Real advice for your commercial real estate questions.
Frequently Asked Questions
Looking for real advice on a particular real estate topic or want to let us know what you think of Hughes Marino? We always appreciate hearing from you and welcome the opportunity to answer your questions. If you can’t find what you are looking for, contact us today and we’ll get back to you as soon as possible.
What is the difference between a tenant representation broker and a traditional commercial real estate broker?
A true “tenant representation broker” never represents landlords. Traditional brokers represent landlords, or have interests in property, creating the conflict of interest that undermines their fiduciary capacity. A traditional broker may claim to work as “tenant rep” on a particular transaction; however, their conflicts persist, as the landlords are still potential customers of that broker, thereby undermining the broker’s credibility and objectivity. While an individual in one of the national brokerage houses may attempt to limit his or her services to tenant representation, the fact remains that the firm as a whole makes the majority of its revenue from landlords.
What does “no conflict of interest” really mean?
A broker cannot serve two parties with opposing interests. Landlords want the highest rent possible, for the longest fixed period of time and the smallest outlay of upfront costs. Tenants, on the other hand, want to pay the lowest possible rent with the greatest lease term flexibility and concessions from the landlord. One person cannot accomplish both objectives. It can be equated to an attorney representing both the plaintiff and the defendant in a legal case — it is impossible to serve both masters. To represent both landlords and tenants, either in one transaction or over a period of time, creates a conflict of interest that negates any meaningful contribution the broker might have made in their advisory role.
What is the benefit of working with a broker, rather than working directly with the landlord?
Quality tenant representation brokers can educate, empower and counsel their clients while leading a negotiation with market insight, strategy and diligence. In real estate negotiations, information is power. Landlords, by definition, are in the real estate business. Most businesses are not involved in real estate on a day-to-day basis, and are therefore not fully appraised of market dynamics and negotiation opportunities. Landlords would just as soon keep it that way, while a strong tenant representation broker will level the playing field and provide meaningful, time- and money-saving advice.
How is Hughes Marino paid for its commercial real estate services?
We are paid by the property owner upon the successful completion of a lease or sale transaction. The landlord or seller typically pays our real estate commission — generally a percentage of the transaction value — as the tenant’s or buyer’s representative. In most cases, the property owner has already signed a listing agreement with a traditional landlord agent, and that listing agreement anticipates the payment of a tenant or buyer side commission, similar to residential real estate.
How far in advance should I consult a broker?
At Hughes Marino, we provide a complimentary lease expiration reminder service, available here, to notify our clients of key dates and milestones throughout the lease. Often, the subject of real estate will come up ahead of the scheduled lease expiration, as a result of mergers and acquisitions, , growth, contraction or business change, and we are always available to answer questions when they arise. The time required to find a company the perfect space varies by tenant, but we usually want to start that conversation two years ahead of the lease expiration.
Should I buy or lease space?
It depends. We help companies to ask the right questions in evaluating lease versus buy opportunities, and to model the financial implications of each scenario. Typically, companies that are good purchase candidates are stable companies with a 5 to 10 year operating history, and 10 plus years of business plan visibility. Hughes Marino went through this analytical process, and ultimately decided to purchase the former San Diego Magazine headquarters at 1450 Front Street in Downtown San Diego. With so many factors to consider in making the decision to buy or lease space, we have designed a worksheet that enables you to customize several options based on your own unique business circumstance. Click here to download our free Lease v. Purchase Worksheet.
I plan to exercise my renewal option, so why would I use a broker?
Renewal options are always a good idea, but rarely the best way to negotiate your rental rate under a new lease. These renewal rights are typically written so that a company must exercise the right well in advance of the lease expiration, as well as in advance of determining a new rental rate for the space. Landlords love when a tenant exercises a market rate renewal option because the tenant is typically captive and forced to negotiate for a lower rental rate without any leverage. A good tenant representation broker can educate a company on how to navigate a lease renewal without falling into the landlord’s renewal option trap.
I have a good relationship with my landlord, so why would I use a broker?
Most landlords recognize and respect our role in a real estate transaction. If you have a good relationship with your landlord, our work can preserve that relationship while also ensuring that your lease terms are competitive. We are professional and courteous, and as an outside third party we remain objective and can ensure that your interests are protected. Hughes Marino understands the importance of a good relationship between a business and its landlord, and we help to maintain that bond while delivering our clients the best market rate possible. With the volume of leases we complete each year, as well as our local market expertise, we are able to bring leverage and credibility to ensure you are offered the best economics available.
What is the process you take a tenant through?
Every client is unique, but the basic elements of our process are commonly applied. We first spend time asking thoughtful questions at the outset of a project to better understand the client’s true objectives and constraints. We then work to define the project, examine the marketplace to develop compelling space ideas and alternatives, engage in strategic and efficient negotiations, and follow through with diligence and professionalism, including contract review, project and construction management and project close-out.
