new space, tenants should address as soon as possible the condition, efficiency and to what level the heating and cooling systems can be controlled. Does each office have a thermostat? Are there clearly
specified temperature zones? Or have any vents been partially blocked or affected by previous tenant build-outs? These issues can be addressed during initial visits to the space with your tenant representative.
Additionally, you can ask to review utility expenses. Your tenant representative will offer outstanding assistance in understanding how the energy pass-through expenses are handled, among other critical lease issues.
Tenants should also consider how natural light and windows contribute to the ambient temperature in a potential office selection. Countless innovations in window and lighting technologies have greatly improved the temperature stability of
an office environment.
A building with LEED certification is perhaps the ideal office setting for companies wanting a truly "green" building with the most advanced temperature controls. Although the certifications vary in level, each one of them offers a
significant improvement to older properties operating with antiquated systems.
Still, maintaining a habitable work environment is as much about personnel management as it is temperature control. Nevertheless, a modern, dependable HVAC system is always the best place for a company leader to start.
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