Meet George Jetson! The Future of CRE

By Ken Ashley

May 7th 2012 (Atlanta)

As a kid, I remember watching the mesmerizing Jetsons cartoons in the mid to late 1970’s. The show was produced by Hanna-Barbera, and was the space age counterpart to one of my other favorites, the Flintstones. After launching their careers at MGM, Bill Hanna and Joe Barbera opened their own studio. They went on to largely invent the TV cartoon show format and in the process won seven Oscars and eight Emmys. In my mind, The Jetson’s was one of their masterpieces; it certainly captured my attention.

In the show, the Jetsons family lived in the year 2062 – a 100 years in the future from the cartoon’s debut. They experienced a world of robotic contraptions, and whimsical inventions of every sort. Perhaps most interestingly, George works three hours a day, three days a week at Spacely Space Sprockets. Nine hours is a typical workweek for the time, but George complains about how hard he works and how hard life is at the time. I guess some things will never change.

Back in the 1970’s I was amazed by the many labor-saving devices that came from the amazing minds at Hanna Barbara.  Now, nearly 50 years after the show’s

Family Man of the Future

debut, I still sit in traffic wishing I had a flying car, but some of the ideas on the show have actually come to life. Robots are proliferating in our society and iPhones are super -powerful and omnipresent.

20/20 Vision – Jetson and CRE

At the recent CoreNet Global Summit in San Diego, the association began to reveal the results of a nearly year long study entitled Corporate Real Estate 2020. CoreNet said it had 280 top corporate real estate professionals on the committee who participated in 150 interviews in 6 languages. The study “balances the forces of tradition and transformation” in a way that would make our overworked George Jetson proud.

Here are seven of the nearly fifty “Bold Statements” from the report:

  • (Location Strategy) There will be a re-emergence of manufacturing in developed countries and regions such as the U.S. and Western Europe with smaller regional facilities, and South America and Africa will be the new hotspots for business process outsourcing (BPO) and manufacturing activity.
  • (Sustainability) Buildings, sometimes connected by micro grids, will be both consumers and producers of energy. Evolution in energy storage will impact building operations, transportation and planning.
  • (Partnering with Key Support Functions) Formation of a “Super Nucleus,” the combination of a corporate entity including components such as CRE, IT, Finance, Purchasing, Legal, etc., in a company-specific context. High- performance companies will know how to bring these functions together on a day-to-day and strategic basis. This function will not be “one-size-fits-all” and will vary depending on a company’s organizational structure, culture and industry sector.
  • (Workplace) CRE executives will evolve to “Experience Managers,” or plan administrators, offering employees an à-la-carte workplace experience with a menu of services, location and support.
  • (Technology Tools) Intuitive environmental sensing provides emotional intelligence cues leading to reduced stress and increasing the efficiency and effectiveness of space use and communication in the workforce (using technology to sense temperature, lighting, sound and other measurables in a room or facility – and to gauge the emotional state of its occupants).
  • (Enterprise Leadership) Senior corporate real estate leaders will be able to measure the impact of workplace infrastructure on business units and the enterprise – a capability often referred to as the “Holy Grail” of the industry.
  • (Portfolio Optimization) Organizations will recognize the potential detrimental impact of cost cutting on productivity, changing the conversation from cost containment to value creation.

Tim Venable, Vice President of Knowledge and Research at CoreNet Global said the Bold Statements “present a vision that is both realistic and achievable by 2020.” “But even if some of the predictions aren’t fully realized by then,” he continued, “Corporate Real Estate 2020 will help prepare our industry and profession for the challenges that lie ahead.”

In many ways the industry is at a crossroads as we deal with an improving, but still uncertain global outlook, and property markets that are in recovery mode. What role will the workplace play in corporate America over the next 8 years? One thing is for certain, real estate can’t count on large cost reductions in the next several years – just the opposite.

