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Tenant Representation During & After COVID-19

Tenant Representation During & After COVID-19

The COVID-19 pandemic has resulted in widespread economic disruptions, with many companies facing financial challenges and working hard to reset their businesses. If you are a corporate tenant or potential buyer of commercial office space, you should have a competent and experienced commercial real estate agent to represent your interests during and after COVID-19. 

Reviewing Contracts & Special Language

Whether you have an existing contract in place with your landlord or you are planning to sign renewal documents, make sure you understand the language of the contract and the likely changes of any clauses in the backdrop of COVID-19. For instance, the “Force Majeure” clause is now going to be more critical than ever because it can temporarily protect you against non-performance when an extreme event occurs. This is also a reason to have a real estate attorney on your team in addition to a tenant broker.

How the applicable language of this clause is drafted will determine whether your rent payments may be suspended indefinitely or for a specific time period. The ideal way for a more tenant-favorable contract would be including events such as public health emergencies and pandemics in the Force Majeure clause.

Similarly, another important clause to consider may be business interruption insurance, which is often a part of a commercial lease. If your landlord requires you to obtain this insurance coverage as a tenant, you need to consider whether events such as COVID-19 pandemic qualify as a covered business interruption in the insurance policy.

Addressing Safety-Specific Space Concerns

In the wake of the COVID-19 crisis, you may be re-evaluating your requirements for office space. Make sure you have a knowledgeable tenant representative to work with you regarding what business terms can likely be achieved in the current market. You may also want to consider adding an architect to your team to plan urgent improvements to your current office space. Instead of having collaborative workspaces, you may want to enhance social distancing norms in your new office space.

At present, many landlords, likely with an extension or renewal of lease term, would be willing to negotiate and make the physical infrastructure changes that you want in order to address the safety concerns for your employees and visitors. 

Re-negotiating a Current Contract 

Due to economic conditions caused by COVID 19, the market may be titling in favor of a tenant. Some landlords have concerns that their existing tenants may shut down or downsize, which could leave them with huge vacancies. Therefore, if you are looking to renew a lease, re-negotiate a current contract, or purchase commercial space, the time is ripe for it now. 

After understanding your business needs and site criteria, a dedicated tenant rep can gather current market information for your review, and guide you about negotiating the terms and conditions with landlords in the present market. They can also provide you useful information about how reliable a particular landlord is, which buildings have reputable property managers, and how these landlords and managers have responded to tenants during the pandemic.

With a Tenant Representative on your team you increase the chances of obtaining the best deal in terms of lease rates, rent abatement, tenant improvements, and various other special tenant incentives in the light of the prevailing economic conditions.

Evaluating Leasing vs. Buying 

In the commercial real estate market at present, you might be able to find buying opportunities at very attractive price points. A more significant point is that Interest Rates for Mortgages are low. Therefore, it makes sense to perform an objective cost-benefit analysis to determine whether buying may be more financially advantageous than leasing for your long-term business needs. 

A knowledgeable tenant rep will help you evaluate your options, with reasonable assumptions, so that you can make an informed choice between leasing and buying a new commercial space.

Posted in: Commercial Real Estate

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Benefits of Working with a Tenant Representative During COVID-19

Benefits of Working with a Tenant Representative During COVID-19

When looking for an office location, or negotiating a lease renewal, a real estate broker or sales associate can provide you with a very strong advantage as opposed to looking on your own. A licensed broker, or sales associate, will know what type of information a landlord will look for from a potential tenant and what incentives may be available at a particular time from a landlord/landlord’s agent in order to compete for a company’s occupancy. 

A new twist – having market experience to assist you in negotiating the best possible price, a talented broker, or sales associate, working as a tenant representative can help you ask the right questions about changes to the janitorial services and operations of the building due to the COVID-19 pandemic to protect your employees and visitors.  They will help you sift through the market information on available locations and obtain the location you choose at the best terms available in the market at the time.

