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December 2008 |
Miller, Rubenstein
Hoffman & Hawkinson
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Real estate gets cut back, too.
 As new rounds of layoffs are announced daily, the commercial
real estate market suffers another shot across the bow. As offices and cubicles go dark, more space opens up, leaving a company to question, on top of everything else, its real estate strategy. Unfortunately, office space is not a burner
that should be left unattended. Things could catch fire quickly.
For companies that signed leases or bought space based on projections from 24 and 36 months ago, today's market conditions are forcing them to quickly re-examine space usage and current obligations to find ways to dispose of excess space.
National law firms and other service providers are reducing staff at all levels and attempting to sublease unused office space. Tech companies such as Yahoo and Hewlett-Packard and communications giants like Verizon and Quest
Communications will be giving space back to the market in the coming months as they exercise downsizing plans. The sudden increase in supply of space can have a crippling effect on the commercial real estate market as vacancy rates
increase and effective rents drop, augmenting the reduction in real estate values and cutting deeper into the nationwide financial crisis.
Companies with a national presence needing to consolidate space will be able to look countrywide for counterparts in lower cost locales as a way to reduce real estate costs. Others may just need to move across town. Real estate
assimilations are not as simple as moving boxes and changing phone extensions. Serious corporate oversight is needed to ensure departmental synergy can be reached and that the new location may not suddenly have an overlap in middle
management or administrative support, for example.
Manufacturing facilities and other industrial sites, such as those used in automobile production, are highly specialized, often built-to-suit, uses of commercial real estate that don't always have a readily available secondary use should
they go dark. This very real threat is taking shape in General Motors plants in Wisconsin, Ohio and New Jersey. Additionally, the industries that supply parts and ancillary products to the automotive industry will feel the ripple effect
and also be forced to cut facility usage.
Businesses trend toward streamlining operations during challenging times. Real estate is no different. Appliance maker Whirlpool will be transferring operations from Jackson, TN to Findlay, OH in a company-wide effort to cut up to 5,000
jobs. This type of move is a prime example of how real estate often gets quietly left behind in the wake of sweeping job losses yet continues to cause friction as a company tries to move on.
If this massive job reduction trend teaches us anything, it's that real estate decisions, especially those involving expansions, need to be planned very carefully. Surplus space, even during great economies, can be a killer. Experts in
your market, tenant representatives, are crucial to a healthy, long-term real estate strategy. Make sure yours is on speed dial.
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Hard times harder on global full-service commercial real estate firms
 Virtually all industries have been affected by today's
stressed economic environment. The commercial real estate services industry is certainly no different.
As in other industries, the name of the game for the past several years has been mergers and acquisitions: CB Richard Ellis acquired Trammell Crow; Jones Lang LaSalle merged with The Staubach Company; and Grubb & Ellis merged with NNN
Realty. Three of the top five national commercial real estate firms, all publically traded, have seen their stock price drop to at least 70% from their 52-week highs. Additionally, many of the larger firms have announced restructuring and
layoffs.
Furthrmore, while conflicts of interest are frowned upon in today's business world, those national "full-service" players seem to embrace them, representing both landlords and tenants. Unfortunately, these conflicts go largely unnoticed
by their clients, particularly tenant-clients. For example, full-service firms pride themselves on offering as many services to as many clients as possible and often overlook the fact that providing services to landlords may hamper their
brokers from offering the most objective and unbiased service to tenants.
In a downturn, the largest service providers have additional internal stress created by stockholder expectations where tenant-clients' best interests can take a back seat to corporate bottom line. This dynamic is particularly evident when
considering that most full-service firms earn a majority of their revenue from landlord-clients, not tenant-clients. When the chips are down, national full-service firms are going to cater to their biggest group of customers--their
landlord-clients.
On the opposite end of the spectrum, member firms of the Alliance of Tenant Representatives are privately owned. Principal owners are actively involved in the day-to-day business of operating their firms, answering only to their clients.
