Business, Profits and Strategy

Andrew B. Zezas, SIOR
Relationship Manager,
Strategist, President
(908) 245-5999 x11
andrew.zezas@realstrat.com

Want To Reduce Your Company's Real Estate Costs? Start Early!
Part Two of a Two-Part Article

In part one of this two-part article that appeared in last month’s issue of “Business, Profits and Strategy”, we explored the importance of understanding the timing and structure of lease renewal options when planning your company’s future. Before assuming that your company is locked into unacceptable renewal terms, ask yourself the following three questions:

1. Does our building contain vacancies?

Answer: If ”Yes”, your tenancy may be even more important to your landlord than you think. Accordingly, by negotiating EARLY, you may be positioned to secure more favorable terms than stated in your lease's renewal clause.

2. Do other buildings in our landlord's portfolio have vacancies?

Answer: If ”Yes”, see above.

3. Is our building completely full?

Answer: If ”Yes”, in today's investor crazed real estate environment, your landlord may be considering a sale or refinancing of your building. In that regard, extending your company's tenancy now may prove valuable to the landlord's interests. By negotiating EARLY, your company may be well positioned to secure terms that are more favorable than stated in your lease's renewal clause.

Any of the above circumstances could create the opportunity for your company to secure renewal terms that are more favorable than what may be written in your lease's current renewal clause. Additionally, your company may be positioned to renegotiate its lease, in advance of its required renewal notice or lease expiration dates, and take advantage of more beneficial terms…now!. Moreover, the above circumstances may present the opportunity for your company to reduce and stabilize its occupancy costs and exercise more control over its environment by purchasing your building from the landlord.

The decision to purchase the real estate your company occupies is not one to be made without a thorough understanding of the operating, timing, and financial pros and cons of ownership. This is especially true for investor-owned portfolio companies, including those with short-term exit strategies, publicly-held companies, and those contemplating an IPO.

Keep one very important point in mind...the above assumes that the space your company initially leased 3, 5, or 10 years ago still provides a productive and efficient operating environment for your company to achieve its business objectives. (See "Is Your Company's New Lease Too Old?"). Assuming that your space is the right type, size, and shape, and that the manner in which your company conducts business hasn't greatly evolved since your company initially acquired your space, then a renewal may be an appropriate consideration. A detailed review of your company's business processes and real estate may be necessary in order to correctly address this issue before proceeding.

WHAT IF RELOCATING IS YOUR COMPANY’S BEST SOLUTION?

And, what if relocating becomes the optimal solution for your company? Will the remaining time until you must provide your landlord notice, as defined above, be sufficient to allow you to complete your relocation planning and decision-making? Maybe, maybe not! You'll need enough time to evaluate your company’s current real estate situation, determine your company's real needs, assess available rental and occupancy structures, consider alternative properties that best suits your company's needs, plan the right solution, negotiate terms, execute transaction(s), complete construction, order and install FF&E, and take occupancy.

You'll need enough time to do make intelligent business and real estate decisions without undue pressure, all while you're doing what you're really paid for...running your business.

Plan to hit a few potholes along the way. While you're deeply engulfed in planning, pat yourself on the back for giving your company sufficient time to complete this project. Because as you're figuring out the perfect solution, the company on the third floor of your building might tell your landlord that they'll pay a premium for your space if you miss your renewal notice date, a large company from out of state could make a deal for that new building you were eyeballing, interest rates and oil prices could rise again, or certain construction materials like steel or drywall could again become scarce and drastically increase construction costs, throwing your entire project into a tailspin.

So, do you want to reduce your company's real estate costs? Start early!

Andrew B. Zezas, SIOR, is Relationship Manager, Strategist, and President & CEO of Real Estate Strategies Corporation, Publisher of "Business, Profits and Strategy", a monthly online publication read by thousands of business, financial, and real estate executives nationally, and, is the author of two new real estate books, The CFO's Guide to Understanding Corporate Real Estate Transactions and The CFO's Guide to Hiring the "Right" Real Estate Service Provider, both of which will be available shortly at www.thecfosguide.com.

Mr. Zezas is well-known for his ease and informative style of public speaking, and has given talks, presentations, and has lead educational programs for business, professional, government, and trade associations, including the Building Owners and Managers Association, American Management Association, the U.S. Postal Service, RealComm, Society of Industrial and Office Realtors (SIOR), and others. Andrew is National Chairman of the SIOR Tenant Representation Specialty Practice Board, and is a licensed real estate instructor in Texas and Indiana. He can be reached at 908 245 5999 or via email.

Real Estate Strategies Corporation, located in Kenilworth, New Jersey, and serving clients throughout the country, helps companies create and execute Business DRIVEN Real Estate Solutions...and Opportunities, faster and with less risk. Visit www.realstrat.com.

Read other business, real estate, and finance articles written by RealStrat's experts.

THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED. HOWEVER, IT IS SOLD AND/OR PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR AND THE PUBLISHER ARE NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR AND THE PUBLISHER SPECIFICALLY AND EXPRESSLY DISCLAIM ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.