Posted in: Commercial Real Estate

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COVID-19 Impact on Commercial Real Estate Market

COVID-19 Impact on Commercial Real Estate Market

While the economic disruption caused by the COVID-19 pandemic is indiscriminate, the commercial real estate industry is one of the hardest hit. Hotels, bars and restaurants, entertainment complexes, sports venues, retail and the commercial office market are severely impacted as people and workers stay home following shelter-in-place orders and business shutdowns.

Challenges for Corporate Landlords, Tenants, and Buyers

At one end of the spectrum, commercial tenants are sending requests for rent relief to their landlords as they are unable to operate at full capacity from their premises or generate business cash flows. On the other end, the landlords themselves are facing challenges because they have bills to pay, and they cannot sustain too long without generating rental revenues. 

From the perspective of commercial real estate buyers, sellers and investors, the market is in a state of disarray as it is hard to foresee whether the current economic decline will worsen or will it all clear up soon. If the recession is short-lived, fresh demand for office space should pick up as soon as jobs come back. But if the economy takes longer to revive, the commercial office market may continue to be somewhat subdued.

Although the warehousing and industrial space market is currently facing supply chain disruptions, this is one sector that could bounce back very fast once economic activity begins to gather pace in the US and other parts of the world. Warehousing demands could significantly rise, considering that more consumers are expected to rely on ecommerce than ever before.

Redesign Office Spaces 

Innovative commercial real estate operators and corporate interior planners and designers are already working on how corporate, education, healthcare, and other commercial spaces can be adapted/redesigned to meet the future needs of safe social distancing at the workplace

Creative solutions can be found to achieve the goals of social distancing at work, while maintaining a cost-effective, comfortable, and fully functional workplace for employees, customers, and other business associates. For example, forward-thinking companies such as Corporate Interiors are creating a range of practical solutions to meet the new office needs.

These solutions can be efficiently implemented to transform your workplace enabling you to restore normalcy to your business operations as soon as possible – without any compromise on the social distancing norms that may continue to be in place for the foreseeable future.

Corporate Interiors is providing solutions that maximize the use of existing furniture, while putting in place additional barrier screens and other social distancing provisions in high traffic areas at your office. Clever and Creative.

Prepare Well to Get Ahead

It is best to start preparing now to set up these new solutions (such as the ones offered by Corporate Interiors) at your workplace. So, when the local economy in your area opens up, you will be fully geared to re-start at full capacity while ensuring the best social distancing standards and practices for your employees and visitors.

From the point of view of a commercial real estate tenant, buyer, this could be the time to find opportunities at compelling prices and at the lowest possible financing rates than you might ever get again. 

PG Commercial Real Estate, Inc. has more than two decades of experience in representing corporate tenants and buyers with exceptional market insights and dedicated due diligence. Contact us now to learn more about how we can help you obtain a competitive advantage and achieve your goals in the most effective way in the current market.  

Posted in: Commercial Real Estate

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3 Tips for Negotiating A Commercial Lease

3 Tips for Negotiating A Commercial Lease

Prior to deciding on a business location, an entrepreneur and/or business owner should know there are many steps in the location decision process.  Negotiations for the commercial lease location will eventually follow. No matter what stage you are in concerning the location for your business – staying grounded, realistic and professional with a customized market survey of available office space will help you make better decisions.  Hiring a commercial realtor, ideally one specializing as a tenant rep, will help ensure the process is streamlined and the result is beneficial to you and your business.

3 Tips for Negotiating A Commercial Lease

Know length of lease

How long will that office location and size work? Is it too much space or too little space for a three, five, or seven + year period? Who will pay for the tenant improvements? Length of lease term can have benefits for both the tenant and the landlord. Time goes by quickly. Often a new business looks for a lease term of 2-3 years as ideal to allow for flexibility, accommodate growth, and, making sure the business is viable. Longer leases can bring in a better rate with more benefits, and still have some flexibility. In most cases a deal is struck if it is beneficial to both the landlord and tenant. Often the longer term office lease allows the landlord to invest dollars in tenant improvements and include cost (within reason) into the rent. So make sure to talk to a qualified commercial realtor to help you figure out the best deal for your needs. Also, are you interested in options such as renewing the lease? Figure out what your needs are before you enter negotiations. Typically office leases include some services and industrial and retail leases lean toward triple net terms.