There are no outside pressures to produce a return to stockholders or meet Wall Street expectations. Furthermore, the majority of the principals of ATR firms have more than 20 years in the industry and have proven their staying power by
navigating previous economic downturns. In troubled times, companies gravitate to the fundamentals--and nothing gives more solace than knowing you are being represented by a firm that has only your interests in mind. This has provided ATR
members with a market resiliency not commonly found in the Wall Street set.
Today's chaotic times underscore the main strength of the Alliance of Tenant Representatives. Our independent structure and experience allows our members to be flexible, react quickly to adversity and represent their clients without
conflicts. They have proven records, stellar reputations and will continue to flourish in this difficult environment.
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Keep Morale on Track
 Sales are down. Expansions are on hold. And some of your
best employees have left to pursue "other opportunities." With the challenges in today's economy, office morale nationwide is taking a hit, weakening employee productivity.
While there is no denying the sweeping pall of negativity wafting through Wall Street, business leaders can still do plenty to maintain a productive--and positive--work environment. For starters, don't cut the upcoming holiday party.
Instead of an exclusive restaurant or club, hold the annual party at an employee's home or at the office. Offer a cash bar and heavy Hors D'oeuvres instead of hosted bars and sit-down dinners. In other words, do something to recognize the
employees. Be creative. This holiday season will be a great opportunity for the American business world to take a collective sigh of relief from the stress of 2008.
With revenue down, it makes sense to work harder. However, human resources professionals warn against pushing employees too much, as it can exacerbate morale issues. By all means, professionally push and encourage employees but pay special
consideration to the overarching effects of reduced pay or impending layoffs. It's also recommended, especially during the holidays, to give extra consideration to flex-time requests and the idea of telecommuting. A little extra time with
the family can be a great remedy for stressful hours at work.
The Society for Human Resource Management recommends investing in more Employee Assistance Programs (EAP) to demonstrate a commitment to their well-being. An EAP is a much more affordable benefit than a matching 401k and can have a
life-long impact. Employees needing personal assistance, from financial concerns to childcare, can find help in an EAP and as a result, be more productive at work. Other ideas include management assisting in the creation of carpools or
mass transit plans for teams of employees commuting from common areas. Also, use additional downtime to review individual goals and objectives and how the business climate may demand a re-assessment.
Today's market is making the role of business leaders more critical than ever. Not only are your skills as an executive being called upon, but your role as manager, counselor, arbitrator and morale officer as well. The key is to engage
your employees as often as possible; keep them in the loop. It will help you consistently gauge your team's outlook on the company and in turn, help keep the company's future on track.
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2009 Renewals Keeping Our Brokers Busy in 2008
 The softening commercial real estate market has created a
flurry of business for The Miller Richmond Company. The company has recently completed three office lease renewals representing over 77,000 square feet. The three transactions include:
• Weinstock & Scavo, PC, a Buckhead law firm renewed its lease at 3405 Piedmont Road and expanded its space to 32,824 square feet.
• Given Imaging, Inc., a Duluth-based medical device firm that currently subleases space at Hampton Green (3950 Shackleford Road), wrapped its sublease with a direct lease from Duke Realty for 24,191 square feet.
• Babush, Neiman, Kornman & Johnson, LLP, a Central Perimeter accounting firm, renewed and expanded its lease at Palisades (5909 Peachtree Dunwoody Road) for 20,458 square feet.
According to David Rubenstein, Principal with the Miller Richmond Company, "All three of these clients had leases expiring in the second half of 2009. However, with today's tenant-friendly market conditions, we were able to lock in
attractive lease terms early as each respective landlord was concerned about maintaining long term occupancy rates in its building."
Miller Richmond Principal, Bogue Miller added, "In my 24 years in the business, I have never seen the market turn down so drastically in such a short period of time. While the current environment is certainly problematic for the landlord
and lender communities, credit-worthy tenants have tremendous opportunities to renegotiate current leases in place as well as lock down attractive economics for the long term."
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