Ambitious Corporate Acquisitions Could Soften Real Estate Market

Hardly a week goes by lately without a multi-billion-dollar purchase of a company being announced. Some are well-known names such as the Chrysler unit of DaimlerBenz (a $7.8 billion deal), or media firms such as the Tribune Co. ($8.2 bil.) and Dow Jones ($5 bil. bid). Others are lesser known but big in their industries, such as corporate telecommunications equipment maker Avaya ($8.2 bil.), wireless company Alltel ($27.5 bil.), or Texas utility TXU Corp. ($32 bil.)

The ease of borrowing money on the credit markets is behind the boom. Private-equity buyout companies are using cheap debt to take public companies private, borrowing far more money than public stockholders would feel comfortable with. But public companies are also in on the buying binge, using both their stock as well as additional debt to make acquisitions. And that's the rub. Companies with large debt loads can become very vulnerable in a soft or shrinking economy, or if interest rates rise for any reason and the payments on the debt go up. Many of these companies could end up overextended if their growth projections don't hold up.

If money gets tight, companies with large debt loads will have to cut costs somewhere to pay off the debt, which could lead to layoffs and spikes in commercial real estate vacancies. Whole divisions could be sold and headquarters moved. In these and other ways, we will be keeping an eye on how today's easy money acquisitions affect the availability of commercial space tomorrow.

Factor in Common Areas when Figuring Space Needs

When it comes to multi-tenant office buildings, the number of square feet tenants pay for is usually greater than the amount they actually use. That's because landlords add a portion of the common areas, such as hallways, lobbies, public washrooms, and mechanical closets.

The "rentable" square footage on most leases includes a portion of the common areas. The space tenants can spread rugs on and set up desks is called the "usable" square footage. The difference between them has two names, depending on how you do the math, and the results are not interchangeable.

If you have 10,000 square feet of usable space and add 1,500 more of common space, that's a 15% "add-on" factor. However, if you start with 11,500 square feet of rentable space and subtract 1,500 of common space, that's a 13% "loss" factor. A 15% loss factor would leave you only 9,775 square feet of usable space. To make it worse, "load factor" is often used to mean either a loss or an add-on, so it is important to know how the common space factor is arrived at when comparing space in different buildings.

It's also important to make sure landlords use a standard method of measuring space such as the Building Owners and Managers Association (BOMA) guideline. Although tenants typically focus on rent/square foot, the actual square footage calculation methodology can have significant implications on monthly rent owed. By demanding an industry standard measurement (like BOMA) for your space, you can generally ensure that your landlord is not manipulating your square footage measurement in order to artificially inflate your rent.

Make sure you understand the square footage measurement on your next lease. Your tenant representative needs to make sure you are not paying more than your fair share.

What Makes a Building Green?

Interest is growing for what are called "green" buildings, which are certified to have a lower impact on the environment. But what exactly goes into certifying a building as green? The first thought that probably comes to mind is saving energy, and energy efficiency is a big part of what makes a building green. In fact, the rating system is called Leadership in Energy and Environmental Design or LEED. It is based on earning credits in six categories, and 25% of the LEED credits available do involve energy use directly. The other categories go beyond that.

For instance, LEED credits are earned if a building's site is on redeveloped land rather than open space. Proximity to mass transit and stormwater management also get site credits. More LEED credits can be earned by controlling water use in the building and on its landscaping.

Use of materials is another big category for green buildings. It starts with diverting construction waste from landfills and includes using materials with recycled content, and materials made in the region.

The indoor environment of a green building is also important. It must be non-smoking and meet minimum air quality standards, and credits are earned for paints and furnishings that emit low amounts of air pollution. Design innovation is the sixth category.

The LEED rating comes in "certified," "silver," "gold," and "platinum" levels, and every green building has its own story. Locating your office space in one of these buildings makes a statement to your employees, your clients and your local community. And increasingly, tenants interested in LEED rated buildings have more options. Your tenant rep should be able to help your company find a building that matches your green aspirations.

The Miller Richmond Company Announces 23,645 Square Foot Lease to Anchor the Redevelopment of Savoy Business Center

The Miller Richmond Company is pleased to announce that it has successfully negotiated a 23,645 office lease and investment option for Georgia Cancer Specialists at Savoy Business Center. Formerly known as Verre Centre, the 46,000 square foot building is located at 1835 Savoy Drive in Atlanta. The building was built in 1976 and was purchased in 2006 by an investment partnership lead by K2 Commercial Real Estate's President, Rick Kleban and private investor Paul McKeon.

The partners had been working for several months on re-developing and re-positioning the building when approached by David Rubenstein of The Miller Richmond Company. "Georgia Cancer Specialists needed a location for its Administrative Annex that could provide back office support for its 31 clinical locations around north Georgia," said Rubenstein. Savoy Business Center is an ideal, centrally located facility, and the new owners presented an attractive long-term lease plus an opportunity for GCS to invest in the building. That combination was quite compelling," he added.

Georgia Cancer Specialists CEO, Dr. Bruce Feinberg stated that "as a practice, one of our goals has been to find strategically located real estate that can meet our long-term space needs as well as offer us the opportunity to invest in the buildings we occupy. In today's dynamic healthcare environment, we believe that leveraging our real estate needs into solid long-term investments makes good business sense. The Miller Richmond Company found us the right partner with the right location and a prudent re-development plan that will only enhance the value of the asset."

Kleban and his partners have a comprehensive plan to upgrade the building from both a cosmetic and systems standpoint. Base building redevelopment and the build-out of Georgia Cancer Specialists space should be complete over the next 90 days. Upon completion, Georgia Cancer Specialists will relocate approximately 80 employees to Savoy Business Center.