Category Archives: Landlord Financial Issues

A Face For Radio

By Ken Ashley

January 18th, 2012 (ATLANTA)

It was an honor and an all around neat experience to participate in Michael Bull’s Commercial Real Estate Radio show last week (link is at the bottom of this post). Michael assembled a panel of David Tennery, principal of Regent Partners, John Davidson, principal of


Parmenter Realty Partners, and yours truly. Ryan Severino, senior economist for REIS, dialed in by phone from New York. While my fellow panelists are all knowledgeable real estate thought-leaders, the clear consensus was that the entire panel had faces built for radio.

The mechanics of radio broadcasting are fascinating. I’ve never been in a sound studio before, but all the gear was really cool. It looked vaguely like a NASA control panel. I started to do my best Tom Hanks impression from Apollo 13, but the producer looked like she meant business.

Michael Bull created the show over a year and half ago, and in that time, has developed into quite a pro. His lead-ins were flawless, and his elocution perfect. I have a new found admiration for both qualities, by the way. So what was Michael’s

See What I Mean About Radio Face?

cheery advice to his panelist? “This radio thing is so easy, because even though tens of thousands of people will hear you, you can’t see them.” Thanks Michael … I feel better already.

A few highlights from the show:

  • Ryan Severino said that the national office vacancy rate declined by 30 basis points compared to 2010. Asking rents year over year rose by 1.6%, which is the first such increase since 2008.
  • The panelists agreed that a modest recovery is under way in US office.
  • When asked why we weren’t recovering faster, I suggested that the FUD Factor of fear, uncertainty and doubt is holding back corporate America. This fear factor is causing reticence to expand. Lets hope this changes soon.
  • Industries that will produce the most demand for office space are healthcare, technology, energy and education.
  • The office of the future will encourage collaboration and help highly compensated knowledge workers innovate and generate higher revenue.
  • Owner incentives seem to be moderating from the high levels of 2009 and 2010.

I hope you will take some time to listen to the show. The “talk time” (there’s an industry term for you) is 38 minutes.

Here’s the link –

What Would Warren Do?

By Ken Ashley

(ATLANTA) October 21st, 2011
As reported in this recent WSJ article, even Warren Buffet
is buying back his own company’s stock. The Journal reports that Berkshire
Hathaway has a stunning amount of cash totaling nearly $50 billion dollars
on hand. In the first 6 months of this year, the company generated $9.7

Mr. REALLY Big Money

billion in cash or nearly $54 million per day.

Mr. Buffet is in good
company. According to Deallogic, $347. 5 billion has been squirreled away by corporate America, which is the most since 2008. We read similar stories about Apple, GE, and
many life insurance companies, among others.

In early October, the Journal ran another article “Companies’ $2 Trillion
which again referenced the “massive cash hoards” being built up
now. The article went on to suggest that a  “vicious cycle of
underinvestment” may be upon us as corporate America (a) can’t find suitable
investments and (b) continues to worry about the future economic outlook.

Not every company is so fortunate, of course. Many are dealing with cash
flow issues, but this is true in every economy. What is amazing is that
corporations are sitting on such a huge volume of cash combined with
relatively low debt. Even the guru of all financial gurus Mr. Buffet is
spending money on his own stock as opposed to sopping up more companies.
That fact indicates that building huge piles of cash will be trendy for
sometime to come in the executive suite.

Don’t I At Least Get A Toaster With This Loan?

So, why do cash rich corporate tenants reach out to their landlords and ask
for even more money? It’s traditional in many real estate transactions for
building ownership to invest cash in the form of a “tenant improvement
allowance” (“TI”). The landlord then amortizes this cash into the lease rate
over the term of the commitment. Tenants use this money to carpet, paint and
build out their space. The thinking is “This is the landlord’s building and
I’m only here for the term of lease. Why would I dump my cash into someone
else’s asset?”

Peel back the onion, and you will see that the lender, I mean landlord, is
actually making a tidy sum on that investment in your new space.  You knew
this intuitively, but lease proposals are always silent on the
interest rate on TI money. It’s certainly a worthwhile exercise to take a
few minutes to check the math and solve for the imputed interest.  Regardless of the decision of your cash or the landlord’s, you can send your broker in to make the interest rate on the landlord’s cash a negotiable item in the deal.  I’ll bet in today’s environment you can improve on the first offer.

