Leasing

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Where to Find Office Tenants Today

Vacancy.  It is a great word if you are out late on a dark highway and need a place to stay, but not when you own an office building.

Vacancy produces no income, increases your expenses, and leads to perceptions in the tenant market that if the building has been vacant for a long time, there must be something wrong with it.

Here is one technique you may use to accelerate your lease up time and shorten your vacancy period.  At MANSARD, we talk about how birds of a feather flock together.

If you are like most people, you notice that companies of a similar ilk tend to congregate in clusters, much like residents in a subdivision comprise a similar demographic.  Take East Cambridge, Massachusetts for example.  The Kendall Square area of East Cambridge is home to many of the hottest technology and biotechnology companies in the United States.

They have clustered in one part of town because the real estate is conducive to their operations and the area offers a disproportionately high concentration of skilled and talented labor, such as graduates from MIT and Harvard.

If you own an office building in East Cambridge, your work might be cut out for you.  But what if your building is in Boise, Idaho?

Your first step to identifying a prospective tenant would be to profile their business.  You do this by examining the tenant pool in and within 2 minutes of your building. Most commercial real estate brokers have access to database tools that would allow you to create a list of companies.

Next, look for similarities among the companies.  Namely, you want to identify the tenant sectors that have the highest concentration within the area you are examining.

Once you have identified the highest concentrations, take those batches of businesses and identify their NAICS code, which is a government issued industry classification that comes in a 6-8 digit code.

With your batch of NAICS codes, expand your search area from 2 minutes to 20 minutes and create a list of all of the companies with matching NAICS codes that occupy real estate in your building's area.

Now you have your list of high prospect office tenants and it is time to get to work marketing to them.

To learn more about finding tenants for your office building why you should target expanding companies first, download MANSARD’S most recent report detailing how to find tenants for your office building here.

About the Author: Jeremy Cyrier, CCIM is the President of MANSARD, a market research driven commercial real estate brokerage and advisory firm, and member of the CCIM Institute faculty.  You may reach Jeremy at Jeremy@Mansardcre.com.

Get a free copy of The Essential 7 Step Guide to Filling Commercial Vacancies.

Contact MANSARD's Brokerage Services here.

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Free Webinar: How To Target Retail Tenants Using STDB

When Oaktree Development hired MANSARD to market its new $20M smart-growth project in downtown Reading, Massachusetts, it faced a challenge.  How would to identify and attract retail tenants in a down market to a new project.  In this free webinar, you'll see how MANSARD took a $20M smart-growth project and placed 60% of its retail space under proposal, before the old building was torn down.  Click here.

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How to Price a Risky Tenant When Investing in Commercial Real Estate

When successful commercial real estate investors lease their commercial real estate to a tenant of varying creditworthiness, they adjust for risk by altering rental rates, security deposits, guarantees, and improvement allowances, not the fees they pay commercial real estate brokers. Often, commercial real estate investors confuse the tenant's risk associated with the commercial real estate broker’s fee.  Andy Zezas, SIOR, a well-respected tenant rep broker, explains that if the landlord perceives the tenant's to be high risk, he tries to withhold or reduce payout, and if he perceives the tenant to be low to moderate risk, he may pay a market rate. Andy describes this practice as asking the broker to guarantee the tenant's creditworthiness below:

As for brokers acting as guarantor of the tenant’s creditworthiness and performance of lease obligations, that’s about as absurd as brokers guaranteeing landlord credit and performance. Brokers are fee-for-service professionals, not credit analysts, nor guarantors.

Andy's right and here's why. Imagine that you are a bank. Let's call your bank LBCCIM Washington Bank.  You lend money to generate fees for profit, which keeps your investors happy and continually making deposits with you. Your secret is that you are a savvy commercial real estate banker and lend intelligently to 3 types of borrowers:

1. AAA credit company.  You like the certainty of knowing that this borrower pays the loan on time and satisfies the covenants agreed to in the mortgage and promissory note. Because of the certainty of getting paid, you offer this borrower a low interest rate.

2. BBB credit company. They pay their bills. Sometimes they're late and they've renegotiated loans in the past.  You're aware that you carry some risk with this borrower and you offer them a higher interest rate.

3. CCC credit company. They are high risk, yet fit your lending profile and you're eager to get some money on the street.  You make the deal.  What interest rate will they pay?

