Oil prices not really that shocking

Despite the sticker shock many people feel when they fill their gas tanks these days, we are not experiencing anything close to the oil shocks of 1990, 1981, or the 1970s. Here's why:

* Oil would have to surpass $90 a barrel in inflation-adjusted terms to reach the all-time peak set in 1981.

* We're much more energy-efficient. It only takes half as much energy for the U.S. economy to produce things as it did 50 years ago.

* Inflation is under control, so the one percentage point added by energy is not cutting consumer spending much.

* Speculators are driving prices higher than demand would alone, and the estimated $15 per barrel "terror premium" could lessen.

Even with those factors in mind, oil prices are probably going to rise over time. Economists say that the long-term effect of higher oil prices would be that the U.S. economy would grow more slowly. Instead of growing 4% a year, it might only grow at 3%. And even though gasoline is a relatively small part of most people's budget, higher gas prices do take money away from other things.

What this all means for commercial real estate decisions centers on the commuting habits of employees. Locations served by public transit, for instance, or in densely populated areas instead of way out in the suburbs, might become more desirable. Furthermore, slower economic growth could mean less upward pressure on lease rates and less new construction.

Insurance issues can affect a lease

Both landlords and tenants are concerned about liability. Each wants to have protection from the other party for all possible claims.

Lease negotiations can get stuck on what are called the indemnification and waiver clauses. An example would be where the tenant agrees to indemnify or hold harmless the landlord for any claims arising from a third party while on the tenant's premises in the building. In short, if your client slips and falls in your office, that's your responsibility, not the landlord's.

But some landlords will try to get a tenant to indemnify the landlord and waive all claims for property loss and personal injury that occur inside the leased premises, even if the loss or injury is caused by the landlord's negligence or by defects in the leased space. A tenant, on the other hand, might ask the landlord to indemnify the tenant and waive claims for any property loss and personal injury caused by the landlord's negligence, defects in the leased space, and all accidents that occur in common areas.

The smart thing to do is to first look at your liability and property insurance and see what specific things it covers. Then the tenant and landlord can divide the responsibilities in a way that is consistent with their coverage. After that, the lease can be drafted to match this allocation.

This brief introduction to insurance issues is not meant as legal advice. Talk to your attorney and insurance agent for specific advice.

Translating landlordese

by Levi F. Smith, Esq., ATR Member, Levi F. Smith Real Estate Inc., Southfield, Mich.

Most lease proposals read like Greek to the nonreal estate professional. For instance, take these phrases:

• The rent shall be $20 per square foot NNN.

• Services supplied will be comparable to other class A office buildings in the area.

• Annual increases shall be 3% of the base rent or CPI increase, whichever is greater.

Some of these phrases have specific meanings, others were created by landlords to make you feel illiterate in your own country!

NNN - Triple net charges are added to base rent for operating expenses and real estate taxes. Charges include your pro rata share of utilities, insurance, management, repairs and maintenance, janitorial service, waste removal, security, snow and lawn care. This should not include capital improvements such as a new roof or new parking lot.

CLASS A OFFICE BUILDINGS - There is no commonly accepted definition for this term. It will differ based on city or suburb, region of the country and if you are talking to an owner, user, landlord, assessor, buyer or lender. It is one of the most abused terms in commercial real estate. Having said that, let's try to create a definition. Class A space is in a distinctive full-service building with a roster of recognizable tenants that offers amenities such as a restaurant or private dining club, maybe a bank, health club/locker room, conference facilities, fiberoptics to the building, covered parking, on-site management, on-site engineer, janitorial personnel, and security guards 24 hours 7 days per week. Its rent will be in the upper 25% of the market, age is less than 35 years old.

ANNUAL ESCALATION - In today's soft market, this is not a given. There is no statute that ordains an annual increase in a lease. Fairness usually means that the landlord be compensated for increases in operating expenses and taxes. An inflationary increase or pro rata increase over the first year of the lease ("base year") is fair. But ask if you get the benefit of decreases in operating expenses and real estate taxes.

Like any industry, the commercial real estate industry utilizes its own set of words, phrases and jargon. Don't lose out just because you are not familiar with the language. Engage an experienced tenant representative to help protect your interests.

Google your own computer

If you're like most people, you are using Google to search the Internet for information. The word is even used as a generic term, as in "I'm going to Google that later."

But what about all the stuff buried on your own hard drive, in old e-mails or in computer files you forgot about.

Google has now released a way to search your own computer, and it's free. Google Desktop Search will find key words buried on your hard drive, including e-mails and saved Web pages. It searches Outlook, Excel, and PowerPoint files, too. (Sorry, it won't work on Macs.)

All you need to do is go to www.desktop.google.com and download the search program. It runs quietly in the background, creating an index of most of the data on your computer. Then there will be a new icon on your desktop. And when you call up the Google search page, it will have a new choice on it: "Desktop."

And even when you perform a regular search of the Internet, Google will also search your hard drive and show you those hits in a separate box. Or you can just search your own computer. Amazon and Yahoo are out with products to do the same thing.

Of course, Windows already has a "Find" function that does a good job of finding files and does word searches in many kinds of files, but it is clunky to use.

Whichever one you use, you can't say, "I can't find that file" anymore.

Subleasing - Association of Legal Administrators

Subleasing is an important subject to law firms whether wishing to lease office space at bargain rates or to dispose of surplus space.

Candace Baggett will speak on Subleasing at the Association of Legal Administrators' luncheon on November 17th at the Four Seasons Hotel Downtown from 11:30-1:00.

Jack Nicklaus - Confidence

"Confidence is the most important single factor in this game, and no matter how great your natural talent, there is only one way to obtain and sustain it: work."

Jack Nicklaus
May 3, 2004