The length of your commitment will have to factor into this decision on
whose cash to use as well. If you are only committing to a space for three
or perhaps five years, it might be best to let the professional landlord
spend his money on the space. However, in longer term situations, a good
side-by-side analysis will help decide if your cash or theirs is the better

Pass Go and Collect $200

Determining whose cash to put into the build-out is like any other investment decision in the real life Monopoly game we play in business every day.  If you invest dollars to pay for some or all of the TI, then you get the depreciation (check to see if bonus or accelerated depreciation will apply to your situation),

Thank you sir, may I have another?

and of course you get the benefit of the lower lease rate during the term.  You’ll abandon the improvements when you leave the building, but this is true even if the landlord builds out the space and amortizes the cost in your lease rate.

If you let the landlord invest his cash in your deal at your now negotiated
lower interest rate then you get to keep those dollars you otherwise would have spent. But remember, at the end of the term, when you are considering renewing the lease, you should deduct the amount of the TI amortization from the new lease rate. Otherwise, (depending on market rates) the landlord will be happy to leave that line item in your cost at 100% profit.

A big factor in the cash deployment decision has absolutely nothing to do with real estate. Only senior finance executives can see the full picture of a
company’s investment opportunities, including internal projects and M&A
options that may pop up.  Admittedly, in most economic cycles, investing in
sheetrock doesn’t even come close to the internal hurdle rate.  It’s only
the vast amount of cash lying around at very low interest rates that makes this even a consideration.

At the end of the day, most corporations will let the landlord pay for the
TI.  However, you will feel better having run the traps on the analysis and
negotiated this often hidden part of the real estate deal.

Before you finally decide who will write the check on your improvements, asking a few simple questions might significantly improve your deal either way. And
that’s an investment even Warren Buffet can get behind.

Ranch Dressing

By Ken Ashley

(ATLANTA) September 6th, 2011

Ah, the economic malaise continues. This New York Times article (Fed Divisions Led to a Compromise on Interest Rates) starts with a pulse quickening statement: “No one knows what to do to fix the economy.” With the certainty of uncertainty continuing to be a daily



media subject, interest rates are trending near all time lows. Yes, one day, Ethel, it will be ok. The cycle will turn and joblessness will no longer be the headline de jour.

But with all the fun in the economy,  there’s an unintended consequence of this “condition” we are in: bad real estate deals still have life (perhaps it’s an after-life at this point). Low interest rates propped up many a real estate deal in the darkest days of ’09 and ’10.  And now, the low rate party continues right on into the 2011 college football season.

To put this another way, low interest rates cover up bad real estate like ranch dressing covers up a bad salad. Tenants need to be aware that over-leveraged assets supported by unnaturally low interest rates are ticking time bombs. You can certainly make some great deals these days as a credit tenant, but make sure you are doing business with a credit landlord, or else.

Can I Get A Witness?

Several years ago, the presumption was that landlords had great credit. Heck, they own this beautiful building, and the leasing agents look like a million bucks. Now, we advise tenants to perform as much due diligence on the landlord as ownership performs on tenants. Both parties are making an investment in the other. The landlord gets rent; you get improvement dollars and space in which to make your fortune.

Don’t Call Me; I’ll Call You

Checking the asset’s “credit stack” is important at the beginning of the relationship, but every tenant needs to have strong protection during the  lease term as well. Work with your real estate broker and attorney to make sure that you have good language around the landlord’s responsibilities in the lease (it always bugs me that the tenant’s responsibility is many, many paragraphs long, but the landlord’s is two sentences).

Also, work on so-called “self-help” remedies that allow you as the tenant to perform certain landlord functions if ownership doesn’t live up to its end of the bargain. If things go bad during your lease term, you can always sue, but what you really want is a high functioning facility in which to conduct business. While there are very real limitations on what you can and should do as a tenant (as opposed to being an owner), keeping your space operating when the landlord doesn’t perform is vital.

I’m Outta Here

There are other legal devices you should ask your advisors about. One is the very technical sounding “subordination and non-disturbance agreement (“SNDA”).” To sum up an SNDA: you, as tenant, agree to recognize the landlord’s banker if the landlord defaults. The non-disturbance verbage means that the landlord/banker agree to let you keep your lease in force after a default on the building loan. SNDA’s are required by many lenders because if they take the building back, they need to know they can count on you, Mr. Tenant, to keep paying the rent. Just make sure that in return for agreeing to give protections to the lender, you are properly protected by the document.

Perhaps the most important legal issue is the ability to quit the lease if the landlord can’t or won’t do his/her job. Termination provisions for landlord non-performance are not the easiest to negotiate, but if you are a significant tenant

And one more thing, your......

with good credit, you never know what you might get in this market. Besides, it would be a great feeling to tell your non-performing, no good landlord “You’re Fired!” You and The Donald can be one.

