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September 2009 |
Miller, Rubenstein,
Hoffman & Hawkinson
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Industry can have large role in national energy reduction efforts
 The United States could save $1.2 trillion on energy costs
by 2020 through common-sense improvements like fixing outdated ductwork, strategic window placement and more fuel-efficient appliances and cooling systems, according to a new report by consulting firm McKinsey. The report also says that
87% of potential savings can be found in existing commercial buildings, making the commercial real estate industry a vital component to the nation's ongoing energy reduction campaign.
Buildings in America account for close to 40 percent of all carbon dioxide emissions, 13 percent of water consumption and 40 percent of our overall energy consumption. Still, many landlords maintain that while occupancy rates remain so
low, money is better spent elsewhere.
Landlords cite financial liquidity as the reason for slow implementation of green programs. From their perspective, replacing a functional cooling system that will "eventually" reduce energy costs doesn't make a great deal of business
sense. Current market conditions have landlords nationwide more concerned with day-to-day cash flow management than long-term cost reductions. And, since many landlords pass through increases in operating expenses in full-service leases,
they are not always directly impacted by what it costs to heat and cool their own properties in the short term.
In the meantime, tenants of commercial office space have been the drivers of energy reduction efforts, as creative ways to cut back on energy are making the news everyday. Encouraging in-office water conservation efforts, incentivizing
employees to use mass transit, implementing new lighting technologies and offering telecommuting options are just some of the ways companies are lowering their energy costs.
Ultimately, it will take tenants and landlords working together to to deliver on what McKinsey predicts. There is a solid example of such teamwork in New York City's Empire State Building, where the landlord has made a sweeping commitment
to physically improve the building's efficiency and in doing so, created a tenant-friendly environment to offer feedback on the changes, encourage participation and generate ideas.
However, on a national level, more landlords will need to be open to the prospect of large up-front investments relative to energy reduction, and tenants will need to continue to demand high green standards. There are property owners
willing to change, but only if there is a market force behind the request.
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Tenant representatives are smartly leveraging today's communication tools
 The idea that commercial real estate professionals have been
slow to integrate technology into their practice is merely a misinterpretation of the industry's longevity and its relationship-driven approach. Furthermore, professionals like tenant representatives are client-savvy enough to understand
that if a relationship is not calling for the widespread use of technology, then its introduction would only become a distraction.
However, rapid-fire communication tools in business have become ubiquitous overnight. From January 2008 to January 2009, the number of people using mobile devices to access news and information from the Internet doubled, making the urge to
adopt technology for technology's sake hard to overcome. Tools like text and picture messaging are becoming powerful business tools where they were once considered tedious distractions. With professionalism and sound relationship
intelligence, commercial real estate professionals nationwide are leveraging these tools to improve client services.
Lease negotiations, for example, can be a minute-by-minute flow of updates and agreements. Text messaging and the instantaneous, multi-party alert capabilities that drive Twitter are proving to be very useful for tenant representatives
looking to communicate with clients when crucial terms are being discussed. Camera phones have also become a very common tool for tenant representatives to capture and communicate property characteristics for an interested client. Online
networking sites are also quick ways for professionals to share information and gain market knowledge.
The need and value for person-to-person communication during the often complicated process of finding a new office space will never go away. That does not mean that the process can't be improved. The best tenant representatives have
learned to adapt to technology if it can better serve the client while demonstrating the professional judgment to not force communication technologies into a relationship where it would only be burdensome.
Thanks to what is out there today, brokers are no longer bound to their office or at the will of a non-responsive landlord. Mobile devices, smaller laptops, WiFi and smart phones can take the broker out of the office while keeping the
service in the relationship.
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Cap and trade and real estate
 Currently being debated in Washington, "cap and trade"
legislation has several components that directly address the commercial real estate industry.
Upon its passage, all properties will need to reach a 30 percent improvement in energy efficiency based on their 2005 baseline. By 2015, landlords will have to improve efficiency by another 50 percent. Given the current rate at which
landlords are adopting the green movement, these standards present major challenges. Meeting them will impact all stakeholders: tenants, real estate companies, vendors and lenders.
The law would create new dependency on building codes, which local municipalities will then have to alter considerably to concede to the strict federal standards. Some fear that these measures essentially compare to mandatory LEED
certification.
The law could lead to real estate industry consolidation as smaller landlords nationwide look to dispose of properties they can't afford to retrofit, despite aid that will be provided by the Retrofit for Energy and Environmental
Performance (REEP) program. The program proposes to funnel money for property loans and assistance to state and local governments. Consolidation in the industry means that landlords will have more extensive portfolios and thus, more
bargaining power over tenants. This is even more troublesome in small to mid-size markets.
Increased energy efficiency is a good thing, but if savings are offset by higher rent and less flexible lease terms, the only thing many tenants will have left is the satisfaction that they're doing their part to help the environment. But
that doesn't pay the rent.
Tenants will also want to increase their own knowledge of new local and federal building codes to ensure that their landlord has not misinterpreted them, which could affect the tenant's lease terms or day-today operations should additional
retrofitting be required well after move-in.
The green movement is now on the main stage, and the spotlight is revealing some kinks in its armor. There is little doubt that most professionals, regardless of industry, want to play a role in making things better. However, the
realization of costs and standards and distractions is setting in. Unfortunately, the result may be an undercurrent of animosity from the professional world, especially landlords. The law's passage is not a done deal but it's close enough
to warrant early thoughts on how it may impact business.
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The Miller Richmond Company Expands Fabric.com...Again
 The Miller Richmond Company is pleased to announce that it
has represented Fabric.com in the expansion of its Marietta, Georgia facility. In 2008, Miller Richmond expanded Fabric.com from 26,000 square feet to 52,000 square feet. This latest transaction will ultimately take the firm up to 89,000
square feet, encompassing the entire building located at 2151 Northwest Parkway at Northwest Business Center in Marietta, GA. Fabric.com is a leading online fabric store that offers custom measured and cut fabrics, as well as patterns,
sewing tools and accessories.
David Rubenstein, Principal of The Miller Richmond Company, handled lease negotiations for Fabric.com. According to Mr. Rubenstein, "Fabric.com's business has continued to grow since we started working with the company in 2007. They have
a solid business model that has weathered the current economy quite well. As neighboring tenants' business slowed, we saw a perfect chance for our client to control the rest of a well located building to meet its current and future space
needs. For well financed companies, today's soft real estate market can present excellent opportunities to expand operations at historically low rental rates."
Stephen Friedman, President and CEO of Fabric.com added that "we have always prided ourselves on taking advantage of opportunities to improve operations and enhance our bottom line. When The Miller Richmond Company showed us what was
happening to the other tenants in our building, we thought it was the right time to act. We can now expand our facility to meet growing customer demand while locking in attractive rental rates."
Fabric.com will initially take down an additional 15,000 square feet in the third quarter of this year. The company will take an additional 22,000 square feet second quarter of 2010.
The building's landlord, Cobalt Industrial REIT II, was represented by Mark Sheffield of NAI Brannen Goddard.
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