I heard that Hughes Marino only specializes in office space. Is that true?
We do more than that. At Hughes Marino, we help corporate, municipal, medical, retail and nonprofit clients with their office, flex, industrial, retail, medical and headquarter real estate matters. We represent tenants and buyers with their real estate needs nationwide.
Are there certain situations where it is best to not get a broker involved?
Not if your broker is Hughes Marino. Our highest praise is when a client says to a peer, “You would be crazy not to at least talk to Hughes Marino first.” Our intent is to add value in every interaction and to remain focused on what is best for the client. We know the market better than anyone else — and we guarantee our results.
What program, project and construction management services does Hughes Marino provide?
Hughes Marino provides project management services for all phases of a construction project, including: Entitlements, lease negotiations and work letter review, site/building due diligence, scheduling, budgeting, design, construction and occupancy.
When should I hire a project management consultant?
The earlier we are brought into the process, the more value we can bring to the table. Regardless of how far along a project is, we can always deliver valuable advice and leadership. With a high quality project management team on board, potential problems can be identified and averted, such as work scope definition, budget allocation, building material selection and work schedule coordination.
What is your fee structure?
Our fees vary from project to project depending on a series of factors, including the size and duration of the assignment and the scope of services to be provided. We find it is best to meet with a prospective client and obtain a clear understanding of the project parameters and desired services before proposing a fee structure. This allows us to tailor our services to meet the specific needs of each client and provide tremendous added value to our clients within their budget.
Does Hughes Marino employ architects, engineers or general contractors?
Hughes Marino does not employ any architects, engineers or general contractors. We feel our clients’ needs are best served by helping them select the best consultants and general contractors for the specific needs and unique characteristics of their project. By approaching each project in this manner, we are able to obtain best in class services for our clients at competitive rates.
Will you hold the contracts for the architect, engineers and general contractor?
Hughes Marino will not hold the contracts with the architect, engineers or general contractor. However, we will help to review and negotiate the terms and conditions of each of these contracts for our clients and make final recommendations for their approval. Final contracts will be approved and signed by either the client or the owner of the property, depending on the specifics of the transaction or project.
What is a Work Letter?
The section in a commercial real estate lease that addresses design and construction of initial improvements is typically called the “Work Letter.” This section of the lease should address:
- Tenant Improvement Allowance (TI or TIA), and the methodology and requirements for fund disbursements;
- Process and protocol for tenant submittals and landlord approvals;
- Process and protocol for change orders, landlord or tenant project delays and/or cost overruns;
- Definition of Building Standard Improvements;
- Landlord warranties;
- Responsible parties for landlord and tenant, and the appointed Project/Construction Manager; and
- Other relevant project details.
It is important to have a qualified project manager review this important section of the lease. Failure to clarify each item and clearly understand the intent can cause significant issues once the lease is signed.
What is a TI allowance?
Most businesses leasing space or buying a building will need to make some sort of modification to the existing space to meet the specific needs of its operation. Typically, a landlord will either complete a defined scope of work as part of the lease agreement, or the landlord will provide an allowance for the tenant to use toward the cost of building modifications. This allowance is called the “Tenant Improvement Allowance” or TI allowance. There are a number of pitfalls that a tenant should be careful to avoid when contemplating building modifications using a Tenant Improvement Allowance, and it is important to have a qualified project manager on your side. A good project manager offers guidance with regards to due diligence for base building conditions, a preliminary project budget to ensure adequacy of the allowance, a review of the Building Standard to ensure that the allowance can be used for the intended improvements, and a review of the cash flow implications of the project funding and reimbursement protocol.
What is not covered by my tenant improvement allowance?
Landlords typically address the TI allowance and their strict rules for its proper use in an addendum to the lease called a Work Letter. This section of the lease spells out the terms and conditions associated with the TI allowance, including how much is to be paid and by whom, what those funds can be applied towards, any conditional requirement for the release of those funds, and how and when the funds will be distributed. Unfortunately, most TI allowances only cover three categories of expense: (i) design, engineering and project management fees, (ii) permit fees, and (iii) actual construction costs. In addition to these costs, there is a myriad of additional items that are not always covered by the TI allowance, such as phone/data cabling, security, phone systems, audio visual equipment, and furniture, including workstations, moving costs and signage. It is important to have a qualified project manager assess your needs and review the Work Letter in order to avoid expensive mistakes and misunderstandings.
What is meant by “Building Standard Improvements”?
As part of a lease, the landlord may be responsible for designing, constructing and funding “Building Standard Improvements.” These improvements are typically very elementary and include basic flooring, ceilings, lights, doors, etc. It does not always include a number of fundamental items such as a reception desk, break room cabinetry and sink, upgraded carpet or tile, glass sidelights or interior windows, extra power for specialized equipment, specialty lighting or 24 hour HVAC for a server room. It is important to have a qualified project manager assess your specific needs and make sure that standard improvements are clearly defined to meet your specific requirements and expectations. Failure to do this may result in disappointment in the quality of your improvements or additional costs.