So, we hope the Administration, the Fed and the Congress can jump start things, because this economy is simply getting boring. In the meantime, watch out for capital starved landlords, and maybe a little black pepper will help that salad out as well.

Git-R-Done; Time To Move Those Deals Forward

By Ken Ashley

ATLANTA (July 5th, 2011)

Disney’s acclaimed Pixar unit recently released Cars 2 with “co-stars” race-car Lightning McQueen (voiced by Owen Wilson) and tow-truck Mater (voiced by Larry the Cable Guy). In the movie, the characters head to Europe and Japan to compete in the World Grand Prix, but of course get side tracked with all manner of problems, including international espionage.

While the new movie is a hit, we like the original Cars movie better as it’s seemingly innocent humor is classic and truly funny. Our favorite character, Mater, resembles an International Harvester mining “boom-truck” from the 1950’s. The vehicle that is the inspiration for his appearance sits at a diner in the former lead mining town of Galena, Kansas – population of 3,287, which is down from nearly 80,000 in the late 1800’s. The town, appropriately for the original Cars movie setting,  is on the eastern end of the famous Route 66 (You can also take a spin in the 1951 vehicle, the owners proclaim; it still runs!). Back at the diner, you can purchase sandwiches, clay models of Mater, and learn about the plans for a bed and breakfast (we’ll see about that).

Shoot! You're in Radiator Springs, the cutest little town in Carburetor County

Part of Mater’s charm is the personality of comedian Larry the Cable Guy (aka Daniel Whitney),  who speaks with a thick Redneck Southern accent. Larry’s character brings an often hilarious spin, explaining that his name is like “tuh-mater without the tuh,” telling the audience he’s “happier ‘n a tornado in a trailer park,” and proclaiming that

Shucks, you can call me Larry

he’s  the “world’s best backwards driver.” He attributes this skill to his rear-view mirrors and his own”guiding” philosophy: “Don’t need to know where I’m going, just need to know where I’ve been.”

“I knew it! I knowed I made a good choice!”

Mater’s philosophical musings may go a long way to describing the plight of those on the user side of commercial real estate these days. We certainly know where we have been – in one of the best markets for tenants in a generation. But if we keep our focus on the past, we too could end up being the world’s best backwards driver in terms of real estate deals.

As a very insightful article in the latest Real Estate Forum (@RealEstateForum)
entitled a Rebound By Chapters explains, the real estate recovery is happening at different paces in major metros. The piece, by John Jordan, quotes Cushman & Wakefield’s Ken McCarthy, stating that office leasing reached a six year high in the first quarter of 2011. CBRE Econometric Advisor’s Arthur Jones characterizes the current national office market as “weak but stabilized.” Dennis Friedrich of Brookfield, a publicly traded developer and owner with a portfolio of 78 million square feet, believes that the recovery is “sustainable and will lead to single and double digit rent growth in some US cities in the near future.”

Perhaps the biggest indicator of coming office recovery is the appetite that many major investors have. They are putting their money where their mouth is and now have an interest for office product once again. For example, Joe Oglesby of Wells Real Estate says in the article that his company is “planning to have a very active second half of 2011 in terms of buying buildings.” Pay attention when experts in a market start to acquire new assets.

“I tell you what, buddy; it just don’t get better than this.”

For nearly three years now, tenants have experienced a market in which they could take their time in decision making, and have their every demand met by landlords who were very desperate for their business. It’s been a very good time to be on the user side of things and many have deals have made corporate heros of executives who capitalized on depressed conditions.

We are certainly not suggesting that this environment will change immediately, but in certain cities and submarkets we are beginning to see the market tighten. Many make the mistake of thinking that markets have to actually be in recovery for real estate to cost to rise. What actually occurs is that an asset manager feels a sense of optimism (or feels less fearful as it were) based on what he or she perceives is happening. Then the order is issued to  the leasing brokers to be more conservative on the economics and offer lesser concession packages.

Our advice is to move ahead on projects on the board, and in the vernacular of the wise one, Mater, “Git-R-Done.” Lease early, lease often and with flexibility, and be prepared to accelerate the speed of decision making. If you decide to engage in a real estate project, a best practice is to get senior management or your board to approve a set of parameters and let you go get the deal teed up. If they want to look at it one more time before you sign the lease, so be it, but speed is your ally in a recovering real estate market.