Today, a corporate real estate executive needs to be a generalist in many areas but an expert in many core functions. In many respects, they need to be a mile wide and a mile deep. The coming war for talent is forcing corporate real estate

Oil change every 50 million miles whether you need it or not

executives to focus on supporting wide spread work forces with rapidly changing technology. Oh, and make that a green foot print while your at it.

In this space, we’ll keep an eye on those Bold Statements and report in more detail on some of the biggest of the bold assertions.

In the meantime, someone really needs to get cracking on those flying cars.

Your CEO is interested in profit AND happy employees.

By Ken Ashley

April 30th, 2012 (San Diego)

Now, CRE is in process of truly elevating to the strategic level in the corporate enterprise.

CoreNet Global’s new research initiative is being rolled out here at the 2012 San Diego Summit. The report, entitled Corporate Real Estate 2020, has solidified the notion of

Blue Skies Ahead!

work areas as support envelopes for employees. An underlying theme of the results CRE is all about leadership and how CRE executives can become true partners with the C-Suite.

According to Richard Kadzis of CoreNet Global, the new corporate real estate model is now a critical part of the overall business model. Work/life support is a term the C-suite is increasingly becoming focused on in this very competitive, and recovering economy.

Corporate senior management is interested in both profitable and happy employees. Anymore, work isn’t so much about bricks and mortar as the experience of working there (wherever there is).  Increasingly, commercial real estate is about creating a series of places where employees can work, be challenged, innovate and communicate.

Clearly, the ROI for corporate real estate executives is no longer about cost cutting.  Now the subject of discussion at CoreNet Global is about driving business profitability more than tactical CRE detail (portfolio management, property management etc.).

Going Back to Cali(fornia)

By Ken Ashley

April 29th, 2012 (Up In The Air)

As I head to San Diego for the Spring 2012 CoreNet Global real estate summit, I reflect on the past 5 years of the roller coaster ride in commercial real estate. As JLL’s Ed Noha points out in a recent blog, cost saving have been

San Diego City Skyline

the charge to CRE officials in the crisis of the past cycle. With real estate being typically the second largest cost this is no great surprise. However, as the old management saw says you can’t cut your way to prosperity.

I’m excited about the Summit. CoreNet has appropriately entitled the event Reorient, Reignite, Reinvent. They even have a mobile app  – available for the first time – to help participants orient around the Summit functions.

It will be interesting to poll the leaders in commercial real estate and see where they are headed. I always want to know the trends and the latest direction of our industry. There is no better place to get a gage on things than a CoreNet conference.

I’ll be posting a series of shorter “cupcake” blogs with snipits of information. If you are in San Diego I welcome your debate on what I hear and say in this space. Heck, if you are at the South Pole you can debate me on the trends I report.

One thing I know for sure, real estate leaders can’t continue to report to the CFO that we are cutting costs. The pressure to reduce expenditures will never go away, but most CRE professionals know that the market is recovering quickly and therefore we must shift to controlling escalation of real estate cost in the next couple of years.

Most of all, we need to focus on reinventing commercial real estate portfolios to support talent in ways previously not imagined. I bet that the coming war for high-end talent will stretch real estate directors and service providers like never before.

Lets face it, in a down economy its easy to look like the hero on the cost cutting front. Now, we’ve got to get creative and add value in new ways during the recovery.

So, I have my pen and paper (or iPad) at the ready. Bring it, CoreNet!

I’m Gonna Miss Her – Deploy That Capital!

By Ken Ashley

April 16th, 2012 (ATLANTA)

Brad Paisley was a student at Belmont University in Nashville in the early 1990’s, and he was wracking his brain. He sang in church, sang in his small hometown, but now he was selected to sing in a student concert at Belmont. You see, Brad’s music wasn’t funny. In fact, he sang mostly ballads, which the old folks and his hometown preacher loved. But this was different; there would be girls there, and he was on a mission to make them laugh and of course, compel the females to like him.

