Last, as discussed more fully later, leasing agents often possess significant expertise in negotiating commercial office leases. The leasing agent may be able to help the firm obtain concessions from the landlord in the lease negotiations that the firm would not have considered or even requested. In almost all cases, the landlord is more sophisticated and experienced than the professional services firm in negotiating leases. However, the leasing agent can help level the playing field and explain any confusing or frustrating lease provisions.
When selecting a leasing agent, issues to consider and questions to ask include:
1. Who pays the leasing agent’s fees, and how are they calculated? Leasing agent’s fees are almost always paid by the landlord and range from 3 percent to 5 percent of the total value of any lease that is ultimately executed. The total value of the lease is calculated by multiplying the total square footage of the lease by the price per square foot by the term of the lease. Thus, if a five-year lease is executed for 5,000 square feet and
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the price per square foot is $20, the leasing agent’s fee would be somewhere between $15,000 and $25,000.
2. What experience does the potential broker have in placing profes-
sional services firms? Agents with experience representing tenants in the retail and /or industrial context may or may not bring adequate experience and knowledge to the table in assisting with a commercial
lease. Thus, it is important to ask whether the broker has experience in the commercial realm and, in particular, whether he or she has prior experience representing professional services firms. Within the professional services firm arena, some brokers may have more expertise
with specific firm types, such as financial services providers, lawyers, consultants or medical specialists.
Similarly, it is important to determine whether the potential broker has experience assisting tenants with office space in the same size
range as the professional services firm is considering. If the agent is used to dealing with larger clients and is actively representing a number of other larger clients, the firm might not warrant an adequate portion of the agent’s attention or obtain the full benefit of the services.
3. Is the broker licensed by or affiliated with any professional leasing organizations? Two of the more familiar and reputable leasing organizations are the Society of Industrial and Office Realtors (SIOR) and
Certified Commercial Investment Members (CCIM).
Although in many cases it makes sense to retain the services of a leasing agent to assist in leasing office space, it is not mandatory.
Develop a List of Potential Office Buildings
Either with the assistance of a leasing agent or without, at some point the professional services firm should identify several properties that, at least on paper, appear to fit its needs and are in line with its budgetary constraints.
In developing a list of potential office properties, the firm should consider certain issues to narrow the list of properties to inspect. The leasing agent can prove invaluable in preparing a professional market survey that includes much of the following information and that, at least preliminarily, appears to meet the firm’s needs. Regardless of whether the firm retains a leasing agent to prepare a formal presentation, however, it can and should consider the following issues before it begins to conduct property inspections.
LOCATION. Based on the information gathered during the preliminary assessment, it should be relatively simple for the firm to determine which of the potential office buildings meet its location needs. One way to accomplish this is to ask the leasing agent to prepare a map of potential office buildings,
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which can be as simple as a street map with f lags denoting available properties. Such a map provides the decision makers within the firm a basic but helpful tool to assess the location of the buildings in relation to one another, as well as location of the buildings in the city. While most professionals are generally familiar with the more prominent buildings in a particular city, many of which are found within the CBD, if the firm is considering office space outside the CBD, a map can help clear up any confusion about building locations.
SURROUNDING AREA/FACILITIES.
The condition of the area immedi-
ately surrounding the office building is also important. The professional services firm would not want to office in an upscale, Class A building in a rough or unsafe neighborhood. Although the firm can and should consult a map to better understand where the available office buildings are located, the decision makers in the firm should be familiar with the areas surrounding the potential office buildings. If the firm is not familiar with the surroundings of any potential office buildings, the decision makers in the firm should, at a minimum, take the time to drive by the buildings and perhaps walk through the neighborhood.
Additionally, the professional services firm should have a general idea about the retail facilities and restaurants in the area immediately surrounding the office building. While office buildings located in the CBD of many cities provide professional services firms with a wide variety of retail services and restaurant alternatives, this is not true of all cities and locations.
Moreover, office buildings located in smaller business centers or office parks may not provide the firm with sufficient retail options. Such options are important not only for the benefit of the professionals and staff who are employed at the firm but also for the clients and potential clients who will visit the firm’s office.
OFFICE DESIGN AND LAYOUT.
When offering to lease or sublease office
space, landlords or their agents will prepare f loor plans that depict the layout of the space. If the office space is not finished out, the f loor plan will re-f lect little more than where the office space is located on the f loor, whether it is less than the whole f loor, and where the demising walls are located.
However, if the space has been finished out, as is often the case with subleases, the firm can get a good idea of the office design and layout simply by reviewing the f loor plan. While it may be difficult to rule out potential office space simply by reviewing the layout, the firm can get a good idea of whether the current layout would be acceptable or whether a significant amount of construction would be required to bring the office space in line with the firm’s needs.
In some cases, the landlord includes in its marketing materials photographs of the office building and the space for lease. Although photographs
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do not obviate the need for a thorough property inspection, they can provide the firm with a decent superficial look at the quality of the building and potential office space.
BUILDING HISTORY.
In addition to reviewing any available office f loor
plans and photographs, the professional services firm should seek basic background on each potential office building, including the year the building was constructed, the building classification (A, B, or C), and the percentage of office space that is currently vacant. Moreover, the firm should ask whether and to what extent there have been environmental, zoning, or other major issues with a particular building, and if so, whether such problems have been satisfactorily remediated.
LANDLORD AND PROPERTY MANAGER.
The professional services firm
will encounter a number of different types of landlords when searching for office space. Landlords can range from very sophisticated real estate investment trusts (REITs) to less sophisticated individual owners. While landlords who have the same organizational structure do not always act in the same manner, in general, the more sophisticated the landlord is, the longer it will take to negotiate and agree to a lease. Often, larger institutional owners have very lengthy and complicated standard lease forms that contain a multitude of provisions, some superf luous and some relevant, that the professional services firm will need to carefully review, comment on, and negotiate with the landlord. This very time-consuming and costly process is only exacerbated if the organizational bureaucracy within the building owner includes the usual complement of real estate professionals, property managers, and lawyers.
On the other hand, if the landlord is an individual owner, he or she may not be inclined to a particularly sophisticated form of lease and may elect to save time and money by involving fewer people in the leasing process than the more sophisticated landlord. Moreover, in most cases, the individual owner will not have the financial resources and backing that larger institutional owners enjoy and, thus, may be more motivated to negotiate with and procure tenants in an effort to ensure steady cash f low in order to meet mortgage obligations on the property.
In addition to doing basic research on the size and sophistication of the landlords who are offering commercial office space, the firm should inquire about the reputation of the landlords. As is true with residential landlords, commercial landlords can vary dramatically in the manner in which they deal with tenant concerns and questions. The real estate community in most areas is fairly close knit, and, with little effort, the firm should be able to ascertain a particular landlord’s reputation and determine whether the landlord is known for responsiveness (or lack thereof ), f lexibility and willingness to meet unanticipated tenant needs, which will invariably arise over the term of any lease.