The deal is more than the face rate, of course. Keep in mind that many real estate stats quote growth of “asking rental rates.” This is like suggesting a change in the automobile industry based on the sticker price on new vehicles. Clearly there are many factors to consider in a transaction as complicated as a major real estate deal. So while the rental rate may change upward, a good credit tenant that knows what it wants and is prepared to move ahead with reasonable speed can still make a very good deal in most every major market in the United States.

So, unlike our friendly character Mater, look forward not backwards and be aware of the perception as well as the reality of the real estate markets. It’ll make you look like a real estate hot rod!

Lightning McQueen: Will you stop that?
Mater: Stop what?
Lightning McQueen: That driving backwards. It’s creeping me out. You’re gonna wreck or something.
Mater: Wreck? Shoot! I’m the world’s best backwards driver! Just watch this right here, lover boy.

Nobody Loves Me But My Mother (And She Could Be Jiving Too)

By Ken Ashley

ATLANTA (April 4th, 2011)

This great BB King song must be emblematic of how some down on their luck developers feel at this point in the market. Tenants are demanding rent reduction

That Man has the Blues!

and more services; the tax man wants to be paid; the lender is holding on the other line and oh, by the way, you need to cash a check to feed the kids. Developers take big risks and sometimes those risks don’t pay off.

We empathize with some landlord friends who are currently losing at the real estate game. The economy is recovering, but life in ownership is still hard in very real and personal ways, and we know this economy can be humbling to even the biggest ego. Most landlords in 2011 would tell you that debt is like a chocolate cake: delicious in small slices, but really bad for you if you have too much.

We are becoming a whole generation of “recession babies” who view debt as anathema and important to eliminate as quickly as possible. Certainly millions of Americans are cutting up credit cards and paying with Ben Franklins instead.

Want at Toaster With That CMBS Loan?

But wait, the Wall Street Journal and other publications are suggesting that the debt markets are coming back. In this blog article in the Wall Street Journal

Want Some Bread?



(CMBS Industry Ready to Exhale) Eliot Brown suggests that softening  of requirements on banks will allow them to more quickly issue Commercial Mortgage Backed Securities again. I feel a collective eye roll as you say, “Here we go again.”

Of course, debt is a tool like any other, and it is really the oxygen that allows commercial real estate to move ahead. In this brilliant post from March 30th by Dr. Sam Chandan –  The Return of the Rise of CMBS –  which ran in the New York Post, Sam explains that “This marked (positive) shift in borrowers’ access to credit has facilitated a critical mass of trades, supporting a degree of price discovery that was absent just a year ago; it has also allowed mortgage rates to remain near their cyclical lows even as long-dated treasury prices have fallen and yields have risen.”

The lesson as I see it is simply “in all things, moderation.” Thanks again, Ben Franklin.

Don’t You Be A Loser at Leasing

While it has become a national sport to shake our heads and wag our fingers at those developers that foolishly took all that risk, there most certainly is a parallel in the tenant universe. Our friends in the technology community used to call it “leasing ahead of the curve.” Some would call it leasing on a credit card. We call it not smart.

Leasing significant space in a vague anticipation of future growth can be expensive, but oh so tempting. Other tenants in the building are expanding and you might get boxed out! We need a solid path for growth, the managers proclaim. And if we sell that order of the BR549’s to the Chinese, we will need to hire gaggles of people quickly!

The “get them while they are hot” philosophy should be treated with great care in an environment in which lease obligations are firm commitments for years to come. The sad fact is that real estate is likely your second largest cost. Your largest cost – payroll – can be reduced relatively quickly through terminations, although this is not pleasant. Real estate is a commitment with no easy exit as we discussed in this post from late last year.

Let’s Keep Mom Happy

So, no matter the promises of future sales, business is booming and you need to hire more folks. This nonsense of working 90 hour weeks can’t last. How do you not “overspend” or overcommit in real

Smiles All Around!

estate? Through a beautiful thing called an option. Our advice to many clients now is to “go long and option up.” Translation: lock in low rates that are prevalent in the market and preserve both your growth and contraction ability through options in the lease. Ask your real estate broker about this, and talk to the lawyers, but exploring a soft instead of a firm commitment for space can many times be a career saving approach.

Another way to handle this issue is to partner with an architecture firm and develop a firm understanding of your space usage. The document the architect produces is called a program, and it will be the basis for calculating how much space you really need in the future. When the sales guys show up with the signed order and a big smile, you can then feel good about expanding based on a detailed and empirical look at your space needs as opposed to guessing on butts in chairs. No jiving with a program.

