Category Archives: Uncategorized

How Will Flying Cars Impact Your Real Estate Negotiations?

Flying CarRecently, I caught a few minutes of Back to the Future II, which first hit movie screens back in 1989. If it’s been a while since you’ve seen it, you might not remember how the movie predicts that we can look forward to a lot of changes in 2015, including flying cars!

I can’t remember much about my reaction to the movie 25 years ago. I was probably preoccupied with how Marty’s girlfriend from the first movie had become Elisabeth Shue in the sequel. Flying cars are everywhere in movies, from The Absent Minded Professor to Chitty Chitty Bang Bang to Blade Runner. Whenever I see one now, though, I can’t help but wonder: How does a tenant plan for parking in a world of flying cars? What are the zoning implications? Would a company’s executive team want reserved or covered air space? Should my attorney adjust my negotiating documents? More importantly, is Elisabeth Shue single?

Movies about the future may get some things wrong, but they remind us that even if you can’t predict what will happen, it’s still smart to plan for it. That’s especially true with real estate decisions. The companies that think ahead about their real estate needs tend to have the advantage. We see this every day with our clients.

Our clients that plan 12 to 18 months in advance for a lease renewal, move, sale, or purchase — or the ones that plan ahead for growth — are in a much smarter and stronger position. They provide our team with the time to explore the market, and we provide them with a realistic budget and better strategic real estate plan. It all translates into increased negotiating leverage with current and potential landlords. With the luxury of time, we’re able to secure the most favorable economics and best flexibility, whether the client renews or moves. If the client’s best option is to move, they have the time and flexibility to choose their move date and ensure that it doesn’t coincide with their busy season. The list goes on . . . .

Ready or not, the future is coming. If your current real estate situation doesn’t fit your business strategy, if your lease is up for renewal, or if you’re planning to buy or sell a building in the next 12 to 18 months, we should talk now. We may even have some thoughts on how to plan ahead for your aerial parking needs.

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Tenant Improvement and Build-To-Suit: Is it Risky to Put an Architect or General Contractor in the Driver’s Seat?

Part 2 in our series: Managing Real Estate Risk to Your Advantage

Have you heard something like the following from your broker?

  • “Let’s get a general contractor to help us with pricing.”
  • “Let’s hire an architect to help us define this project.”
  • “Let’s get a space plan from an architect.”

Is this risky advice? After all, general contractors and architects are experts in their respective fields, with a wealth of specialized knowledge you’ll need on your project. Surprisingly, though, the answer is that hiring a general contractor (GC) or an architect to guide your Tenant Improvement (TI) project is probably a risky move.

Why is it risky? It all boils down to budget and the alignment of interests (in other words, who works for who).

The fact is that tenants and brokers aren’t usually qualified to define the schedule, budget, and scope of a TI project or a Build-To-Suit process. Once a project is underway, someone on your team needs the influence and expertise to keep the project scope in check and to negotiate the best fees based on that the project’s parameters — and few brokers can do this effectively. And keep in mind that not all architects and general contractors are created equal. Some are too big, some are too small, some are too busy, and some are inexperienced in the areas you require expertise. These days, some don’t even have the financial wherewithal to take on your project. Any gap in size, specialization, or ability can ultimately translate into problems for you.

In most cases, architect and general contractor fees are the two biggest line items in a budget — and rightly so. Architects provide the vision for the space and how it will perform. The GC is responsible for implementing that vision in an efficient and cost-effective manner. But putting one or the other at the helm of your TI project isn’t a best practice for getting the maximum value from your investment.

Project Managers: The Expert in Your Corner

In a complex real estate transaction, you need a TI expert with a fiduciary responsibility to you. If you get advice from a source with competing interests (in other words, someone whose ultimate interest is their own bottom line), how will you know if you can trust their advice? (Hint: You can’t.)

A project manager is the answer. A project manager (PM) has a clearly defined fiduciary responsibility to serve your fiscal interests. And your broker can engage a PM at a fixed cost, meaning he or she has no incentive to expand the scope of your project.

PMs do more than keep your TI project on course. They can also add value in the following areas:

  • Strategic Planning (programming, budgeting, scheduling and scope definition)
  • Negotiation support (it’s critical that your broker knows how to use the data effectively)
  • Assistance in the team selection (architect, engineer, GC, and others)
  • Furniture, Fixture and Equipment (FF&E) management
  • Move management

These tasks don’t usually fall within an architect’s or a GC’s range of responsibilities, which means that critical resources in your organization will be distracted from their daily responsibilities to work on tasks that your GC or architect won’t address or those tasks may go unattended.