What is meant by “Cold Shell?”
When providing a TI allowance, the landlord will want to define the condition of the space prior to the start of any tenant improvements. The most basic level of finish is referred to as “cold shell.” This means you are getting four walls, a roof and a floor. Nothing else is provided in the space — no restrooms, HVAC, electrical, stairs, mezzanines or elevators. The intent of a cold shell delivery is that the TI allowance will be used to pay for ALL improvements to the space. It is important to have a qualified project manager assist in determining your specific needs for the space and anticipated costs. Starting from a cold shell can add more than $15/sf to $30/sf to the cost of the tenant improvements above a warm shell or existing space to be remodeled.
What is meant by “Warm Shell?”
The next level of improvements above a cold shell is a “warm shell.” A “warm shell” is similar to a cold shell but will typically include improvements to the common areas of the building such as restrooms, lobbies, corridors and elevators. It may also include utilities such as HVAC, electrical, and plumbing stubbed into the space. It will not include any other improvements inside the space. These other improvements will be constructed as part of the new tenant improvements. Failure to identify key elements of the project that should be included in the base building condition could cause additional items to be charged against the TI allowance that had not been anticipated, reducing the balance available to complete the desired improvements.
What is meant by “Turn Key?”
As part of the Work Letter, the landlord may specify that the improvements be completed on a “Turn Key” basis. This means the landlord will work with you to identify a floor plan and description of the components of your new space and then design, permit and construct the space for you. This system works well for smaller spaces, but is not recommend for spaces over 10,000 square feet or with estimated TI costs of more than $500,000. When agreeing to move forward with a Turn Key project, it is important to make sure that you work with the landlord to clearly identify your specific needs and desires, including the look and finish of the space as well as any special electrical or HVAC requirements. Ideally, when using a Turn Key methodology, the lease should include a final space plan with detailed notes approved by both landlord and tenant. Failure to do so could result in negative surprises and/or space that does not meet your expectations.
Why wouldn’t I want the landlord to complete the improvements on a “Turn Key” basis?
For projects larger than 10,000 square feet or with estimated TI costs of more than $500,000, we do not recommend the Turn Key delivery method. We feel it is best for you and a qualified project manager to manage the process and the budget. Remember, it is your money to be paid to the landlord over the duration of the lease. We act as your construction expert and provide better management of these funds, stretching your dollar and making it possible to get more bang for your buck. It also ensures that the landlord is not using your TI allowance to pay for building upgrades, equipment maintenance or repairs, or paying higher than competitive fees for design or construction.
What does furniture cost?
In addition to the cost of design, permits and construction, most projects also have costs associated with furniture. The cost of furniture can range wildly from $0/sf (by reusing all of the existing furniture) to above $70/sf depending on the specific requirements of a particular client. For example, the cost to furnish a standard office can range between $400 to over $20,000 for a CEO’s office, and the cost of a cubicle can range from $1,200 to over $10,000 for the latest models with attachments, fancy fabric, glass and paneling. It is best to work with your project manager and architect and establish a budget for each area. You can then work with your team to identify potential furniture vendors and determine which furniture fits within your budgets.
What will it cost to move?
There is no single answer to the question, “What will it cost to move?” The following guidelines will help you as you begin evaluating an upcoming relocation. Depending on the size and complexity of the project, a professional relocation manager may be appropriate. These consultants typically charge on an hourly basis, and the fee can range from $0.50/sf to $1.00/sf. You can also anticipate an additional $1.00/sf to move standard furniture and personal content. This excludes costs of moving any existing systems furniture as well as additional smaller costs such as new business cards, signage, phone and copier relocation, etc. Our team at Hughes Marino helps you to assess your specific needs and make sure that you are positioned to relocate in the most efficient way possible. Click here for our free Business Move Checklist.
Lease Audit Services
What lease audit services does Hughes Marino provide?
Hughes Marino helps business owners improve their bottom line by reviewing their lease and operating expense statements to determine if they’re being overcharged. We focus on operating expenses, including operating expense pass-through charges, property tax pass-through charges and common area maintenance (CAM) charges, which unlike rental rates, can be subjective and very complicated to decode..Our audit team will determine if your landlord is complying with both the provisions of your lease and with industry standards. If the initial review process uncovers questionable charges and practices, then we will conduct a full audit, and work with tenants to recover any money that is due to them.
Why should I work with Hughes Marino Lease Audit Services?
Landlords like to keep you in the dark. The annual presentation of operating expense charges is usually vague and at best provides a summary of expenses incurred by the landlord during the year. Your landlord knows property management is not your business and presents these numbers in such a manner that makes it impossible to see red flags. Hughes Marino will help you understand what you are being asked to reimburse the landlord for each year, and ensure you’re not paying more than you should be..