Expansion, like debt, is certainly not in and of itself a bad thing. Just don’t eat too much chocolate cake or you will be singing the blues. Moderation makes Mom happy, you know.


By Ken Ashley

(ATLANTA) March 7th, 2011

No matter what market conditions are, we frequently get questions about what is “fair” for a term or length of lease commitment. If corporate users

"Like sands through the hourglass, so are the days of our lives."

could get landlords to commit to a scenario where they could unilaterally terminate every year, every month or even every day, then that would be just dandy. Wouldn’t that flexibility make the corporate real estate game easy? This would be the equivalent of writing in pencil; you could erase your mistakes and start over.

As a corporate officer or real estate director, you know well that the more flexibility a company can gain in its real estate portfolio, the better. It’s hard enough to forecast the future without having to worry about a super long-term lease (witness the Middle East unrest of recent weeks).

So what are the major reasons that landlords insist on such long term commitments from their tenants – AKA customers? We see situations where corporate users have never had to think like a landlord. They don’t understand the risk, the capital, return metrics or the vagaries of the financing markets for holders of real assets. Real estate is a great mystery that goes unsolved and uninvestigated.

Many tenants simply assume that a landlord is out to get them. While this certainly could be the case, many if not most landlords are fair capitalists like you and me. They allocate capital, take market risk and hope for a market return.

I know we can all agree that profit is a good thing. However, looking at this from the tenant’s perspective, it’s like that piece of cake at a friend’s birthday party: it must be kept reasonable and proportionate.

Walk a Mile in My Shoes

One of the basic principles of negotiation is to understand the concerns and motivations of your opponent. If you can “think like a landlord” and look at your tenancy as he or she would, you will be able to not only plan your approach, but swat away bogus arguments like a pro. Fundamentally, your tenancy, and the resulting cash flow, is an asset that provides value. In order to win the prize, the landlord must have a building (think of this like a factory), then pay to put raw materials into that physical plant in order to make deals happen. In sum, they are running a business, but the decision making approach is driven by, among other things, the form of ownership and capital structure.

For example, an asset manager for a life insurance company is likely looking for long term value appreciation and is not overly worried about short term cash flow. In many cases, life insurance companies pay all cash for even the largest asset. The decision makers are salaried and usually long tenured professionals. They take a careful and deeply analytical look at deals. They are risk averse on the credit front and will wait for a company that fits their profile of perceived strength before they will commit.

Publicly traded real estate investment trusts (REIT’s) are driven by Funds from Operations (FFO) which is a figure used by to define the cash flow from their operations. It is calculated by adding depreciation and amortization expenses to earnings, and sometimes quoted on a per share basis. In other words, they are effectively focused on net profit on a per share basis.

A Man in Full

Perhaps the most stereotypical landlord is the one describe in the famous Tom Wolfe book A Man in Full. This landlord is a merchant builder and a gun slinger. He (yes, usually a man, at least up to now) will take massive risk, borrow horrid amounts of money, and in general do anything legal to make a real estate deal work out.

I respect individuals like this and some of them become very, very wealthy. I also treat them with great caution because their risk tolerance would have most people crying out in pain like little babies. The focus for entrepreneurial, highly leveraged landlords is cash flow early and cash flow often. They will say what it takes to get you to agree to a deal. As Ronald Reagan used to say, “Trust, but verify.”

What Would You Like in Your Margarita?

While we are primarily discussing term of commitment in this post (we will cover tenant improvement dollars in another post), a tenant real estate transaction is a recipe that is run through a financial blender with an answer spit out on the other side. Once again the answer depends on what kind of company you are negotiating with – IRR, Cash Flow or impact on Asset Value are a few metrics that landlords use to evaluate your transaction.

So, lease term is a major factor in how “sweet” the deal is for several reasons. A longer commitment will give the landlord a bigger period of time to amortize cash put into the deal and therefore allows ownership to achieve its objectives while keeping the lease rate low. In addition, it allows the investors to take margin over a longer period of time instead of having to cram all the profit in a shorter period of time. Term also creates tremendous value, because investors – whether in real estate or on Wall Street – look at defined cash flow with great interest.

The deal can be analyzed by MBA’s with computer models and they can tell you what flavor your Margarita will be at the end of the term. Those MBA’s may say the same thing, but insurance company asset managers hear something different than The Man in Full developer with a big hat and more of a taste for Scotch.

