Property Management is an 80/20 Proposition

Most commercial tenants think of property management and say “thank goodness the landlord takes care of that!”  That is largely true but to think it is entirely so is to put your financial bottom line into the hands of at best a well-intentioned stranger and at worst a totally indifferent one.  While it may be true that the tenant in a large class A office tower does not have to perform janitorial services or maintain the building’s heating and air conditioning systems, they do assume some repair responsibilities inside of their premises and have important administrative duties relating to property management.

Think about it: for every bill you receive, whose responsibility is it to review it for accuracy and actually cut the check?  While there is not a lot of review required when you get a utility or cable TV bill at home, but what about that annual operating expense reconciliation bill you get from the landlord?  Does it accurately reflect the terms of the lease; in particular, the special operating expense lease provisions your real estate broker negotiated on your behalf?

80% of property management is shouldered by the landlord, but 20% is the tenant looking out for its own interests.  Who is looking out for yours?

The Permitted Use Clause – Smothering Restrictions Or Room To Grow?

The Use clause of your lease has as much impact on your potential for success as the financial terms of the contract.  It has the ability to constrict your growth or let it soar.

Case study:  a young couple was in escrow to buy a popular independent coffee house in the North County area of San Diego, California, with barely nine months left on the lease.  They engaged my services to negotiate a fresh lease term.  They wanted to get favorable terms for a new five year lease but they also expressed consternation over restrictive permitted use language in the existing lease. 

To protect the exclusive use provisions of a national restaurant chain that was located in the shopping center, the existing  coffee house lease listed specified breakfast menu items that the coffee house could sell that were safely differentiated from the big chain’s menu items, and capped the use clause with the popular “and for no other purpose.”  This put the tenant on a mine field, risking a default if they ran afoul of these restricted uses.  It severely restricted the tenant from trying new menu items and ideas, the key to long term success for any restaurant. 

Our strategy: change the language in the coffee house lease to affirm the exclusive use provision of the major chain restaurant (this placated the landlord) and allow all breakfast items that were not protected in the other lease.   This strategically shifted the burden of proof from the coffee house to the chain restaurant.

The Garcia’s coffee house was named the best independent coffee house in San Diego by a popular local newspaper after just six months of remodeling the store…and the menu.

When it comes to the use clause of your lease, it is better to be in a position to ask for forgiveness than for permission.  

Aaron Weiner, CCIM, CPM, LEED AP
aaron@bailesre.com

Just How Creative Is Creative Office Space?

It has become a cliché, really.  Any old industrial building with the ceiling removed, a roll up door, and a 2:1,000 parking ratio is now labeled “creative office”.   I even saw a recent blast email from a broker who will remain unnamed referring to such a space in North Hollywood as “trendy.”  Ugh.

A word to the wise: beware brokers touting the coolness of creative office space. 

There is no doubt that we are witnessing a tectonic shift in how workers relate to the physical workspace; not only what they do there and how, but how often they need to show up at the office at all.  Flexible, open layouts, more generous space for amenities like lounges, libraries, and “chill” areas reflects the needs and wants of a new generation of workers.  But there are limits.  A recent article in The Wall Street Journal revealed an issue overlooked by companies knocking down offices and eliminating even cubicle walls in favor of collaborative work surfaces: “pesky, productivity-saping interruptions” as the article puts it. 

Look at this jarring timeline:

• ·         A worker spends an average of 12 minutes and 40 seconds on a task before being interrupted

•       An interruption might take as little as 15 seconds

• ·         It takes that worker 15 minutes on average to get back into the same level of concentration       they were at before the interruption

“Research published earlier this year links frequent interruptions to higher rates of exhaustion, stress-induced ailments and a doubling of error rates,” the article goes on to say.

What is really at stake here is productivity vs. creativity.  A tenant advocate broker must take the time to ask probing questions about what the company does and listen closely to the answers.  The solution is not always a wide open creative office layout, even for technology and media tenants.  At the end of the day, “creative is as creative does” (to paraphrase a lesson from my mom); in other words, it is the company’s culture, talent base, and operating processes that that are the source of creativity, not their office space. 

Aaron Weiner, CCIM, CPM, LEED AP

aaron@bailesre.com