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

Corporate Image: Inside vs. Outside -- Does Your Broker Get It...Or Even Care?

Did you sign a lease for a beautiful new building only to watch employee morale disintegrate after you moved?  What the heck just happened?

Your corporate image is reflected in many ways, including your branding and marketing materials, but perhaps in no way more dramatically than in your place of business.  Tenants, be they retail, office, or industrial in nature, choose buildings based on their outside appearance  or “curb appeal”.  While there is no discounting the way a building looks from the street, experienced and knowledgeable real estate brokers know that what you see isn’t always what you get.  Poor brokers and naïve tenants overlook the fact that there are two distinct audiences for their corporate image:  the outside world (their clients and the public at large) and, no less important, their employees. 

On the outside is the architecture, the building skin of granite or glass, the expansive lobby and the corporate identity (not necessarily theirs) on the top of the building.  But what is important to your valuable employees?  Think ease of parking, the speed of the elevators, the smell of the bathrooms, and the comfort of the suite.  What do you think it does to productivity to have your employees chronically complaining that they are too hot or too cold in their work area, or worse, going home feeling sick because they are hypersensitive to these temperature extremes?  Or when they take longer lunch breaks because the food amenities located in or nearby the building are lousy?

How else does a building impact your business operations?  Is that impressive grand lobby in your three story suburban building inflating your rentable square footage and costing you more relative to other alternative buildings?  Are you setting yourself up for surprise billings from the landlord because they are doing a poor job managing building operating expenses?  It might surprise you to learn that these are all things a good real estate broker can identify before you sign your lease.

Think about it: those companies rated as “the best places to work” in your local business journal never cite the exterior appearance of the building.  It’s all about happy employees.  And happy employees make for happy clients.

Aaron Weiner, CCIM, CPM, LEED AP
aaron.weiner@weinerproperty.com

GOLD DUST DISAPPEARS IN A PUFF OF HOT AIR

The news that the ostensibly famous San Francisco saloon The Gold Dust Lounge is being
booted out by their landlord after 50 years near Union Square in favor of The
Limited has made headlines. Events like this underscore the juxtaposition of neighborhood culture and market opportunity, forces that often find themselves at cross purposes. Arguments on both sides have merit. But movements to have city planners or elected officials step in are simply wrong. Very wrong.

The law of the land is clear enough on private property rights. The marketplace will dictate what business goes in a given location. Miscalculations and bad judgment often intervene, but in the end, the market – which includes landlords, business tenants, and consumers – ultimately decides the future of the neighborhood. Free market forces do not always move in a straight, true line.

There is another side of this story that will be addressed in my next blog and has to do with paying close attention to lease terms. Did the landlord take advantage of the tenant’s naiveté to get them out of the space? We shall examine the facts.

"Green" Begins At Home

We have all heard the old adage “Charity begins at home”. The same notion can be applied to going green and living a “sustainable” life, both at home and at work. Many businesses today seek out buildings that boast a LEED certification, whether the more common Siver or the rarer Gold or Platinum. But regardless of whether the building where you conduct your business is certifiably “green”, there are many things you can do to lighten your business’ carbon footprint and save significant dollars if you are paying for your own utilities. Here are a few (with props to a recent, very informative article in the Wall Street Journal):

Change the Culture

Everybody at work has to get on board. Eliminate space heaters in cubicles. Everyone can’t have their own printer at their desk – start sharing between four or more employees. All incandescent task lighting (lamps) should be retrofitted with compact fluorescent bulbs. (You haven’t done that yet?) Turn off the monitor and speakers when you shut down your computer every day.

Plan for Savings

Speak up in the planning for your workspace whether it’s a store, an office suite, or a warehouse. Look into eliminating light fixtures near windows, where natural light is the brightest. If you are in an office building, consider moving private offices to the interior. If your culture just won’t allow for that, then put generous glass in the door wall so natural light flows through to the rest of the space. Pay a little extra to have motion detectors in private offices, conference rooms, and the copy room (and even in the warehouse) so the lights are off when these spaces are unoccupied. Choose an Energy Star refrigerator for the break room.

Go with Waterless Urinals

Get with the program! The myth that this idea stinks – literally – has been busted. Ask any guy who has used one: they don’t smell…and they don’t splash. Hallelujah! The technology is elegantly simple (like all good ideas are) and the savings are enormous. It is one of the few green decisions that will not cost you extra dollars up front, because you eliminate the plumbing that supplies the water!

Beyond Energy

Opportunities exist beyond your energy bills. Most people do not realize that a large component of what makes a building “green” is what materials are used in the construction and where they come from. Purchasing furniture or millwork (cabinetry) manufactured within 100 miles has a huge environmental advantage over products shipped 2,000 miles in trucks. Think about it. And the opportunity to choose products manufactured from at least partially recycled materials – from carpeting to furniture – is endless today.

The bottom line (which will improve as a result): It’s really pretty easy. Do it!