It’s simple. The higher the risk the borrower poses, the higher the interest rate offered.  Higher risk = higher reward. Here’s one consideration for you. Nothing above has changed, except that borrowers AAA, BBB, and CCC have been introduced to you by an intermediary (let's call him your mortgage broker).  He is aware of the risks associated with each borrower, yet he knows that they all meet your lending criteria. You and your mortgage broker have agreed to a fee, equal to a percentage of whatever loan amount you lend. Who, then, should you be spending your time negotiating with when you are reviewing the AAA, BBB, and CCC borrowers, your borrower or your broker? Commercial real estate landlords face the same dilemma with tenants for their vacant space and the brokers who represent them. The next time you're concerned about your tenant's risk profile, ask your real estate advisor to analyze their financial statements and guide you to accurately price the tenant's risk into your commercial real estate investment plan.

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How to Make Your Old Building New Again

Investors are finding value in their commercial real estate investments in 2010.  They're capturing tenants that add value to their properties through lease-up, low vacancy, and renewed appreciation.  One investor, considering a new direction for his property, called us looking for guidance on how to take his empty building and realign it with market demand in today's commercial real estate market. His building is about 100 years old and has been home to Boston Baked Beans, a curtain factory, a top-secret World War II dummy equipment manufacturer responsible for D-Day invasion preparations, as well as home to an innovative high-tech silicon technology manufacturing company.  Today, the building has had renovations completed inside, has been empty for a few months, but has some redeeming improvements that make it somewhat unique. Over the years, the owner installed 2 clean rooms, a wet lab, power to handle heavy manufacturing equipment, and interior common area renovations that bring out the building's historical appeal, while offering amenities such as a fitness room, wired meeting spaces, and flexible office options. In our meeting, we discussed the viability of the small to mid-size life science, high-tech, and bio-tech companies in Massachusetts and how they face a major dilemma--access to capital and the difficulty in securing and building out space to specs that suit their research and development requirements.  Most can't afford to build clean rooms and wet labs and consequently moonlight at the offices of other companies that lease their rooms and labs at a discount. Additionally, many companies prefer the inner 128 market because of access to public transportation, Victorian homes, and ability to walk to restaurants, hiking trails, banks, boutiques, and cafes.  This building's location matched all of those requirements and offered easy access to Cambridge and downtown Boston. We conducted a market analysis using geospatial information systems, demographic, and NAICS analysis and concluded that the solution to meeting this location and space demand was to offer a flexible office solution that provided a collaborative work environment where these companies could forgo the cost of building their own clean room and lab space. They would lease offices and then purchase time on an as needed basis in the building's clean rooms and lab space to run their experiments and conduct their research and development activities.  Then as the companies grow, they have the option to expand in the building while drawing on its resources until they're large enough to move into larger spaces and have the capital to build out their facilities. What's more, they would pay more dollars per square foot than a single user and provide the owner with a hedge against future high vacancy risk. To position the building, we're naming it.  We've built a story around the innovative successes that companies have experienced  throughout the building's 100 year history as well as communicated a founding value that expresses the belief that through collaboration and flexibility, we reach greater success. To boot, an exterior renovation will be done to reskin the building and add new signage branding its new image and name. One challenge this owner will face will be the added management of a multi-user building where tenants have access to more common areas than conventional research and development buildings provide.  But instead of trying to locate a single tenant for the entire building, where competition is strong and other buildings offer better functionality of access, parking, and construction, this building competes in a class of its own by repackaging its space to meet the demands of today's start-up and high-growth focused market.  We're looking forward to filling it and watching its community grow. Get free weekly email updates of this blog. About the Author: Jeremy Cyrier, CCIM is the founder/principal of MANSARD Commercial Properties and member of the CCIM Institute faculty. He delivers thoughtful, large scale commercial real estate solutions to the individual challenges owners and tenants face. Jeremy Cyrier, CCIM was elected by Banker & Tradesman as one of its New Leaders in 2009. You may reach Jeremy at Jeremy@Mansardcre.com. Get free updates sent straight to your email box by filling in your name and email below.

