Dear Friends,

We wish you a safe and Happy Thanksgiving!
Thank you for your continued support and friendship.

Sincerely,
Candace

Subleasing May Be Harder Than You Think

When things are going along fine, it is natural not to think about whether you will ever have to sublease some or all of your office or industrial space. Then the day comes that growth causes your firm to want to move to larger space, or a setback leaves you with too much space, and you finally read what your lease says about subleasing. There might be a trap there you can't get out of.

Members of the Alliance of Tenant Representatives keep a sharp lookout for onerous sublease language, and examples are as common as they are alarming.

Candace Baggett of The Calibre Group and ATR member indicated that law firms are increasingly concerned about flexible subleasing provisions. "Mergers are often the time that our clients appreciate our having negotiated favorable sublease provisions."

You could find a provision that prevents you from subleasing for the first two years of the lease. Or a clause that says you must get the owner's permission prior to attempting to sublease. Those were two examples spotted by ATR member Michelle Rich of Rich Commercial Realty LLC, Raleigh, North Carolina. Another was a requirement to provide 60 days written notice to the landlord for approval, which restricted the tenant's ability to immediately sublease the space. This lease also included a $500 nonrefundable transfer fee.

ATR member Levi F. Smith of Levi F. Smith Real Estate Inc., Southfield, Michigan, says he has seen large landlords in Detroit insert a sublease clause that asks for $750 to $1,000 for attorney fees.

Bogue Miller of The Miller Richmond Company in Atlanta and ATR member notes that "form" leases often prohibit the tenant from subleasing space at rents below those offered on a direct lease basis in the building. This restriction severely limits a sublease's marketability.

And in Pennsylvania, ATR member Mark Gola of Gola Corporate Real Estate has seen restrictions on subleasing to any other tenant in any of the landlord's buildings, and a provision forbidding the subdivision of the space for sublease. There was even one lease that called for any subtenant to have same or greater net worth as the tenant.

To avoid sublease traps like these, have our office review your next new lease or renewal. Sublease provisions are usually quite negotiable, and we will ensure that your lease affords you the flexibility to offset, if ever necessary, the cost of your excess space with a reasonable sublease arrangement.

Higher Heating Bill May Be Tough To Avoid

Commercial real estate tenants should brace themselves for an unexpected aftereffect of Hurricanes Katrina and Rita--higher heating bills this winter.

Even before the storm, the U.S. Department of Energy's Energy Information Agency predicted retail heating-oil prices would average $2.20 a gallon this winter, 17% higher than last year amid heavy global crude-oil demand. Natural gas, meanwhile, was expected to rise 16.5% to $12.97 per thousand cubic feet.

Then Katrina hit and at one point the U.S. Minerals Management Agency reported 83% of U.S. natural-gas output was shut down. Some of that output is still offline, and that meant users of natural gas had to dip into some of their stored supply, which is pumped into underground tanks. Now the Energy Department is saying that bills for natural gas could be an average of 48% higher this winter.

Whether commercial tenants pay their own heating bill or they pay pass-throughs for annual increases in operating costs, they can count on their occupancy costs ultimately rising due to the increase in heating costs. When deciding whether to renew or relocate at the end of a lease term, commercial tenants should review each potential landlord's energy management program. Some may be taking steps such as adding insulation, caulking around leaky windows, and installing programmable thermostats while others may be doing nothing and hoping to pass through the increased costs to their tenants. While harder to gauge than rental rates, energy inefficiency can result in hidden escalations in a tenant's occupancy costs that can be quite significant.

Our office can help you review your options before you commit to a lease that will result in heating bills that break the bank.

Manage Your Space the Flexible Way

By Julie Pollak, Ivan Allen Workspace, Atlanta

It is becoming more obvious that process, people, and technology are in a constant state of change within business today. It follows then that management of space must adapt to these changing needs. Companies that occupy highly flexible, user-centered space and manage their asset on a continuous cycle stand to gain the most on their investment.

Management of space as a dynamic asset must take into account several factors, such as changes in personal work behaviors, company culture, and communication. It must also not be restricted to set times every few years when leases are up for renewal, but be on a continuous cycle of exploring issues and concerns, planning a solution, providing a solution, managing the solution, and measuring its success.

Flexible, user-centered space increases the degree it can be wisely managed. The amount by which space is flexible relates directly to the architectural elements and furniture used in the design of the space. With new technologies in demountable partitions, raised floors, customizable workstations and interactive communication technologies, the only limitations to flexibility are one's own imagination and perception of cost.

Cost is composed of two variables: initial investment and lifecycle cost. Highly flexible solutions like those mentioned above do carry an initial investment premium, but the investment often makes sense for growing corporations. Nondedicated and reusable components can streamline facility changes and easily pay for themselves over the term of a lease in reconfiguration savings alone.

CBD Office Statistics - Class A/B

Source: CoStar Property

occupancy
Existing Bldgs: 70 of 72
# Spaces: 756
Existing RBA: 40,140,676 sf
Vacant: <7,806,035 sf> , 19%
Occupied: 32,334,641sf, 81%
Leased: 33,310,026 sf, 83%

Greenway Plaza Office Statistics - Class A/B

Source: CoStar Property

occupancy
Existing Bldgs: 58
# Spaces: 268
Existing RBA: 10,482,925 sf
Vacant: <1,973,099 sf> , 19%
Occupied: 8,509,826 sf, 81%
Leased: 8,816,676 sf, 84%

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"Common sense in an uncommon degree is what the world calls wisdom."
Samuel Taylor Coleridge