So, Brad asked his pal and fellow student Frank Rogers to help.* Frank (who would later become Brad’s record producer) and Brad worked up a little ditty called “I’m Gonna Miss Her (The Fishin’ Song).” They must have had a great time

Nice Socks Bud

writing the irreverent ditty. The song centers on a disturbingly common issue in the South: a male who is hassled by his girlfriend for fishing all the time. When she threatens to leave if he doesn’t come home from his current fishing trip, the man pauses for a moment and considers his options. Then he resolutely says “I’m Gonna Miss Her.”

Brad was worried that women would be offended by his masterpiece, but he took a risk and performed the song at the student concert. He was rewarded with a huge laugh after the punch line in the first verse and got positive reviews from the whole audience – including the girls. He was the big man on campus. Soon, he would become the big man in country music too.

Brad went on to win three Grammys (so far) and chart 25 singles on the Billboard Country 100, with 16 songs reaching number one. He’s sold millions of albums

Who You Missing Now?

and is one of the most successful country artists of all time. Not bad for some college boys trying to make college girls laugh.

By the way, he married Kimberly Williams who appeared as the forlorn girlfriend in the video. Apparently, he can fish and get the girl after all.

Lets Go Fishing

In the business world I know we should still be worried about the “girl,” I mean, the economy. There continues to be hand wringing over Europe, North Korea’s dud missiles, the Fed, and any number of concerns that could pull us back into the recession like a bad argument with a girlfriend.

But I’m ready to hit the water and wet a hook. I think a few folks might just want to come along with me and cast off the recession blues. We can tell this recession (all together now: “I’m gonna miss her”). Its my belief that even if you wanted the cycle to stay in recession that this downturn has run its course. Sorry bears, the bulls are back.

Commercial Real Estate Recovery

This positive attitude is beginning to pervade the commercial real estate markets. As this article in National Real Estate Investor indicates, “Real estate investment performance continues to display favorable conditions,…. very limited new supply and rising demand is buoying real estate fundamentals for most property types.”

In the office world, optimism among landlords is becoming a common as a bad romance in a country music song. A few reasons for this ownership gusto:

  • Historically low interest rates
    • Debt fuels commercial real estate. When lenders are willing to lend in both corporate and real estate arenas, we can all tap the investment accelerator.
  • Incredibly healthy companies
    • This article in the Wall Street Journal (WSJ) points out that “big U.S. companies have emerged from the deepest recession since World War II more productive, more profitable, flush with cash and less burdened by debt.” “”U.S. companies became leaner, meaner and hungrier, said Sung Won Sohn, a former chief economist at Wells Fargo.”
  • Modest inflation outlook
    • Despite many hand-wringing economist’s predictions, inflation is moderate. Therefore, true economic growth is eminently more achievable.
  • Lack of New Construction
    • A recent CoStar article highlights the effect that the dearth of construction is having on markets. It’s simply a macro economics question, and with no new supply of significance in over 3 years, a fuller, quicker market recovery will occur.

As we’ve written here before, US companies have been the recipients of a wonderful real estate sale over the past few years. This is clearly about to end because asset managers read the same papers you and I do.

On a nationwide basis, there is still a high vacancy rate in the office market, however companies are beginning to grow. Evidence of this: large tenants in many markets are already reaching the point of friction and have to split up their occupancy into multiple buildings or even build their own buildings.

Gateways cities of New York, San Francisco, San Jose, and Boston are all experiencing significant improvement in their markets. A REIS report released April 5th suggests that a surge in demand from technology and energy industry tenants led the U.S. office market to its fifth straight quarterly gain in net occupancy. Landlords had absorption of leased space of almost 6 million square feet in the three months through March, compared with 6.1 million square feet a year earlier. The US vacancy rate dropped to 17.2 from 17.6 percent in the first quarter of 2011 according to REIS.

What’s In It For The Good Guys?

Tenants are the guys that pay the rent and (at least in my view) make this whole real estate party possible.  Sure, developers take entrepreneurial risk, but without a well paying tenant, no one wins.  Alas, tenants are about to be on the wrong side of the real estate cycle. Most have done what they can to lock in obligations and prepare for the market shift.

