Most office leases allow landlords to recoup from tenants on a pro…
Author: Don Wenig (page 2)
What’s Next for Co-Working After the WeWork Debacle?
Fueled by the dangerous accelerant of “Other People’s Money”, WeWork expanded rapidly…
Tenants: Are You Ready for the New Lease Accounting Standard?
2019 is a big year in lease accounting. In 2019 (which began December 15, 2018 for fiscal year reporters), publicly traded companies are required to comply with the new accounting standard (ASC 842) and are required to recognize leases greater than 12 months on their balance sheet. In 2021 (beginning on December 15, 2020 for fiscal year reporters), all other entities (i.e., private companies including non-profits) will be required to comply with this new standard. Note, given the challenges facing compliance, FASB recently agreed at their July 17, 2019 meeting to extend this effective date for private companies from 2020 to 2021. It is expected that over $2 Trillion will be transferred to US companies’ balance sheets. As I previously wrote (Lease Accounting Change Gets the Go-Ahead ), financial transparency is the driver of this new standard which was developed in the wake of the great recession. “We believe that this new standard is important because it will provide investors, lenders and other users of financial statements a more accurate picture of the long term financial obligations of the companies to which they provide capital,” said FASB Chairman Russell G. Golden. Now that it is official, in this post I highlight what office tenants should be doing to comply with this new standard. I am joined on this post by Mirela Gabrovska of MBG Consulting, a national expert in lease administration and auditing.
Is the Open Office Plan Dead?
Last year a Harvard Business School associate professor (Ethan Bernstein) led the first empirical study measuring both face-to-face and electronic interaction before and after two Fortune 500 companies moved to an open barrier-free workspace. Contrary to conventional wisdom, the study found that, with the open workspace, personal interactions dropped approximately 70% while electronic interactions increased between 22% and 50%. After this study was released (which some industry professionals have challenged), countless articles have been written that the open office plan is another misguided corporate management fad and the real reason for its adoption is to reduce costs by densely packing workers into a smaller space. While there’s certainly a cost benefit to a more open plan with a smaller footprint, particularly as rents in many markets are hitting historic heights, in this post I briefly discuss how a thoughtfully-crafted open office plan can increase personal interaction and productivity while contributing to the retention and recruitment of talent.
Is Co-Working the Right Choice for Your Business? Office Space Alternatives for Tenants Today
Co-Working companies have been big consumers of office space over the past…
Can You Hear Me Now? What Tenants Must Know About Office Building Cell Service
We’ve all struggled with poor cell phone service in large buildings, frequently with our face pressed to the window trying to catch a bar. The service issue typically isn’t with the carrier, but with the obstructions within a building or neighboring buildings. Given today’s mobile workforce where we’re using our devices for a lot more than making calls, tenants should consider this issue before renewing a lease or looking for new space. Forward thinking landlords are also concerned about this issue as they know it will affect the value of their property, which is based upon a well-occupied building. In this post, I outline the trends behind the increasing demand of cell service, its impact to tenants, how some landlords are addressing this issue and what tenants should be doing.
Tenant’s Guide to Minimizing Office Construction Costs
As the economy continues to expand (along with office tenants), office construction costs continue to climb. That’s due in large part to the strong economy as well as a shortage in construction labor and certain materials. In this post, I outline strategies for tenants to minimize their office construction costs. Thank you to Bill Conopeotis and Liz McCleary of ConopCo Project Management for their input on this post as well our long-time client Erik.
Subtenant’s Guide to a Great Deal
Looking for a great deal on office space? A sublease may be the answer. Subleases are often attractive to businesses as they offer a low cost, flexible, turnkey solution. Start-up companies and established companies can find subleases to be a great opportunity. They are, however, not without challenges and risks. In this post, I discuss the advantages and disadvantages of subleasing and how businesses can navigate the sublease process to get a great office space that will help propel their business.
Tenant Lease Security Strategies
As commercial real estate values are rooted in a dependable cash flow, landlords (and their lenders) are keenly interested in the creditworthiness of their tenants. As most businesses are not in the Fortune 500, many will face the issue from prospective landlords of how they will secure their financial obligations under the lease. Where landlords are increasing their construction allowances to address rising construction costs, lease security has taken on increased importance for tenants today. It should be addressed early in the business negotiations when multiple properties are under consideration. A tenant’s business is best served when they can put more of their money to work for their business instead of having their money held hostage by their landlord. In this post, I outline the three primary approaches to lease security: (1) Cash Security Deposit; (2) Letter of Credit; and (3) Guaranty.
Limiting the Hidden Costs of Office Rent: Operating Expenses & Taxes
A major component (30% or more) of an office tenant’s rent bill is property taxes & operating expenses (“T&O”) which today is on the rise and where tenants have limited control under landlord-favorable leases. In Chicago, T&O is rising significantly and where most buildings quote rents on a “net” basis (which may be comparable), the amount of T&O can vary significantly among buildings. While tenants and their advisors will fight hard on the rent and other deal terms, if T&O is not properly vetted and negotiated, those deal terms will be far outweighed by surprisingly large T&O costs. In this post, I discuss the two common rent structures and offer strategies on limiting increases in T&O to provide tenants with cost certainty.