Do you know who your landlord is?

Have you ever been in the hot, humid, Houston heat trapped inside of a building with no AC?  Imagine if you signed a lease in an office building and the chillers (AC) shut down for 4 weeks.  What would you do?

One of my clients sent me a referral to work with several tenants that were in this very situation.  When I walked inside of the building at 11 a.m. it must have been at least 90 degrees in the buildings.  There were tenants in the parking lots working out of their cards to avoid the heat and get AC.  Other business where shut down, some had already relocated, some even purchased portable AC units!

I can tell you several other stories like this, (especially after the last hurricane hit Houston) but I would rather share this for now.  Tenants, know your landlord!  Even though most of my clients do not ask, I volunteer the management history of a building so that the tenants have an idea of who they will be “living” with for the next several years.

Any tenant that has had a bad experience with a landlord will not sign a lease without having some kind of comfort level with the landlord’s history.  A good management company or landlord is like a good insurance policy.  You really don’t care about what they are doing until something breaks down.  When something happens,  (something always happens) talk to your broker before you sign a lease to make sure you know background  of the landlord and management company.

Here is the plug for using a Tenant broker like myself:

As a Tenant broker, I am able to present the most objective, accurate view of a property because I work for the tenant, and not any specific property.  The landlord broker is hired to get a tenant to sign to a specific building. We help our clients select the absolute best building based on the client’s criteria.

What’s the difference between Class A, B, or C office buildings?

First off, let’s start with the BOMA definition of each building:

Class A

Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.

Class B

Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.

Class C

Buildings competing for tenants requiring functional space at rents below the average for the area.

I can add from my own experience that Class A buildings many times will have a restaurant, bank, 24 hour manned security, covered parking, ect.  Class B will have some of the amenities of Class A, but not all of them.  Class C buildings (greatest value, fewest amenities) may possibly have a deli, video surveillance, fewer floors, ect.  Every time I think the market will follow a standard, CoStar goes ahead and will turn a Class C building into a Class “A” building because of pressure from a REIT, owner, or broker listing the space.

Ultimately, a good tenant rep broker will make sure the market decides the true value of a building, not the letter classification!

MiSfiT tenants…are they in your building?

My definition of a “misfit” tenant is an office space use that is allowed into a suite that does not fit the use of a traditional office tenant.  In softer markets landlords may attempt to maintain occupancy going a little further than giving attractive concessions.  When a landlord crosses the line and closes a deal with a “misfit” tenant, the entire building  (including the tenants) can suffer.

Now, I am represented or worked with almost all of the industries that I am about to name with the exception of abortion clinics.  Any good broker will direct these tenants to options that can adequately accommodate them.  If you happen to be a misfit tenant, get a broker with experience with working with your industry and start your relocation project at least 6 months to a year in advance before your move.

Characteristics of “misfit” tenants for office space can vary based on the building, but the most common misfit tenants are the following:

Salons and Barbershops – They use a lot of utilities, require a lot more build out, really thrive much more in a retail or mall environment where they benefit from the exposure and foot traffic.  If you walk into an atrium building immediately smell perm, weave, and shampoo…. You guessed it!  There is a “misfit” tenant in the building!

Deli w/out proper ventilation – Deli’s are great ….most of the time.  A deli without proper ventilation can have an entire building smell like a greasy kitchen inside of a month!

“Drug Centers” – These centers thrive in unregulated class C buildings where they can get away with the sometimes inappropriate or illegal activity that goes on in these centers.  I have seen a few reports in my years of thefts,  break-ins, even shootings where these centers have been located.

Educational Institutions –  High traffic and density are two of the major problems with these institutions in many buildings in the Houston market.  Most office spaces are designed to accommodate about 4-5 spaces per 1,000 sf of space.  Just one classroom alone can easily take up many of the prime/non-reserved parking that tenants would like reserved for their own visitors.

Call Centers -  Call Centers share the same issue with educational institutions high traffic, high density of employees.  Occasionally neighboring tenants will complain about call center employees not complying with a professional dress code.  Some buildings are a great fit for call centers in Houston.  Some are not.  There are several buildings that I know that are very well suited for call centers and I will always try these options first when working with this type of client.

Buildings with the right tenant mix really add value to all of the tenants.  At the end of the day, a “misfit” tenant has just not found the right fit for their industry and needs to make a change.  Many times, this change will ultimately save them time, money, and the headaches of dealing with angry neighboring tenants!

Attention Houston Office Brokers!

There is (finally) a place where listing and tenant rep brokers can talk shop, network, and stay in the loop on the Houston market!  If you are not on linkedin (you should be) then join today and be sure to add our group at the following link:

http://www.linkedin.com/groupRegistration?gid=3029755

More time=More leverage,More opportunities in a “tight” or “soft” office market

Time can be your best friend or worst enemy.  This is especially true when it comes time to renegotiate an office lease. Either landlord broker will come two years before your lease expires to renew a deal, or they will wait a until the expiration date is right over your shoulder before trying to work a deal.   In either case, any good Tenant Rep broker should be advising that you take at least one full year to take a good hard look at the market before getting a deal done.

A great first step in positioning yourself as a tenant to negotiate/renegotiate a lease is to hire an experienced Tenant Rep broker at least one year before the lease expiration date.  Starting early will allows the tenant to  control the clock instead of the landlord.  An experienced broker should lay out a timeline or some sort of gameplan on how to “attack” the market, gather options, educate the client, ect. so that the tenant is able to make select the option that fits the highest and best use for their business model and industry.