So what do the users need in the coming real estate market recovery? New product. Even 6 months ago you could get cussed out in several languages for suggesting that it was time to build. But times they are a-changing – and fast.

So we say to asset managers, private equity kings, and insurance money bags: now is the time to deploy your capital in more and more cities in the US. As businesses grow and our economy recovers, large tenants (especially) will need a home, and you can help.

So go fishing for that next building deal and you have a much better chance of

Nice Work! Brad would be proud!

setting the hook in 2012 than anytime in the past five years. Heck, look what a little fishing ditty did for Brad Paisley’s career. Take well researched risk and I bet you you can “get the girl too.” And she’ll let you go fishing anytime you want.

*Roberts, M. B. (2004-11-23). “Story behind the song: “I’m Gonna Miss Her (The Fishin’ Song)””. Country Weekly

iCampus

By Ken Ashley

March 12th, 2012 (ATLANTA)

In an incredible announcement over the weekend, Apple has gone public with its plans to create a $304 million dollar campus for more than 3,600 people in Austin, Texas. This is on the heels of their $500 million dollar Cupertino, CA campus that is now under construction. Wow, hope they sell a gazillion iPad 3s.

The Cupertino building famously looks like a space ship. It will be interesting to see if Austin gets in on the “space” program as well. (Has the Eagle landed in Austin?).

Dan Whisenhunt, Apple’s Director of Real Estate and Facilities, must be the busiest real estate professional in America.  I imagine Dan in his weekly meeting telling his staff, “Ok, we’re going to keep the existing global portfolio growing, build this building in

Austin, We Have A Problem - Too Many People!

Cupertino on time and on budget. Oh, by the way, we’re also going to build another campus in Austin at the same time.”  “Hey, let’s FOCUS people.” “Pass me another protein bar and a Mountain Dew, please.”

The combined $800 million in construction projects makes Apple the most active company in the world in the construction of new real estate facilities. Dan is indeed the man in corporate real estate these days. At least he can look at the plans in amazing clarity on his new iPad.

It’s Not Just Apple

Our team is currently representing two clients in the creation of three ground up construction opportunities.  The insurer Primerica is building a 345,000 square foot campus just outside of

Term Headquarters

Atlanta. They were able to create huge efficiencies by going from 10 separate buildings to one campus.  This facility will deliver in the Spring of 2013 and among other fabulous features, will have a state of the art facility for Primerica sales people to learn about the culture of the company and its products.

Porsche Cars North America is creating an approximately 175,000 s.f. corporate headquarters, training facility, and customer experience center adjacent to the world’s busiest airport in Atlanta. Customers will be able to come from all over the world and experience a little “every day magic” on the Porsche handling

Come to work and ZOOM!

circuit. This project will deliver at the end of 2013 and be a huge boost for Atlanta’s international reputation.

In addition to the Atlanta facility, Porsche announced at the 2011 Los Angeles Auto Show that it will break ground in the spring of 2012 on a second US Porsche Experience Center in Carson, California. The centerpiece track  (like Atlanta) will include encounters with rain and man-made snow, as well as an off-road course.

If tooling around a winding track in Southern California in a seventh-generation Porsche 911 isn’t your idea of ecstasy, there will also be a “Porsche Human Performance

Paging Jerry Seinfeld

Center,” with a sports-science laboratory to “maximize personal fitness, wellness and athletic performance.” As my Southern Grandmother would say, “oh my, that’s better than a blueberry pie.”

But There is so Much Vacancy….

Why would anyone build now? How can senior leadership justify spending capital on creating new product when the national office vacancy rate is at nearly 17%?  Ahhh, no matter the real estate cycle, projects like these can and will happen.

Here are 8 reasons why major user might consider “campus consumption” as a way to solve their real estate challenges in 2012.

