Less is More

Is Less Actually More?

Walt Batansky — Wed, 18 Jan 2012 18:21:43 +0000

Less is More? I frequently have people ask me, "Why the name "Less is More" and what does it represent?"

Less is More is one of the basic concepts that we teach corporations to embrace regarding their operational real estate. The ability to minimize facility obligations and cost in relation to your competition creates a key competitive advantage for your firm.

In service businesses, this means reducing the real estate cost/employee or cost/seat. For distribution, it is cost/pallet position or cost/pallet occupancy term. In manufacturing, it is cost/widget produced or cost/revenue dollar. These metrics are Key Performance Indicators (KPI) and you’ll typically track more than one to get an accurate measure of success.

The Eight P&L Impacts of a Corporate Lease

Walt Batansky — Sat, 19 Nov 2011 18:06:27 +0000

On many CFO and financial executive’s Urgent Issues or Focus List, real estate often doesn’t make the top ten. Why? I think in part it is because the impact of a real estate decision is spread over many categories of the Profit & Loss Statement. In addition, often financial analysis of a lease decision is based on the rent and operating expense being paid now vs. the rent and operating expense on the new lease. If the impact is acceptable, the company moves forward. Simple enough, right? Perhaps too simple.

Up in Flames. What happens if your commercial space burns to the ground?

Walt Batansky — Fri, 29 Jul 2011 17:59:00 +0000

In the last 25+ years, our tenant representation clients have experienced fire and smoke damage to their facilities, and we've heard stories from people who's buildings have burned to the ground, although just recently experienced first hand a total destruction. Not just a fire, but a complete nothing-but-cinders-remain inferno that devastated the building including one of our client's delivery vehicles.

The facility was a distribution warehouse in a multi-tenant building and industrial park.

So that brings up something to perhaps consider with a bit more concern in future lease documents: The Destruction Clause.

Going Green

Walt Batansky — Wed, 08 Jun 2011 13:08:00 +0000

Many corporate tenants mistakenly believe that incorporating sustainability into their buildings is the landlord's responsibility. In fact, the tenant controls a significant amount of options to improve the LEED rating of their space through interior space design and specifications.

Most just don't bother, often because the tenant finish is completed by the landlord on a turn-key basis. When was the last time that your specifications stated that the installed lighting would provide the most favorable ROI based on both initial cost AND operating costs over the term of the lease?

I'll answer that for you: Never.

So, why?

Commercial Lease Commencement Dates

Walt Batansky — Sat, 16 Apr 2011 19:00:58 +0000

A typical commercial office or industrial lease states something to the effect that the “The Commencement Date of the Lease shall be the later of X date or the date that the Landlord delivers the Premises to the Tenant.” (Note: If it says the “earlier of X date ….”, your landlord is really giving you a raw deal.)

This Commencement Date language protects you in case the Landlord is late in completing construction and you don’t get possession when planned. Right? Wrong. Here’s why:

The Operating Expense Trap

Walt Batansky — Sun, 13 Mar 2011 15:26:18 +0000

Imagine that you purchased $10,000 worth of product from one of your suppliers. When the invoice came, however, they incorrectly billed you $20,000 and your accounts payable department unknowing paid the full invoice. When you discovered the error 45 days later, you approached the vendor and they said, “Sorry, read the fine print. If you don't object to the billing within 30 days, we get to keep your money.”

Would you ever do business on these terms? Would you ever accept such an attitude from your vendor?

Guess what? You're doing it now, and the vendor is your landlord.

It Pays to Explore Sub-Markets (and Beyond)

Walt Batansky — Wed, 02 Mar 2011 22:40:00 +0000

From a national perspective, you may look at a list of rental rates, peg where your current or prospective lease falls and, if within a range of 5-10% or so, figure you are doing well. Are you? Maybe, maybe not. Here's why: Typically, market rents are quoted as average rates. Forget that they ignore your particular improvements and other critical requirements. There can be big – really large – huge swings in price from one sub-market to another.

Commercial Real Estate Leasing Market Update

Walt Batansky — Sun, 27 Feb 2011 20:14:23 +0000

CoStar is, for anyone not familiar with them, a service that tracks building occupancy in a very detailed way for office and industrial buildings. They recently released their 2010 Year End Summary. The verdict? Occupancy is up, barely, and rates are either declining at a slow(er) rate or nudging up in some markets.

One interesting aspect is the disparity in rental rates from market to market. For example, average industrial rates range from less than $3 in some markets to over $10 in others. I'll talk more about that in my next post.

On a micro level, we've seen landlord asking rates and proposals all over the board even within a single market. In Houston, for example, we received offers on Class A industrial distribution space with similar attributes (office, clear height, dock doors, access) range from about $4/SQFT to over $9/SQFT. All of these properties were virtually commodity spaces, located within a 5 mile radius.

What this is demonstrating is the inefficiency of the real estate market.

How Smart Companies Manage Multiple Locations

Walt Batansky — Sat, 20 Nov 2010 22:06:50 +0000

Any corporation with more than one office/branch/site is large enough to have real estate portfolio objectives. With just a handful of locations, the C-level executives are likely very hands-on in determining the best solution as real estate opportunities or decisions present themselves. Once the number of sites grows to a point where that oversight is delegated though - whether placed under the responsibility of another staff member such as Regional VP's, Controller, VP of Finance, General Counsel, or a dedicated Director of Real Estate - there are three styles that the management can typically be classified under:

The #1 Renewal Negotiation Mistake Made by Tenants

Walt Batansky — Thu, 16 Sep 2010 02:08:25 +0000

I never cease to be amazed to see otherwise astute business people who are confident that they can outwit a professional landlord.

I once read that it is estimated that John McEnroe has hit a tennis ball over the net more than 13 million times. I don't care how much you practice or warm up, he is likely going to make you look foolish on the court if you were to play him. Landlords who negotiate hundreds or even thousands of leases each year often do the same thing with tenants that only negotiate a lease once every three or five years.

And what is the biggest "gotcha" that they usually stick it to the tenant on at renewal time?