Prepare yourself with knowledge

Before you go into negotiations for a commercial lease, prepare yourself by doing a little research. Hiring a real estate professional is a great choice for handling the procedure but knowing a bit of information yourself will be beneficial as well. One thing would be to know the lingo/jargon that will be used, such as the names used for various types of leases (full service, gross, net, triple net, or percentage).  The type of lease is usually associated with specific property types too. In the end it is the lease document that defines what is included – not always what is not included.  Negotiations and knowledge gathering generally begins with three items. Location criteria, a survey of what is available based on your criteria, and the step of touring the available space. The agent or broker you select can assist you with these three steps. Think about other team members such as architect, voice and data provider, project manager for tenant improvements, and real estate attorney.

Read the details carefully

Everything is in the details. Examine the lease thoroughly, even though it could be upwards of 50 pages. While hiring a qualified commercial realtor or tenant rep and a good real estate attorney  to examine the document and negotiate for you is a smart choice, examining it carefully yourself will be a second set of eyes in making sure you’re getting exactly what you want. Items such as a termination clause, non-compete clause, notice periods, common area maintenance (CAM) fees, or annual operating expenses are all important to know and may, or may not be clearly defined. Understanding what you’re responsible for, such as maintenance, repairs and upgrades, is imperative as each can greatly affect your bottom line.

Commercial lease negotiations can become tedious, but hiring a professional commercial realtor and a good real estate attorney to examine the details can make this process much smoother. Contact PG Commercial Real Estate today to speak with someone that can assist you and your business in securing the best deal for the right property at the right price. Market information and knowing the standards that are being used in the area can save you time and money.

Posted in: Commercial Real Estate

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Philadelphia Inquirer Article

Jacob Adelman of the Philadelphia Inquirer recently published an article detailing how the Philadelphia City Council has approved a real estate transfer tax law that will close existing loopholes, and could have a huge impact on future transactions.

I found it very informative and wanted to share with anyone else that was interested in the Commercial Real Estate industry.

Click this link to view the article!

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Low Ceiling with Gray Skies, or Blue Skies caused by FASB Rule Changes?

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In the Spring 2016 Issue of National Association of Realtors magazine, Commercial Connections, in an Advocacy Article titled “A Look at Several of The Issues Important to your Business” under “Lease Accounting” there is information on the new FASB Standards that were released in February 2016. This is a reference to the Financial Accounting Standards Board, FASB Accounting Standards Update No. 2016-2 February 2016, Leases (Topic 842).

This is the first big change in something like 40 years to the standards for Lease Accounting.  It does apply to all leases, not just commercial real estate leases.  For companies that use GAAP accounting it goes into effect December 15, 2018.  Most private companies have until 2019 for fiscal years beginning December 15, 2019 to transition to the new rules. There is a lot to digest. And I suspect companies that use GAAP accounting are working now to get their arms around this.  And they may need either more accountants and/or real estate brokers to  assist with gathering and organizing the data and formulating a strategy for office, industrial, and retail leases.

From NAR’s article under Lease Accounting they ask “What does this mean for my business? The new standards could harm businesses of all sizes, especially lessees and lessors of commercial real estate.  With more bloated balance sheets, some companies may see their debt to equity ratios increase and find it more difficult to obtain credit, especially those with heavy debt loads or still recovering from the recession. The new standard could also complicate compliance with debt covenants or agreements between the bank and borrower, which usually prohibit companies from borrowing more than they are worth.  By capitlalizing new and/or existing leases, some businesses could show more debt than allowed in their agreement with the lender, and therefore be in default of their loan.  This could force some firms to put up more capital for existing loans or even have their credit lines revoked. “