1)            Talent Cost and Availability

Yes, I know that the headlines still consistently discuss the masses of unemployed Americans. The reality is many companies are struggling with retaining talent in top executive positions and highly technical positions. Apple is creating talent diversity in its expansion to Austin. The labor market for techies is tough in Austin, but nothing compared to Cupertino and the Silicon Valley.

2)            Cash or Credit

With the spring thaw in real estate finance in motion, more corporations can get funds, if needed, to build campuses. Both lenders and equity investors have a growing appetite to do deals again (finally!). The reality is that many companies have huge troves of cash and some of them will invest this cash in dirt and buildings. Besides, you can always get the cash back out vis-a-vis a sales leaseback, should that become necessary.

3)            Space Efficiencies

In the recent great recession, companies would do anything to cut cost. Real estate is usually the second largest item in the budget after payroll, so “densification” of employees became a major initiative for many real estate departments. What many large users are finding now is that expansion is difficult to accommodate. In addition, rethinking the architectural program can yield significant space efficiencies. Also, like Primerica, some users find themselves in multiple buildings with the requisite inefficiencies.

4)             Point of Friction

Sometimes companies simply get too big to fit into existing product. While many major metro areas still have large holes and lots of space, mega requirement of 250,000 square feet and greater have a difficult time making existing buildings work. The “friction” that results can hatch a new campus.

5)            Incentives

Communities in the Southeast and Southwest United States are getting increasingly aggressive with inducements. The electorate is telling politicians with one voice – we want jobs! The politicians are tossing around cash, free land, tax breaks and all manner of incentives to land the next big one. Economic development organizations in many communities are becoming very sophisticated in their marketing efforts, and as a result, they are scoring some big wins for constituents.

6)            Building Cost

Commodity prices seem to be fluctuating all over the place, but the cost of construction is still a bargain principally because of labor cost. General contractors are reporting increased activity, but the sub trades are still willing to make great deals to get work. So are architects, environments experts and many other consultants.

7)            Taxes

It’s not new news that taxes are high in the gateway cities of San Francisco, LA and New York. These areas are simply very expensive places to do business. When companies layer in the significantly reduced tax burden in other places, the campus concept can get a major boost.

8)            Branding

As we experienced ourselves with Porsche and Primerica, iconic brands sometimes need iconic campus environments in order to market themselves both internally and externally. I’m sure Apple is creating great excitement internally for their employees. The Apple marketing guys are going to have a field day when Cupertino and Austin deliver. They will get millions of dollars in “free” PR for their company through the announcement and completion of these facilities. Sometimes the real estate math is just one small part of the evaluation model.

Build it and they will Brand

Campuses don’t work for many. Heck, they don’t work for most. I once had a senior telecom executive tell me that their industry changes too fast to even consider the campus option. He pointed out that there are many former telecom campuses around the United States. He’s certainly correct that the ultimate “exit” out of a campus can be difficult. Long after the ribbon cutting, selling or repositioning campus facilities can be a tremendous challenge.

However, as the economy improves, you will see more announcements of big, shiny new campus projects. Apple may be the biggest in this game, but they are certainly not the only player. As the economy two-steps into a recovery – Austin and elsewhere, more and more companies will evaluate campus solutions. If you check the right boxes and carefully analyze the alternatives, you might be surprised what a brand statement wrapped in real estate can do for your company.

Automatic For The People

By Ken Ashley

(ATLANTA) February 29th, 2012

Early in the spring of 1991, I was in college, and I was hungry. The University of Georgia in Athens, Georgia is the home to a number of fine establishments catering to the college masses, of course, but I ventured off the beaten path

Five Stars!

towards the Pottery Town neighborhood for some good “Q.” I had heard about a great establishment with a unique feel. The restaurant, which is still there today, is known as Weaver D’s Delicious Fine Foods. It’s a down-home cafe at 1016 East Broad Street in Athens.

The restaurant occupies a 1950s commercial building with a false front parapet. The neighborhood around the building originally served as the mill village for the workers of a local pottery factory.

