By Scott Johnstone
Champions of the business owner! That was the focus of Part I of our series on the commercial real estate sphere. Hughes Marino’s sole commitment and fiduciary responsibility to the tenant is what differentiates our firm from the competition. As a national leader in tenant representation, our mission is to work on behalf of the business owner in their leasing and purchasing decisions. Free from conflicts of interest, unlike the industry goliaths who serve property owners; Hughes Marino stands with companies large and small in their efforts to expand their business and serve their customers.
Business owners are under constant competitive pressure with days full of financing, logistics, planning and sales. When the time comes for a real estate decision, who do they turn to?
The tenant representation model is only part of the story. In Part II of this series, we examine the criteria for hiring a broker and the timeline involved.
The Example Scenario
The email arrives in May…the owner of a financial services firm reads that it is time to renew the five-year lease on the 7,500 square foot office space that she and her 30 employees have occupied since 2014. The lease comes up in October and the landlord is looking for an 18 percent premium over the previous rate. What to do? The CEO has considered a move into a larger space with more amenities but has not found the time to tour newer options or even considered finding a broker to assist.
This is an all-too-common scenario and one that our team sees each day. The CEO is facing an uphill climb to locate a new locale in the timeframe provided. It might surprise executives to know that a leasing project can take upwards of 43 weeks from start to finish. That is over three quarters of preparation, selection, negotiation, design and bids.
In this case, the CEO faces a dilemma: Where to turn? What to do?
Step one for any business owner is securing an industry-leading brokerage with the capabilities and prowess to navigate the labyrinth of commercial real estate.
While tenant representation tops the list, there are many more factors to consider, and the more services a firm can offer, the better! Unlike most corporate, goliath brokerage houses, which utilize brokers as one-size-fits-all experts on every competency; Hughes Marino takes specialization to a new level. Our offerings cover every aspect of commercial real estate, including an in-house legal team, planning and design, program, project and construction management, portfolio lease administration and advisory and culture consulting. These professionals are the best-of-the-best with years of experience and bring a depth and breadth of knowledge and insight to tackle any issue, no matter the complexity or level of difficulty.
In addition, the business owner should look for a community leader with strong core values, and a commitment to their client that promises 100 percent satisfaction with a guarantee. The reality is that very few firms can meet these criteria, which is what makes Hughes Marino the industry gold standard for professional excellence.
The timeline conversation is an important one. In the case of the financial services CEO, she is looking for approximately 15,000 square feet in a modern office setting in Newport Beach. Her existing space offers few amenities and does not provide an environment to attract the best talent.
The CEO must act quickly and reaches out to Hughes Marino on a referral from a colleague who recently faced a similar circumstance. The Orange County brokerage team first undergoes a programming and needs assessment—which will be covered in more depth in a future piece—to determine what the client is looking for which includes cost considerations, amenities, square footage, location and a host of other critical factors.
Hughes Marino contacts the landlord’s broker and informs them that the client is considering a move in the wake of the rent increase. With roughly five months to work with, Hughes Marino experts identify potential sites and share them with the client. Fortunately, the market research identifies multiple 15,000 square foot sites, which the client deems dynamic spaces for her team.
Requests for proposals (RFPs) are sent to the property owners’ brokers to determine the best fit and deal. In the interim, there are conversations with the existing landlord who wishes to retain their tenant.
As it turns out, the property owner, a national real estate investment (REIT) trust owns several promising properties in their portfolio, which could be viable options.
Negotiations occur on multiple fronts, with the RFPs now in hand and pricing and lease terms under consideration. The client tours one of the REIT’s buildings and loves the locale, the layout, the amenities and the transit and walkability options.
After a lengthy series of negotiations, the parties come to an agreement with the existing landlord. The rate will be five percent higher than the existing lease however, the square footage is doubled. In finalizing the agreement, Hughes Marino brokers pay close attention to the REIT’s operating expenses and maintenance (CAM) fees to ensure the client is not overcharged. Also, of critical importance, the rate only incorporates usable space, as opposed to most contracts that inflate the lease value based on common areas and other “as measured” square footage. In addition, our client requires best-in-class technology platforms, and a balanced mix of interior offices, shared areas, huddle spaces and conference rooms. Addressing these requirements, Hughes Marino negotiates a robust tenant improvement allowance (TI) for build-out. Finally, because moving costs are not typically covered under TI, Hughes Marino coordinates a generous financial moving package. Clients too often vastly underestimate relocation costs, which can run in the tens of thousands of dollars depending on the scale and size of the business.
Of course, this is a simplified example, but the scenario highlights just a few of the myriad of considerations that go into a lease process.
The bottom line and key takeaway…Don’t go at it alone when it comes to your lease and purchase situations. With so many variables to consider, a lot of room for error and a lot of money at stake, companies shouldn’t risk taking on this effort themselves! Another point many do not know, the cost of our tenant representation services are not paid by our clients, but the landlords themselves, so it’s a win-win scenario! Count on a trusted industry leader to be at your side to look out for your best interests to deliver the best possible outcome. You’ll be glad you did!
Scott Johnstone is a senior vice president of Hughes Marino, an award-winning commercial real estate company specializing in tenant representation and building purchases with offices across the nation. Contact Scott at 1-844-662-6635 or firstname.lastname@example.org to learn more.