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October 2008 |
Bogue Miller, David Rubenstein
Julie Pollak & April Farner
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Importance of Lease Audits Should Not Be Overlooked
 A lease audit is a valuable tool for tenants when
questioning, or simply verifying, their portion of a building's operating costs. However, many leases contain language that severely limits a tenant's ability to challenge a landlord's accounting practices, going so far as to even restrict
tenants from hiring specific types of auditors. With opposing parties trying to extract as much as reasonably possible from each other throughout the term of their relationship, it's hard to avoid the tension created when a tenant
exercises their right to investigate what they're being charged.
Lease audits tend to reveal hidden savings more often than they uncover deliberate agendas to defraud the tenant. For example, a lease audit can compare utility costs with other area tenants by researching market rates to ensure your costs
are regionally consistent. Since landlords often negotiate with utility companies to determine their rates, a lease audit could uncover evidence that your landlord is passing through costs at a rate much higher than neighboring properties.
Rent per square foot errors, improperly charged building marketing costs, miscalculated "gross-ups," misreading of electrical meters, and the inclusion of tenant improvement allowances and brokerage fees are just a few of the additional
items an in-depth lease audit could reveal. Specific milestones within the term of a lease also provide good opportunities to consider a lease audit, such as changes in building ownership or property management, completion of construction
projects or commencement of due diligence ahead of a long-term renewal.
The sensitive nature of a "hired gun" delving into a property manager's files can certainly exacerbate the unspoken "us vs. them" mentality between tenant and landlord, in turn hampering future negotiations. Make the ability to perform
lease audits, as openly and flexible as possible, an early discussion point with the landlord. Aim your reasoning for wanting audit language in your lease away from the stigma of "mistrust" and more toward the spirit of business
partnership. Lease auditors work hard to create such an environment, but your tenant representative can provide tremendous guidance in these situations; seek it out.
Despite the weight given to the spirit of cooperation in a lease transaction, the business interests of the landlord still favor maximizing profit from tenants. It is critical then, that lease audits remain a valuable trump card in the
tenant's hand to ensure landlords are always dealing from a fair deck.
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Just How Smart Is Your Building?
 When seeking out new space, you may listen to property
managers market the efficiency of their "automated building." On the same property tour, you may hear the term "intelligent building." So, are the terms interchangeable? What does it all mean? Let's get to the bottom of it.
An automated building is one that has mechanisms installed to control the heating and cooling and lighting systems throughout the property. Typically based on time of day modes, building automation starts warming a building on a cold
winter morning and then powers it down when the majority of the building is empty. Lighting control is also a major facet of building automation. The simplest example is sensor technology, turning lights on and off based on motion
detection and timing.
To a tenant, building automation is attractive because it helps control costs, which you help pay through rent and expense pass-throughs. Additionally, green advocacy groups push for automation controls because such systems can cut back on
energy use.
An intelligent building, on the other hand, is ultimately a step above an automated building. Smart buildings, as they're also called, tie together the simpler automation systems, like air conditioning and lighting, to more advanced
software solutions that can interface with the management's business systems. By connecting the more basic, automated systems with business intelligence, a property manager can make better long-term decisions about how to operationally and
financially operate a building.
Whereas an automated building can control larger areas with simple timers that need to be told when to heat and cool, intelligent buildings can control temperatures at a more granular level. The software and additional technology involved
allow sections of the building to be heated and cooled simultaneously and switch from one to the other without additional manual input.
Intelligent buildings are ideally suited for the office environment, as it offers greater control of the heating and cooling systems, a major component of a tenant's share of the operating expenses. Additionally, they allow tenants'
employees to have better control of the actual office space and even create "comfort zones" around the office.
Many intelligent building systems will also employ applications for tenants that provide access to building information. These tenant portals can assist in everything from service requests and accounting questions to energy use information
and office lighting schedules. To best summarize, an intelligent building is all about integration.
Tenants seeking space within an intelligent building environment should work closely with a tenant representative who can create a market report of properties that have been built with these types of systems in place. Truly intelligent
buildings are not easy to come by, and some landlords are quick to make marketing claims that say otherwise. Know the difference.
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Technology Has Entered the Green Arena
 In our continuing effort to support green initiatives within
the commercial real estate industry and assist clients to do the same, we've put together a brief list of energy-saving tips and technologies that can make your office just a bit more environmentally friendly.
Software
It may sound pedestrian, but cutting down on paper is a great way to be green. Adobe Acrobat Professional (not just the Adobe reader), for example, can allow people to create PDFs with one button from Excel sheets, Word docs, PowerPoint
slides and many other applications. Use this tool, along with shared server folders, to swap, edit and send documents online to reduce printing. Additionally, the electronic signature was made legal many years ago and Acrobat offers easy
tools to implement it. Give it a try by buying the full version of Acrobat Professional from Adobe.
Remember, online collaboration software, such as WebEx and Yugma, provide great ways to cut back on meeting travel. (42% of IBM's 350,000 employees do not report to a traditional office, saving the company $100 million annually in real
estate costs.)
The U.S. Department of Energy has available on its Web site a list of building energy software tools: http://apps1.eere.energy.gov/buildings/tools_directory/
Equipment/Facilities
Spectrally Enhanced Lighting (SEL) is not a new technology but a new way to use existing lighting systems. Basically, SEL uses lamps that have less actual light output but more correlated color temperature (CCT). In other words, you can
see more with less light by installing lamps and bulbs with higher CCT. According to the U.S. Department of Energy, SEL is a different way to quantify light that can be used with any type of lighting design to improve energy performance.
Again, a simple step, but turning off computers that are not being used can lead to substantial savings for large companies. The Climate Savers Smart Computing initiative, started by Google and Intel, was established to cut carbon dioxide
emissions through better and reduced computer usage. It encourages the prolific use of Energy Star products and smarter power management practices. Learn more about the Climate Savers at http://www.climatesaverscomputing.org/
Data Centers
From 2000 to 2006, as reported by the EPA, data center power usage doubled. That's a lot of business sitting on servers. Today, the concept of the green data center is growing rapidly and offers CFOs and CIOS great opportunities to find
new equipment and infrastructure to reduce energy use. Servers are becoming smaller and the virtualization of server software is taking hold. IBM and Cisco are underway with several green data center technologies and are leading this
crucial component to corporate sustainability.
These suggestions are just a few ways businesses can implement energy savings. As we've suggested in the past, try to work hand-in-hand with property managers to better green your space. Only you however, can green your company.
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