I walked down the long hill to get to the restaurant. What I didn’t know is that I’d get a lot more than a great meal that beautiful day. I got an unexpected life lesson from proprietor Dexter Weaver (AKA “Weaver D.”).

You see, Weaver has a large signboard outside of his cafe that reads “Delicious Fine Foods – Automatic for the People.” As I ordered my food from the now famous Weaver D, I asked him what “Automatic For The People” meant. He

And Now World Famous!

smiled a really big smile and crossed his arms thoughtfully. With a very serious, but friendly tone he said “Young man, that’s how I deliver my customer service. It’s fast and right; heck it’s just about automatic.”

“And it’s always for my customers,” he continued, “the people who spend their hard earned money for my food. I listen hard and we make them happy – quick.”

I thought a lot about Weaver’s seemingly simple comments. I was, and am impressed that a then small time purveyor of pork could think about his business in

The Wise Man Himself

this way. He’s not focused on his food, he’s focused on his customer and taking care of their needs as best he can.

His approach has made him world famous (thanks to REM, as described below). Weaver has spent his life in the service of others, but I think he’s making a fair

return. All these years later he has a book deal, and he’s become quite a celebrity in Athens, GA with his own Facebook Fan Page. Oh, and the food is terrific as well.

REM is Automatic for the People

It is this very same slogan that a little Athens act named REM chose for their 1992 album. The album went four times platinum (16 million copies sold worldwide)

One Of The Great Albums of the '90s

and was one of their most successful releases ever. It is still one of my favorites, and I am in fact listening to the music as I write this.

Automatic For Your People

Weaver D would have been a fine landlord. He understands the focus on customer through delivery of both a great product and service. Do your landlords across the portfolio have the same understanding?

Whether you are signing a lease for 5,000 feet for the sales office in Des Moines (nice town, by the way) or 1 million square feet for your jumbo new headquarters, how the asset will be managed is important. I have seen even tenured real estate executives forget to ask about property management. Many simply assume that landlords will take care of things. Besides, it’s in the lease, correct?

Weaver D would shake a finger at us for making that assumption. If you are performing the real estate function for your company, many are counting on you to deliver the right office space. Part of that equation is the service after the sale, also known as property management.

So what can you do to make the new pad Automatic For Your People?

1)           Determine who will be managing the property on a day-to-day basis. Taking them to lunch is usually a great investment of time.

2)           Is the manager on site or at another location? If they are at another building, how are day-to-day issues handled?

3)           What is the tenure on property of the manager? How many buildings do they handle?

4)           How many engineers are assigned? What is their experience and are they union or not?

5)           Is the management company in-house with building ownership or is the function outsourced to a third party provider? Both can be great resources, but it’s good to understand where the paycheck comes from.

6)           How does your user group interact with management? When problems occur how are they reported and managed? Most firms today will have a technology solution (webpages that feed engineers with smart phones), but ask lots of questions about how the process really works.

7)           Ask to see the capital improvement plan for the property. If you get a blank stare, beware.

8)           Does the interaction seem to be reactive (we’ll respond when the light bulb burns out) or proactive (let’s meet quarterly to make sure your needs are being met)?

9)           Ask if you can conduct tenant interviews with other major users in the building. You will learn a lot about the asset and have someone in your database if you have issues.

10)        Tour the physical plant. Can you “eat off the floor” or is it a mess? It should look as clean as a navy submarine, if you ask me.

11)        Inquire about “life safety.”  A manager must have a well documented and prepared emergency response plan for fire, storm, wind, etc.  Ask the manager to share his or her plan.  If no such plan exists, then this is a clear red flag.

12)        On the same subject, how does property management handle building security? What are the staffing levels? What technology does the property use? Have their been incidents, and if so, how is this information shared with tenants?

If you take the time to do some basic due diligence and note your findings to the file, you will have something to lean on when problems arise. Weaver D would be proud that you thought about your customers and went the extra mile. Automatic.

