Some Truths About Commercial Real Estate

 

Why do I need a commercial broker like DHW? Can’t I find space online?

Firstly, DHW does not act as a broker but only as a tenant/business representative consultant. Brokers peddle space/buildings and work for the landlord’s interests. Most commercial real estate firms cannot responsibly serve both landlords and tenants whose goals are vastly diverse.
Online data bases are not comprehensive – DHW uses multiple, subscription-only professional databases and, in addition, has decades of contacts and several social media resources.

The key to a successful negotiation is to create a competitive atmosphere among several candidate property landlords.

To be done correctly and to the tenant’s best advantage, negotiations with professional landlords warrant professional representation on the tenant’s side. Process includes: design programming, property surveys, property review, property analysis, design management, construction coordination, legal review management, and relocation management.

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OK, I’ll hire DHW. Now can we wrap this up in a month or two?

Real estate expenses are typically the second most expensive expense line after salaries. It takes time to properly manage. The process typically takes a minimum of 6 months for smaller simple assignments and up to 12 months or longer for larger projects.

Step one is programming to determine the size and character of the space needed – usually 1 month to gather information and meet with leadership.

Step two is the search, which can take several months to properly inspect, review, negotiate and select a candidate property.

Step three is the design process which typically takes 2-3 months or longer for larger transactions.

Step four is the construction period taking 3-6 months — again dependent upon scope and complexity of work.

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I’d like to engage DHW but my project is not local to DHW’s home office. Don’t I need a local consultant who knows the local market?

DHW has worked in over half the states of the United States. Proper representation is a process which is the same regardless of whether the assignment is in Maine or Florida.

As mentioned above, DHW has access to multiple subscription-only national professional databases and has personal contacts in many areas outside the New York Metro Market.

For certain assignments outside the NY Metro area, DHW will partner with a local commercial real estate consultant or appraiser.

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Alright DHW you’re hired to search for new quarters. Can my attorney negotiate the lease?

While your attorney is important for the legal review of the lease, most attorneys are not fully informed on the nuances of commercial lease negotiations concerning current market conditions relating to work letter allowances, free rent incentives and net effective rental rates. DHW is in the market everyday – all day, focused only on the granular details of commercial real estate. The result is every possible nickel saved.

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I think my requirements are simple, won’t I pay more because you get paid a commission? I’ll have my office manager call around and get information off signs and websites.

We won’t know if your requirements are simple until the programming function is performed to determine the real estate needs. Eight out of ten times my clients have a misconception of their true real estate needs.

Commissions, which are paid by landlords, are built into most rental rates and are paid to the listing broker representing the building and landlord, regardless of whether the tenant has representation or not. DHW typically saves the tenant many multiples of the commission compensation.

Calling around to multiple brokerage firms and gathering data is not a prudent method for such an important and costly decision. Only the “asking” rates will be available through public listings. Contacting multiple brokers will only result in each promoting their properties, disregarding the needs of the tenant. Creating competition amongst multiple landlords, with a tenant advocate, is the most effective way to achieve maximum value for the tenant/business owner.

DHW provides quality service and asks only for loyalty in return. As a result, DHW creates a fiduciary relationship with the tenant client. This provides a level of comfort for the client that the right thing will always be done. DHW is accountable for the overall success of the transaction.

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I want a short term lease to minimize my liability and not lock out growth.

Short term leases are not desirable because of the cost of relocation; not just the moving expense but business disruption, architectural, legal and construction expenses. Short term leases also give landlords an early opportunity to raise rents. Because Landlords’ lenders encourage 5-year lease terms or longer, the longer the term, the more generous concessions can be offered by Landlords. These concessions typically manifest in longer free rent periods and more generous work allowances.

Concerning growth. Proper programming should project future growth needs. Expansion options can be built into leases at certain properties that have adjoining space, larger buildings with various sized tenants or with landlords who own multiple proximate buildings. Deep commercial real estate experience is critical when negotiating expansion rights.

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My lease is up soon but I don’t want to move. Do I still need DHW?

Yes, as much as if you were intending to move. The only way to get the best renewal transaction is to convince your current landlord you might relocate. Setting up a competitive environment with other landlords will improve your leverage with your current landlord. Timing is critical when engaging existing landlords on renewals and most times it is wise to initiate talks 12-18 months in advance of lease expiration. Only an experienced professional who has gone up against hundreds of landlords, including some of the toughest in NYC, and knows most of the tricks such as base year escalations, loss factors, utility mark ups, hold over penalty, CAM charges, etc., can properly structure a tenant/business owner’s advantageous lease renewal.

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My lease doesn’t expire for years and I need more (less) space. Is there anything I can do?

Most of the time there is a solution. Sometimes it’s as simple as redesigning the existing space for greater efficiency/density. Designs have changed where large conference rooms have been replaced with building communal conference rooms, file rooms have mostly disappeared, large server and phone rooms are a thing of the past, private offices have given way to work stations and collaborative work rooms.

Space might be added with a contiguous neighbor who can give up some square footage for that extra windowed office or the landlord may have another unit in the building that is more suitable.

For downsizing, early communication with the landlord is critical in any attempt of restructuring a lease to save occupancy expense. Downsizing prior to lease expiration typically involves extending the lease term and sometimes credit enhancements in favor of the landlord. Restructuring can take many months of intense negotiations.