Less Time = Lost opportunities for tenant, Increased leverage for landlord

More Time = More market opportunities revealed, Increased leverage for the tenant (and a happier, less stressed tenant!)

JR’s take on the History of Tenant Representation

About twenty years ago, the only place that you would have seen Tenant Representation Brokers would have been New York, Chicago, and a handful of other cities around the country.  Tenant Rep started during a time period where office building supply was quickly overwhelming the demand due to economic changes, construction outpacing demand, ect.  When the vacancy dropped, banks started to get nervous and develop a more “hands on” approach with building owners sitting on loans.  (Sound familiar!)

It was apparent in the 70′s just as today that the tenant was in a stronger negotiating position.  One major problem however is that they did not have the expertise to take full advantage of the opportunities being presented.  Landlords understood how to track lease rates, vacancies, positive (or negative) absorption, but most tenants did not have access or experience with the variables that control a typical lease deal.

It was primarily out of this need that Tenant Representation was created.  One of the reasons that have such a passion for my job is that we are defenders by nature.  We do not “defend tenants against the evil landlord”… instead we defend the tenant against ignorance (lack of market knowledge).  Now there will always be the “do-it-yourselfers” out there that believe that their negotiating skills are just so awesome that they can tackle a deal without understanding their market.  I would relate this to going to a big car dealership on the freeway and buying the newest BMW without knowing the fair market value.  (Car Salesman just got a new best friend!)  This is fairly common with smaller deals, but I would not recommend it unless that tenant has access to the experience, market knowledge, relationships, and leverage that most of the professionals in our industry enjoy!  We have some great professionals on the Landlord side of the business and they will make you feel absolutely wonderful signing a lease that is totally pro-landlord.

In Houston, there are just a few hundred commercial real estate professionals in the office industry.  Most of us veterans know each other and those relationships provide  better access in tight markets.  When things slow down, our industry knowledge can pinpoint quickly the highest and best use for our clients.  While many of my clients are concerned about rental rates, culture, safety, parking, amenities, even LEED certification. (Green buildings) If you are reading this as Tenant Rep broker, you know all of this already.  If you are reading this as a Tenant, let me assure you that there are more reasons to use experienced help than not!  If you ever want to talk shop about the market, just give me a call and I will be glad to help!

Friends in Residential Real Estate

This week I had to take an MCE course in Commercial Investments and Legal/Ethics.  I was surrounded by residential brokers and agents.  During the classes I was able to quickly see that roughly 25% of the class that was residential was very passionate and knowledgeable about their craft.  Those were also the ones that were successful, even in this slower market nationally.  In Houston, when you tap into the “old school” agents and brokers you will find a wealth of wisdom, passion, and love for the craft that is so refreshing.

I refer my residential inquiries to my friends on that side of the business and they do the same for me when their clients needs commercial real estate services.  My hope is that Houston will continue the high level of performance and integrity expectations within both residential and commercial.  If you would like to join our professional network or just talk shop give me a call anytime.

Back in class

I am spending day # 2 taking my MCE courses, Commercial Investments and Legal/Ethics this week.  I have to say that it is quite enjoyable to sit with so many other professionals and talk about the industry.  Another day of learning how to master the craft.  Let’s bring it!

Talk is Cheap

Even though I am a tenant rep broker, roughly 10% – 25% of my clients request me to list or sublease space.  I am currently listing an space near downtown Houston and I connected with a prospect who was interested in getting a deal done.  During my initial conversation with the prospect I notice that he was very abrupt on the phone just wanted to “see the space”.  Several times he ask to see the space “today, like right now, like in 15 minutes!”

Respectfully, I asked if he would not mind telling me more about his business so that I could qualify him for my client.  He quickly told me the following, “Look buddy, in this market I can get whatever I want.  My company has millions of dollars and I don’t have time to talk, there are lots of spaces out here so if your client knows what is good for him he will give me what I want.”

When I sub-lease or lease spaces, my clients expect the same expertise to represent them.  A good broker knows what the local market will bear.  They are confident in where the market is because they live it every day.  Many of us have been burned by “forcing a deal” or making a deal work that maybe should have been passed up.  Make no mistake about it, the market is softer now than it was 2 years ago in retail and office in the Houston market,  but stating that fact in the hopes of getting a better deal is not as effective as experience combined with sound market knowledge.  Negotiations works best when brokers and tenants come together based on reliable local market information.  When the conversation is based on hard numbers there is usually a much more productive conversation.  When negotiations begin on incorrect assumptions, inexperienced brokers or tenants can very easily shoot themselves in the foot.

This prospect assumed that my client was “desperate” and had to close a deal tomorrow.  The prospect also made several inaccurate statements about the market during his “bluff” that highlighted his inexperience in this part of the Houston market.  Without realizing it, the prospect was revealing his financial position, his level of market knowledge, and timing within his bluff.

In Houston, we are blessed with so many great professionals within our industry.  From time to time you will run into people that have a “churn em and burn em” approach to getting deals done, but they don’t seem to be as successful as the professions that really understand the market.  If you have any questions about a lease or purchase in the office or retail market feel free to give my office a call anytime!  (832) 493-3377 JR.

Speaking engagement at Kindom Builders Center

Had a great time this Saturday speaking to college students about the Commercial Real Estate Industry!  I was on a Real Estate panel with other professionals and talked about Tenant Representation and Commercial Real Estate.  Special thanks to Courtney Rose and George Johnson Development for the invitation to participate in this great conversation with tomorrow’s leaders in the Real Estate Industry!