Thanks to “Automatic” Mike Mire, Regional Lead of Property Management at C&W, for his sage advice on this blog post.

Jack Be Nimble, Jack Be Quick

By Ken Ashley

February 9th, 2012 (ATLANTA)

Guess what? The sale in commercial real estate is coming to an end.

Commercial tenants have had the proverbial “life of Riley” for the past several years. Landlords would do almost anything to make the deal and tenants

Wish It Would Never End

certainly took advantage. Now, I represent tenants for a living, so making the best real estate deal possible never hurt my feelings. In fact, we take great satisfaction in making CFO’s smile at huge cost reductions and big TI packages.

However, part of our job is to do a “sanity check” and deliver a sober analysis of our ability to make a deal and at what price. Eliot Brown wrote a good piece in the Feb 6th Wall Street Journal entitled Less Building Now, Higher Office Rents Later. The premise is that the real estate industry has suffered a shut down of virtually all new construction in the United States. New construction starts were just 56 million square feet last year, reports the Journal, the lowest level since 1960.

With skittish banks, high vacancy and Wall Street worry still circling, significant new construction may be delayed further. The Journal: “…while the economy added 243,000 jobs in January, given the overall sluggish pace of recovery, it could still take a few years to fill the empty office space.”

Harken back to macroeconomics and you will recall that limiting supply along with constant or increasing demand changes the price. Costs will almost certainly rise; it’s just a question of when.

Blue Light Special on Aisle 12

Commercial real estate is different than buying socks at Kmart.  It’s not a commodity, and in fact, each transaction has tens of variables that can make true comparisons difficult to create. For example, location within one city or even one submarket can and does affect the net effective cost of real estate to tenants.

Aaaaatention Shoppers

Another variable involves the ability to expand or contract. For several years now, we have been able to confidently advise our clients to go long and option up. In other words, lock in these great economics for years to come, but also plan for future changes in the business with options to grow or contract. When buildings fill up, this is a harder trick to pull off.

Mr. Nimble Must Be Quick

We certainly don’t think the party is over for tenants, and let’s face it: there is still lots of vacancy in office buildings around the United States. But they don’t pay you the big bucks to not be prepared and aware of the market. We simply have to plan for the worst and hope for the best. In certain gateway cities like San

Better Move With A Purpose Here!

Francisco, LA and New York, the markets are already tightening up. Other cities will follow in 2012 if the current stream of heart warming economic news continues.

So what’s a poor CFO to do? May we suggest a few best practices that will help your transaction du jour succeed even in a recovering office market?

  • Before you kick the tires in the market, have a clear understanding of your real budget and the timing of your lease commencement. The margin for error diminishes as the pendulum swings the other way.
  • Speaking of timing, allow more, not less time to complete a transaction. In the next several years, as we get closer to “friction” between tenants, allowing time for a deal to die is important. Put another way, another tenant may have better credit and take “your” space and require you to move to another space or even another building. Frustrating, we know.
  • Look deep in that crystal ball and require your business people to make (and then be accountable for) future growth plans. If you can see growth in the range of 1-3% a year, then build that into your initial take and perhaps a must-take expansion later in your term.
  • Hyper growth has costs and landlords will bear only so much of keeping leasable space off the market.  If the business is going to grow by leaps and bounds then you can lease ahead of the curve, or plan to enter into a new lease a few years into your term. As they say, this is the cost of doing business.
  • Work to control and compress your internal decision-making time line. When the world collapsed in 2008, 2009 and 2010 we saw even simple decisions pushed to the highest levels of companies. Today, when the right deal presents itself, and it matches up to your clear understanding from the first bullet point above, strive to pull the trigger quickly.

Cycles keep things interesting don’t they? It began to be a little boring in the downturn to have landlords capitulate to your every demand. Now, as things pick up, this whole business of real estate will become a challenge. As the Boy Scouts say, Be Prepared. Keep focus, sprinkle in a little good fortune and together we’ll battle through the problem of optimistic landlords with great success.