None of this should be taken to mean that architects and GC’s are lazy, dishonest and unethical – or that they will inevitably inflate costs. But when you hire one to oversee your TI or build-to-suit project, you simply give up any negotiating leverage you may have and put added work on your own organization’s to-do list.

At Forte Commercial Real Estate, we believe that PMs can play a critical role by keeping costs in check and ensuring the project adheres to the client’s agenda, not anyone else’s. We’ll be discussing their role in greater detail in future posts, so stay tuned.

To Renew or Not to Renew: It’s a Risky Question

Part 1 in Our Series: Managing Real Estate Risk to Your Advantage

As you mull over your landlord’s renewal offer, ask yourself whether renewing your lease is your least risky option. The cost and disruption of shutting down and moving your business may seem like more trouble than they’re worth. But is this always the case?

Even if you’re planning to stay put and renew your lease, you still face risk:

  • Balance sheet risk – Occupancy costs directly affect your enterprise value. You can’t overlook the opportunity to improve your balance sheet by exploring your other options and aggressively negotiating your renewal.
  • Exit risk – If your rent isn’t competitive with other properties or your existing improvements aren’t up to market standard, you might have trouble subleasing your property in the future and you can expect the cost to sublease will be higher.
  • Rights and flexibility risk – Depending on what you originally negotiated, your lease may be missing terms that work to your benefit and flexibility. Also, some of your options in your lease may have expired or will expire when your lease ends.
  • Employee retention risk– Just because you’re committed to staying put doesn’t mean you can’t negotiate upgrades that improve the workplace for your employees and your operations.

As you consider renewing your lease, remember that you still have room to renegotiate — and that an effective renewal negotiation requires as much skill and expertise as drawing up a new agreement. In fact, the renewal negotiation is the competitor of the new lease negotiation, and vice versa.

Think Like a Landlord

Landlords know the market. After all, that’s their business. They’ll use that knowledge to their advantage. If your landlord knows more about the market than you do, you’re at an immediate disadvantage. You won’t have the negotiating leverage to get the best possible deal.

That’s why it’s smart to hire a broker and possibly a project manager for your renewal negotiations. By negotiating with competitive alternatives you’ll gain critical knowledge about the very best rent, terms, and project costs available to your company. And, you’ll be prepared to exercise your option to move.

Also, when your landlord knows that you’ve retained a broker, he must assume that you’ll take the best option available in the market. In other words, he is on notice to compete for your tenancy.

Here’s what your landlord doesn’t want you to know: he already budgeted for the tenant improvements and commissions that go into a new lease and will offer that same package to you to retain you as a tenant. Your landlord is as risk averse as you are. In almost every case, your landlord doesn’t want you to move — especially in this market. A vacancy poses significant risks for your landlord:

  • Potential downtime/vacancy risk of six months or more
  • Higher potential tenant improvement costs for a new tenant
  • The credit risk of a new tenant with no established payment history
  • Value deterioration of the building and possible subsequent impacts with lenders and investors

Turn Risk into Leverage

When you renew, you mitigate these risks for the landlord — and you should be rewarded by the savings your continued occupancy offers. But a smart landlord isn’t just going to accept your terms on blind faith. So here’s how you can make sure you get the best possible terms:

  • Make the experts your allies – Start with a qualified broker who can help you understand how your current lease stacks up in the market. Depending on the complexity of the project, you should retain a Project Manager who will only serve your interests and support your negotiations. (We’ll discuss this further in a future blog post.)
  • Plan ahead – If possible, put your plan in place with your broker in the fiscal year prior to your move. Budget realistically and schedule your plan of attack.
  • Issue RFPs to your landlord and competitive spaces – An RFP sends a clear signal that you’re considering all your options. Make sure that you directly compare your options. In your analysis, include move costs, cost of new furniture, fixtures, and equipment (FF&E), the tenant improvement (TI) package that each option requires, and the lease terms available to you. Get the bids required to underwrite all move costs. Your landlord will hear about it.
  • Plan to move – If your current landlord isn’t offering you a competitive market deal, prepare to move. Your landlord needs to know that you’re serious about it. Pricing the move cost will help you better understand this alternative.

At Forte Commercial Real Estate, we’ve helped scores of clients secure more favorable agreements, better rates, and better terms with their existing landlords. If a renewal negotiation or move is in your future, call us to discuss how we can make the landlord’s risk your negotiating ally.