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How to End, Endless Negotiations - Boston Commercial Real Estate

Time kills all deals, right? Yes, but to make deals happen, you must avoid time's accomplice, the do loop.  We enter do loop unaware and full of good intentions, but what we have is an endless negotiation or circle of discussions that accomplishes nothing except to make us feel as though we're accomplishing something. Read more

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Menino Asks Tenants to Stay in Boston

Boston is an ideal location for many businesses, with the convenience of public transportation and the prestige of the high-rise in the big city. For most, it is worth the higher rental rate to boast a Boston address on their letterhead. However, there is a concern that the lower rents and increased vacancy in the suburbs will draw some tenants out of the downtown area. Mayor Thomas M. Menino recently announced plans to target business in Boston whose leases expire in the next 24 months and offer “financial and technical assistance” as an incentive to stay in Boston. The flight to the suburbs will be a wake-up call to Boston landlords who are not willing or able to adjust their rental rates for struggling companies. The question remains as to how much funding the city will contribute to this effort and how effective it will be in keeping tenants aboard. Owners in the suburbs are well advised to find ways to be at the top of the list of alternatives for any business facing lease expiration in the next two years. Rest assured, they will be scouring the market for suitable alternatives, and in some cases the savings will be worth the cost of printing new letterhead. Sign up for free CREFrontline updates, if you haven’t already. It's free and has absolutely no obligations.

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Greater Boston Office Buildings Provide Suburb Appeal

Budget relief can come in many forms, and smart companies are taking a close look at the details to save on spending. Technology companies in Boston are no exception. There’s not much they can do about insurance costs, real estate taxes, and payroll, so what gives? Perhaps savings can be found in the monthly cost of rent. The prestige of a Boston or Cambridge address loses some appeal when the rents creep up to $80 or $90 per square foot. Landlords may be willing to discount the price during a renewal, but the question is how much and is it enough? The tenant can compare that pricing to what is directly available in nearby suburbs, typically at $10 per square foot less than downtown rates, and the price becomes be too good to ignore. In a February 20th, 2009 article posted by Inside Real Estate on high-tech firms in the Boston area, Bridget Botelho writes “…Tenants are approaching leasing decisions with extreme caution and renewals have become increasingly popular. Many of the companies that are in leases they signed four or five years ago expect to get their leases renewed at lower prices, or they can find less expensive space once their lease is up…” In some cases, these firms cannot justify the expense on rent when viable alternatives are less than 10 miles away. At the least, a responsible tenant will conduct an analysis of rental expense and consider all alternative options before signing a new lease. The author of the article goes on to say “Landlords are likely to continue losing tenants throughout 2009 due to company downsizing and bankruptcies, and feel pressure to lower prices to attract new tenants…” Technology companies in Boston have the option to renegotiate in place, and may have success based on a landlord’s fear of an empty building. Armed with strong data, a successful technology firm has a strong leg to stand on in this type of negotiation. The worst the landlord can say is NO, and the tenant knows that there are alternatives available just around the corner. Landlords in the b must prepare for this opportunity and appropriately market vacancy to firms who may be in the process of making a decision. A message to the suburban landlord with large vacancy – do not lament the situation! Find a way to be one of the top alternatives on the list for a nearby high tech firm and chances are the deal will be too good to pass up. Sign up for free CREFrontline updates, if you haven’t already. It's free and has absolutely no obligations.

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Going out of Business: The Breakdown of a Relationship

by Lisa Carpenter: As Valentine’s Day approaches, it occurs to me that the relationship between an owner and their building is like a love affair. In good times, it’s easy to get along. The owner is doing his part by managing operations and the tenant is doing her part by paying rent – a perfect balance. But what happens if the owner becomes complacent and takes his tenant for granted? Maybe he ignores some of the warning signs. A late rent payment here and there, shorter hours of operation, an empty office or two – but she’s still in business. Everything will work out. Then comes the dreaded call to his office. She can’t keep the truth from him anymore. She has to close down operations at this location. The “going out of business” sign appears in the window and she’s moving out over the weekend. The owner believes this is a unique occurrence and it won’t happen again… and then it happens again, and again. Now he is facing 20% vacancy and he still doesn’t have a plan. His only response is to post a “for lease” sign in the window… and again he waits. Rather than sitting back and waiting for vacancy to cure itself, there are some steps he can take to avoid drastic income loss. Heed the warning signs – If a tenant can’t pay their rent this month, they may not be able to pay next month either. Consult an expert – Know what a vacancy will cost before the space is vacant. We can research market rents and vacancy rates to determine the best approach. Plan ahead – Don’t be reactive, be proactive. The more information an owner has, the better his position to negotiate with existing or future tenants. How much is it costing to wait? More than the lost rental income. The longer a space remains vacant, the negotiating power of the tenant increases. Call (617) 674-2457 today for a free vacancy analysis. Sign up for free CREFrontline updates, if you haven’t already. It's free and has absolutely no obligations.