“Additionally, the elimination of off-balance-sheet financing could be detrimental to commercial property owners. More frugal lessees will want less space and shorter-term leases without renewal options or contingent rents, which will decrease cash flow for property owners.  Short-term rents will likely reduce the borrowing capacity of many commercial real estate lessors, who rely on lessees and the value of the property as collateral in order to obtain financing.  Ultimately, property owners would be forced to increase rent rates due to market uncertainty and reduce tenant improvements due to shorter recovery periods.  Conversely, this change could encourage some firms to consider buying instead of leasing commercial real estate.”  We shall see what kind of weather this causes for CRE.

 

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Renegotiating a Commercial Lease

Renegotiating a Commercial Lease

When renegotiating your lease it can be very helpful to have an objective, conflict free, tenant representative on your side. The tenant rep will have the appropriate knowledge and experience to balance the scales in your favor during the renegotiation with your landlord. They will also disclose who they represent in the potential lease renewal. And after reviewing your current lease and also current market conditions they can estimate, whether or not the prices in the market indicate the current lease rate is above market or in line with the market.

The upper hands that most landlords have when coming into a renegotiation of a lease are an astute knowledge of the office market and the understanding of the real cost of changing/moving offices. By bringing a tenant rep into the equation to represent you, you can be educated on the right assumptions to use, realistic assumptions concerning the cost of an alternative location, and have someone in your corner who knows the market as well as the landlord, if not better. Through their help you are more likely to get the landlord to sharpen their pencil to the greatest degree on the rent and any needed improvements. Negotiating a lease renewal is a process and an experienced professional can guide you through and assist in managing the transaction. A key ingredient to success is identifying and obtaining written lease terms from substitute locations.  As we said it is a process and it takes an investment of your time and the Tenant Broker’s time. But can result in saving a company a lot of $$$ in annual fixed operating costs.

Posted in: Commercial Real Estate

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Hiring a Commercial Real Estate Agent

When looking for the right space for your company it is very important to consider all of the factors. You may be thinking what are the factors and how can I be sure that I don’t forget any. The great thing is that you don’t have to worry about that yourself. This is the job of your realtor.

Your realtor will listen to all of your worries and parameters and use them to find the office space you want for your company. When working with a realtor your job is to know what you want so you can convey that clearly to them. Once your realtor understands what you want they will be able to find it for you and then get you the best price for it.

Posted in: Commercial Real Estate, Philadelphia

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Advantages Working with a Tenant Representative

When looking at an office space a realtor can provide you with a very strong advantage as opposed to looking on your own. A licensed realtor will know what information needs to be provided and what the selling agent could possibly do to make the property or office space seem like a better choice.

A talented realtor will also know how to ensure you get the best price through negotiation and other things they have picked up through their experience. They will help you get what you want not only short term but long term as well. They will know about the materials the space is built from which will inform them of any problems you could have with the space or any problems that may already be present.

Posted in: Commercial Real Estate

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Commercial Real Estate 2014 Mid Year Office Market Trends

By there I mean where the real estate values are increasing at a point above the measurement of the annual rate of inflation. The Consumer Price Index (CPI-U) has increased 2% for the past 12 months through July 2014. This percentage change year over year is a key indicator for the economy and a measure of inflation. By analyzing the national data – YES, we are there!  Keeping in mind the real estate trends vary regionally and with the quality of the product. Looking at the global market and the Vacancy Rate – the CRE industry uses this to track trends and an indicator of the balance of supply and demand for office space. Here are a few of the findings in the national vs local office markets for Vacancy Rates and rent trends.

Based on the Costar’s mid year review the national vacancy rates for leased and owner occupied buildings up to the first half of 2014 is at 11.8% as compared to 2013 which was 12.2% vacancy rates. This is a reduction of almost a half a percent in available office space. The national rent increase year to date in 2014 increased 3.7% as compared to 2013 with only a 1.9%.

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