Managing Real Estate Risk to Your Advantage

Introduction To A Series

Every executive knows that managing risk is just part of doing business. But not every executive recognizes the risk inherent in their real estate strategy and tactics. As one of the major components of virtually every enterprise balance sheet, real estate (whether owned or leased) affects every facet of your business, from your supply chain planning to your marketing strategy to employee satisfaction and turnover.

In the current market, you should aggressively pursue any opportunity to lower your occupancy costs. That means that each real estate decision should involve frank, realistic risk analysis — preferably by a real estate expert, and preferably by the experts at Forte Commercial Real Estate (this is our blog, after all).

Real estate risk comes in a variety of forms:

  • Financial risk – This includes the obvious risks such as paying more than you should to rent or upgrade a property, but also decisions that can affect your long-term enterprise value.
  • Flexibility risk – The wrong real estate decision (one that doesn’t precisely align with your business strategy) can tie your hands and limit your options, which in turn can prevent you from pursuing opportunity, expanding to meet market demand, and using your capital in a more effective way.
  • Move and Downtime Risk – Many companies fail to take advantage of a favorable real estate market because they equate moving with excessive operational downtime and want to avoid shutting down during critical periods (such as seasonal peaks in their business cycle).

Unlike other investments where a certain amount of risk is acceptable – even desirable – corporate real estate and risk is rarely a good combination. Risk translates into uncertainty, and uncertainty is the last thing you want in your real estate strategy. And in some instances, doing nothing can be the riskiest alternative in terms of lost opportunity and lower enterprise value.

Over time, we’ll be using this blog to discuss real estate risk. You’ll hear a lot about Forte’s unique take on how to identify risk – and how our approach can help you minimize it. As we look at real estate risk from a variety of angles, you’ll see us repeat several key themes and concepts:

  • Market knowledge– One of the surest strategies to minimize risk is to do your homework so you can make an accurate apples-to-apples comparison of different properties and owner/landlord offers. Comparable leases and sales are helpful data points, but the key is to create actionable alternatives that maximize your leverage and prove the market.
  •  Negotiating leverage – Negotiating without a detailed understanding of your requirements and market realities is the real estate equivalent of walking on thin ice. Having a qualified broker on your side sends the signal that you’re negotiating with a clear understanding of the market and your various options.
  • Timing – When you start your renewal negotiations three months before your lease expiration, your landlord knows that moving is out of the question. The result: you’re at the landlord’s mercy. Planning ahead a year or more from your anticipated move is good business.
  • Flexibility – There’s more to a smart real estate decision than just getting the lowest possible rent. You want to make sure that your decision doesn’t hurt your ability to adapt to changing market opportunity and evolving customer demands.

Even if you’re not in the market for a new property or you’re not facing a lease renewal negotiation in the near future, we think you’ll find our discussion of risk instructive and insightful. And if you’re facing an upcoming real estate decision, we hope that you’ll find these articles helpful – and that you’ll give us the chance to discuss with you how Forte Commercial Real Estate can help you minimize risk and improve your negotiating leverage.

Stay tuned. . . .

A Virtual Ribbon Cutting on our New Addition

Recently, we spent a lot of time developing a new website. Anyone who has ever sat in front of a blank screen and tried to explain what they do to a lay audience – while still being relevant to industry experts and insiders – knows it can be a grueling process. It’s not easy describing a complex business in a simple way. But we felt that it was important for our prospects, our customers, and our partners to know where we stand and how we approach commercial real estate. Not all brokers are created equal – and the differences between them can be vitally important. So we tried to tell our story as clearly and as simply as we know how.

Here’s a preview of what you’ll find when you explore fortecre.com:

  • How we do business – and how we do it differently: We have a unique approach to commercial real estate. We put more work into a transaction early in the process. And it pays dividends later in terms of increased negotiating leverage and a better fit with your specific needs.
  • Our vertical industry expertise: It goes without saying that different industries have radically different real estate needs. Our experience with companies in specific industries means we can help you find the best solution for your needs at a better cost. In other words, you don’t have to teach us your business before we can do business.
  • A reason to keep coming back: A website is like a shark. It has to keep moving or it dies. We’re including blog postings and a Twitter feed to keep our site fresh and keep you up to date with what we’re doing and thinking about.

The bottom line: We want to use the new website as a way to start conversations. Take a look around and tell us what you think.

www.fortecre.com