Rules of Term

It sometimes helps to think of your company’s tenancy in terms of where you lay your head at night:

·     A hotel room at $350 for 31 days is $10,850

·     A corporate apartment might easily be 50% of this amount at $5,425 a month

·     Your 30 year mortgage might be 50% again or $2,712.5 a month

Flexibility cost money on a per day basis, but allows you to change plans quickly. Commitment can be expensive, but if you are in an environment where  your managers have the experience and maturity to make longer term forecast, then a longer lease term, like a 30 year mortgage, is the less expensive option.

Finally, we did not discuss here but are acutely aware of market pressure when setting all terms, from length of commitment to rate and cash in the deal. But start with the basic understanding of what the landlord is thinking. Look at it through the lens of the market, and layer in your own situation. Then we bet, with a good advisor, the situation will be come clear, or at least easier to swallow. Enjoy your drink and tip your waiters.

Should I Stay or Should I Go?

By Ken Ashley

(ATLANTA) February 14th, 2011

No, we are not talking about your sweetheart on this Valentines day. Instead we are covering that other significant relationship in your life; your landlord. When tenants evaluated market opportunities over the past 18-24 months, most decided to remain in place. This behavior is described by real estate brokers and landlords as “blend and extend” because tenants usually have unexpired term


that they fold into the new extended term. Landlords made blend and extends easy because they were terrified to lose paying customers. Tenants were complicit and all too happy to stay because they were scared to move and commit to long lease terms. Plus it was all so easy; just stay and play.

As the economy turns, the decision isn’t so easy anymore. We are working with a number of companies now that are positioning for growth and have a newfound confidence about the future.  The world is their oyster, and while they are cautious, that good old American cowboy optimism is beginning to return.

Should I Stay or Should I Go?

The benefits to taking a risk of a move can be substantial. You can improve morale with a new physical space, update your technology, and get that new carpet smell in one fell swoop. Executives use moves as the time to launch all types of new initiatives, both internal and external. Both employees and customers will see a reinvigorated company and its proud leadership in the new space.

Perhaps the biggest real estate opportunity is the ability to shuffle the deck in terms of how much space you take and where everyone sits (so called “adjacencies” by architects). We have seen many companies over the years make major reductions in their real estate obligation because they are able to “restack” and fit everyone into less space. Of course, many employees are now able to be mobile,  so eliminating their permanent office space is a logical step. Every 10×12 office eliminated saves nearly $4,300 a year (at an 18% loss factor and at a $30 full service rate). Reduce by 10-12 offices over a 5 year term and pretty soon we are talking real money.

But It’s Such a Hassle!

Yes, it is a pain to move. The best thing this real estate broker had to do was to move his own office. Experiencing the problems and uncertainty with even the best planned move is certainly important for someone in my business. But here’s the thing; this is a short term problem, and once the move is over, you really enjoy your new digs.

I’m not necessarily saying that moving is right in every case. Renewing is still a very viable option in most every market. And even though some landlords are starting to get more optimistic, it is still a best practice to hang on to your tenants at any reasonable cost.

Back to the Future

Fortunately, this doesn’t have to be a gut call by management. There are some tools that can help you evaluate the move vs. renew scenario. Start with a space planner who can count all the butts in all the chairs and generate a “program” of your space. As you evaluate other spaces, the space planner will perform a so-called test fit to see how your program works in a potential new space. This will validate how you can use the new footprint and confirm how much square footage you will need to take in a new location.

Then, ask your broker to perform a full side-by-side comparison of a move vs. a renew. Include the space, of course, on a full service basis, but also add in the cost of technology and furniture in both the new space AND in your existing space. Will you require any renovation of your current space if you stay? Will you buy a new phone system or computers? Everything needs to be in the model.

Then review things with accounting on an after-tax basis. If you are publically traded, you will likely “straight-line” free rent and other concessions on an equal basis over the term of lease. Working with your CFO, determine success metrics such as impact on a earning per share basis.

The Holy Grail

As one of my sons would say, “so here’s the thing.” We are not doing all these real estate gyrations just to save a few sheckles on your rent. At the end of the day, the so called Holy Grail corporately is increased productivity. If you can reduce cost by 10%, congratulations. But I bet that pales in comparison to a 5% increase in productivity, or sales, or whatever “offensive” goal you have for the organization.

We contend that too many executives get caught up in saving money and forget the reason the real estate is there in the first place, which it to support the business enterprise.

Our advice is to take an honest assessment of all of the possibilities in a move vs. stay scenario and don’t forget the reason you pay rent every month. View your space as a competitive weapon as opposed to an expense and you will succeed every time.