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May 2010 |
Miller, Rubenstein,
Hoffman & Hawkinson
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Recessions Are Often Ideal Times to Address Internal Change
 The best companies are those that can adapt continuously
to market fluctuations. Unfortunately, in the last two years, the market has not demanded very much, but businesses have sure had to adapt.
However, the companies that had the foresight to use the recession as a platform for change, as a window of time to reassess outdated practices and start planning for the future, will emerge as the next great market leaders.
In many cases, businesses deal with severe market turbulence by tightening their proverbial seat belts and just riding it out, occasionally disposing of corporate baggage along the way.
Smart companies take the time to find out more about themselves when things get rough by exploring internal operations, engaging employees and finding ways to create change.
Strong businesses use slow periods to encourage employees to focus inward on departmental improvements and office efficiencies. For example, what fundamental company processes could be altered to better prepare for the future? Are there
new marketing plans left untested? Have sound customer ideas been lost in the din of uncontrolled growth?
Companies should always look at their real estate costs and how working with a tenant representative could help create a new office environment and/or reduce occupancy costs. Perhaps the business could benefit from a new floor plan or
fewer hardwall offices.
Many businesses across the country have been adjusting their real estate strategies during the recession through "blend and extend" strategies, which extend the term of a lease in exchange for rent reductions and additional concessions.
Broad changes to internal processes involve shifting employee habits and introducing new processes, which can often be difficult with those resistant to change. It takes leadership savvy and courage to get stakeholders on board as reduced
profits, lower salaries and potential layoffs become barriers to progress.
Using the recession to your company's benefit can help strengthen it at all corners. It may take staff reductions, drastic measures and difficult decisions but the point, in the end, is to create a company that is ideally suited for the
next economic storm. And, one that can rebound quickly when this one eventually subsides.
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BOMA Standards for Space Calculation Changing
 For almost 100 years, the commercial real estate industry
has used BOMA (Building Owners and Managers Association) Standard Method of Floor Measurement for Office Buildings to determine a building's "load factor."
Also referred to as "loss" or "core factor," load factor is the term used for the total percentage of common areas and portions of a building that cannot be occupied, like elevator lobbies, utility rooms and bathrooms.
Load factor, usually expressed as a percentage, is applied to the "usable area" of a building or space within the building to arrive at "rentable area," the amount of space upon which rent, and tenant shared building expenses are based.
Thus, a building's load factor is a figure every tenant should know and something tenant representatives should take very seriously on behalf of their clients.
While BOMA has altered the standard slightly through the decades (the last being in 1996) it has recently instituted a major change and even re-titled its standards publication to Office Buildings: Methods of Measurement and Calculating
Rentable Area.
The previous standard, or "legacy method," calculates load factor on a floor-by-floor basis, which can be different for each floor.
Under the new standard, called "Method B," a single load factor for an entire building is applied to every floor; however, it does not specifically discourage the ongoing usage of the 1996 standard.
The BOMA standards were created to ensure that all commercial real estate professionalsarchitects, developers, brokers and tenants can talk about a building's physical measurements in the same language, especially because costs for real
estate are so often boiled down to square feet. However, incorrect measurement of space has led to tenants paying well more than their share of rent and building expenses and is consistently found to be in error during lease audits.
Tenants should be sure that all requests for proposal, letters of intent and leases clearly define which standard is being used to determine a tenant's rent.
The issue will come to light more often in new buildings. Nevertheless, this is yet another critical figure in occupancy decisions that if not applied accurately, could cost tenants significantly more money than what they would otherwise
owe...yet another reason to have an exclusive tenant representative looking out for your best interests.
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End of Suburbia?
 In many regions around the country, entire communities,
and even new suburbs, have been created around the foresight of real estate developers who recognized the need for office space outside of the city.
Incessant trend watchers, good developers can quickly respond to the slightest shift in residential living habits. For example, the growth of suburban office parks answered the nation's demand for jobs that offered shorter commutes,
proximity to schools and a sense of community involvement from employers.
However, suburban office parks have recently become subject to pejorative conversations about sprawl and the environmental impact of commercial real estate. Moreover, according to Alan Berube, Research Director with the Metropolitan Policy
Program at the Brookings Institute, "a new metro map is emerging in the U.S. that challenges conventional thinking about where we live and work ... the old concepts of suburbia, Sun Belt and Rust Belt are outdated ... the suburbs now have
the largest poor population in the country."
Berube's quote was in reference to Brookings' analysis of 2000-2008 Census data that shows Americans and our jobs are moving back to urban centers for the same reason we populated suburbs: shorter commutes, more amenities, access to public
transportation and a more enriched liefstyle.
Not to be ignored is the collective response to the impact suburban development has had on the environment. New office parks demand extensive tracts of raw land and add more strain on water supplies and the energy grid. In addition, few
landlords are open to implementing green renovations on a property less than ten years old. Cities, on the other hand, tend to be populated with older buildings primed for contemporary renovations that include sustainable materials and
innovative approaches to energy preservation. Furthermore, city properties tend to be much closer to public transportation centers.
The findings of the 2010 Census are expected to show that local and national policy makers will be forced to legislate according to this population shift, which could mean sweeping changes in the commercial real estate industry. Already
struggling under the weight of the recession, it appears many landlords may have to fight more than their mortgages to keep good tenants. In a few years, they'll have the living habits of an entire culture with which to contend.
The housing crisis has hit our suburbs the hardest. Cul-de-sacs across the country sit vacant or unfinished, waiting to be occupied by workers who would have surely been commuting each morning to the office park around the corner. Today,
it's a different story. The suburban "American Dream" seems to have been put on hold. Or maybe, it's just moved downtown.
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