“SEARCHING FOR OFFICE SPACE? SIX QUESTIONS YOU NEED TO ASK”
When tenants go out looking for new office space, often they’re impressed by a building’s appearance, location and rent. But they aren’t aware of a landlord’s financial situation, the performance of building systems, the likely trend of operating expenses during the next five to 10 years, neighborhood problems and other factors which could turn what seems to be a good deal into a bad deal.
To protect your company, you need candid, complete answers to 6 key questions when you look for office space:
1. How good is the quality of building management? You’ve got to go beyond the well-maintained corridors to determine whether the landlord can be counted on to honor the terms of a lease and be a good partner during the lease term. The Stevens Group, for instance, assesses the satisfaction of existing tenants and reports how the landlord responds to routine and not-so-routine requests for maintenance, alterations and special services. Does the landlord respond promptly and deliver fair value? Do they see every request merely as an opportunity for revenue? Is the service adequate or does it take many repeated requests to correct a simple problem or achieve agreement on how to proceed with a desired alteration?
2. From a financial perspective, how does a building you are interested in compare with others? This requires a thorough assessment. How much debt a building is carrying, how the operating expenses and management fees at a building you’re interested in compare with the operating expenses at similar buildings, and whether critical maintenance has been performed or deferred (which would mean much higher operating expenses in future years). If a building has serious financial problems, working conditions could be compromised by poor air quality, unacceptable temperature swings and inadequate security.
3. What is the physical condition of the building? There are plenty of factors, difficult for a tenant to see, which affect the desirability of a building. For example, some floors might be offered with HVAC capacity suitable only for an open floor plan. Virtually any use of closed offices, as are typical, would require so-called “supplemental HVAC” at your company’s cost. Buildings which seem quite modern could have elevators with unacceptable wait times. Elevator delays and lapses in elevator service mean tangible dollar losses for tenants as staff are gone longer than necessary from their offices, delayed by the elevators.
It’s easy for a tenant, touring a building, to miss signs of problems with structural integrity. For years, high winds caused excessive sway on the top floors of one well-known building. Many employees felt the effects of motion sickness, and some feared for their safety. Eventually, the landlord provided an adequate engineering solution, at substantial expense to existing and incoming tenants.
4. How do the nature of non-rent charges compare with other buildings? Many deals appear similar when a lease is signed, but over time total costs tend to vary dramatically. Determining what costs your company is likely to face at a particular location requires thorough analysis. That’s why we analyzes operating expenses, management fees, real estate taxes, overtime HVAC charges, supplemental HVAC charges, condenser water charges, tap-in charges, sub-metered electricity and other costs at buildings you’re interested in. Are there any “hidden” drawbacks to a building’s location? Crucial drawbacks are often overlooked as tenants focus on obvious criteria like proximity public transportation or a highway interchange. As an example, if a company needed employees to work at night, does the surrounding area require additional expensive security that would be necessary to adequately protect their employees?
5. How would other tenants in a building affect its desirability? It’s reassuring to see that a building has Fortune 500 tenants, but you need the right building dynamics, too. For instance, if you’re moving into a building with one or more tenants which occupy multiple floors, elevator usage and wait times will be very much affected by inter-floor traffic. The Stevens Group advises tenants in this situation to avoid being in such an elevator bank, to seek a dedicated elevator or other solutions.
6. Where to get candid advice? As you might gather from these probing questions, candid and complete answers aren’t likely to be forthcoming from a landlord broker because they would undermine tight relationships with landlords. Nor can adequate advice be expected from a good lawyer simply because the questions don’t involve legal expertise. What’s needed is expertise in real estate markets, expertise in building operations, expertise in landlord accounting practices – and a policy of serving tenants exclusively.