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Added Transparency Needed for Commercial Real Estate Brokerage

The quest for “transparency” is a major driver in our world today so that people can make the best decisions. We saw it with banking reforms after the recession as well as with all the new disruptive technologies. In commercial real estate, we recently saw the push for transparency with the new lease accounting rules. Commercial real estate brokerage, is a sector in need of increased transparency, particularly given the continued consolidation of commercial real estate brokerage firms where it is increasingly common for opposing parties in a transaction to be represented by agents from the same firm. Beyond this conflict of interest issue, greater transparency is needed as to compensation and “incentives” offered by property owners to entice agents to show a particular property.

Office Building Amenities Arms Race

We’ve all heard of the rich perks leading tech companies offer their employees – from gourmet food to full-service gyms. Borrowing a page from these companies, office landlords are offering many of those perks to their tenants as added amenities as they look to lease-up their buildings and increase rents. While their interests diverge, today’s office landlords and tenants (not just the Googles of the world) share a simple mission: create a workplace where people want to be and where they thrive. That’s particularly the case today where everyone is looking for ways to retain and attract millennials.

How Tenants Can Limit Lease Surrender Liability

Looking forward to a new chapter in your business, you just moved into your new office space. Your old office building is, however, haunting you after receiving an invoice from your prior landlord for restoration obligations. Most office leases contain a relatively innocuous provision commonly referred to as the “Surrender Clause” which spells out the obligations of the tenant to restore their premises to a certain condition upon lease expiration or termination. Many tenants pay little attention to this provision in lease negotiations based on the conventional wisdom that the landlord will likely demolish their space and rebuild it for a new tenant. In this post, I outline what tenants should consider in limiting their liability when surrendering their premises.

Bridging the Last Mile – innovative public-private partnership

The trend of companies moving to urban areas in search of younger talent has challenged some suburban based companies, landlords and suburban governments in the Chicago area and across the country. Earlier this year, I posted a blog examining the trend of urban migration in Chicago and nationally: Corporate Office Urban Migration – Chicago & Nationally. While the Chicago area is well connected with mass transit (including an extensive rail system), the challenge has been for commuters to get to and from the rail line. That’s particularly been a detriment for suburban companies trying to recruit “car-less” millennials whom live in Chicago. While there’s train service for reverse commuters, the transit from the train to suburban office parks is a challenge. Recently, however, a Chicago area based company, along with the support of DuPage County and the Regional Transit Authority (RTA), has piloted a car-share solution at a local train station to improve transit connectivity.

The TICking Bomb of Building Ownership

Occasionally, we hear of a tragedy where a bomb explodes in a former war zone. Likewise, in commercial real estate where most markets have recovered from the recession, there is a time bomb of building ownership that can be disastrous for office tenants. That ownership structure is a TIC (Tenancy-In-Common). In this post, I outline what is a TIC, the challenges they present and how tenants can safeguard their interests.

Corporate Office Urban Migration – Chicago & Nationally

On the heels of the great recession in December 2010, I wrote about whether the trend of office tenants moving to urban areas is a secular shift or an aberration (“Downtowns Drawing Tenants Over Suburbs: Secular Shift or Aberration?“), concluding that companies that are location neutral (i.e., don’t need to be suburban or urban) will be driven by qualitative factors including, most importantly, labor. Here in Chicago and many other markets nationally, we’ve seen an increasing number of companies relocating all or a portion of their operations to the Central Business District (or surrounding areas). Most recently, it was announced that McDonald’s Corporation will relocate their HQ from west suburban Oak Brook to Chicago. With urban office rents being considerably higher than suburban, these companies are not looking at real estate from purely a cost perspective, but rather how it can be a strategic tool in driving their core business. In this post, I summarize the reasons underlying this trend, what we can expect in the future and what is happening in Chicago as an illustration of this national and global trend. I also explore why some companies have decided to stay in the suburbs.

Office Building Tour Checklist

While your ultimate decision on leasing office space will be based upon how it supports your business goals, the building tour is an initial litmus test. A thoughtful inspection of a building and space may identify potential issues that you can address early on in negotiations as well as avoid dead-ends. Before you look at new office space, here are some “do’s and don’ts” to consider based upon my 20+ years representing office tenants in Chicago and nationally.

Tenant’s Lease Renewal Strategies

Lease renewals are one of the most profitable leasing transactions for landlords. As most tenants look to renew their lease to avoid the disruption associated with a relocation and as landlords perceive existing tenants as a “captive audience”, I’ve outlined below 10 steps for tenants to employ so as not to leave money on the table based upon my 20+ years representing office tenants in Chicago and throughout the country.

Operating Expense & Tax Reconciliation Season: Don’t leave Money on the Table

Now that the holiday season is over, ‘tis the season for Operating Expenses and Tax reconciliation for office tenants. As most office leases allow the landlord to recapture increases in Operating Expenses and Taxes (which tenants commonly pay on an estimated basis over a calendar year), landlords are required to reconcile the year’s actual expenses and taxes to the tenant’s estimated payments. That reconciliation statement is typically issued in first quarter. If not carefully reviewed by a tenant, in all likelihood money is being left on the table as 90% of these statements have some errors. This is particularly important in cities like Chicago where tenants are seeing major increases in property taxes. While there’s not much a tenant can do with rising property taxes, they can lessen that blow by closely scrutinizing the operating expenses. Now, more than ever and in light of the new accounting standards, tenants must be aware of their occupancy costs and diligently pursue their audit rights. Outlined below are strategies tenants should employ in reviewing these statements as well as some ideas on how to craft these provisions in future leases. I am joined on this post with Mirela Gabrovska of MBG Consulting, a national expert in lease administration and auditing.

Lease Accounting Change Gets the Go-Ahead

On November 11, 2015, the Financial Accounting Standards Board (FASB) decided upon the effective date for the long awaited and much debated new lease accounting standard requiring companies to recognize leases on their balance sheets. The effective date for public companies will be in fiscal years (including interim periods within those years) beginning after December 15, 2018. The effective date for private companies will be for annual periods after December 15, 2019. Upon issuance of the final standard, which is expected to be early 2016, FASB allows for early adoption which some companies will do to meet SEC requirements.