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3 Tips for Negotiating A Commercial Lease

3 Tips for Negotiating A Commercial Lease

After an entrepreneur and/or business owner finds the location that suits their business, negotiations for the commercial lease for the location will follow. Staying grounded, realistic and professional will help you make better decisions, as negotiations can be a long and laborious process. Hiring a Commercial Realtor or 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

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 that will be used, such as what the various types/categories of leases there are (full service, gross, net, triple net, or percentage).  Some types are 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.

Know what length you need and want

How long with that location work?  Is it too much space or too little space for a three or five year period? Who will pay for the tenant improvements? Length of lease term can have benefits for both the tenant and the landlord.  Often a new business looks for a lease term of 2-3 years is ideal to allow for making sure it’s a good fit and the business is viable. Longer leases can bring in a better rate though, so make sure to talk to a qualified commercial realtor or tenant rep to help you figure out the best deal for your needs. Also, having the option to renew is important and will be explicitly stated in the lease, as will be the ability to sublease, so figure out what your needs are before you enter negotiations.

Read the details carefully

Everything is in the details. Examine the lease thoroughly, even though it could be upwards of 100 pages (and beyond!) 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. This will also help you communicate better with your realtor. Items such as a termination clause, competition clause, common area maintenance (CAM) fees 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 or tenant rep 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. And remember, everything is negotiable.  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!

Posted in: Commercial Real Estate

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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.

 

Posted in: Commercial Real Estate

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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%.

Posted in: Commercial Real Estate

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Are we there yet? 2014 Mid Year Office Market Trends

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 or year is a key indicator for the economy. 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%.

 

cre 2014 trends (more…)

Posted in: Commercial Real Estate, Corporate Office Space, Philadelphia

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Finding Office Space in Philadelphia

Finding Office Space in Philadelphia

Whether you are from the Philadelphia region, or not, when it comes to searching for commercial real estate office space it is not as easy as hopping on the web to do a search.  Leasing or purchasing space needs to be seen as an investment with the opportunity for your business to grow, or make changes, without having to sell/move again for maybe a 3,5, 7+ year period.  Some of the obvious options for leasing commercial offices space are located in Center City Philadelphia, which is well known for its skyscrapers with amazing views. But what about finding the right solution for your actual needs long term. How do you know you are seeing all the opportunities that can meet your criteria? How do you know which Landlord’s are a little more motivated, maybe due to a higher vacancy, or another project they want to start? Sometimes the property is off the beaten path, or in a location you would not have thought of on your own, or there is a sublease space with little market exposure. That is where your commercial real estate agent comes to the rescue!  With access to information on the agents for the buildings and data on what is available, but an understanding of regulations, and extras you may not consider. (more…)

Posted in: Commercial Real Estate, Corporate Office Space, Philadelphia

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LaSalle University Economic Outlook Luncheon in January

Monday, January 20, 2014

Do you take it for granted like I do, that we have such a stable banking system in the United States? I was reminded why we have such a stable banking system by Dr. Plosser when I heard him speak at LaSalle University’s Economic Outlook luncheon on 1/14/2014.

Dr. Plosser gave us his Perspective on the Economy and Monetary Policy…. He made a point that he was giving us his opinion and not the opinion of the Open Market Committee which he serves on.

We were refreshed on the  history of the Federal Reserve which was created by Woodrow Wilson in 1913. Congress sets its goals, and the last time the goals were set was 1978.  One thing unique about our central bank is that it is comprised of12 regional banks for diversity.  There were over 400 + people there and a reporter from Wall Street Journal, and one reporter from Bloomberg News.

After  insights into the History of the Federal Reserve he shared his opinion on Monetary Policy such as our 3rd round, QE3.  It was reassuring to hear that he thinks the economy has already met the criteria of substantial improvement, and we should conclude the asset purchases. And then we should plan policy for after QE3.. It was interesting to hear his list of Objectives.   A question he raises with reference to the Objectives outlined is  “Do we have the will to do it?”  You can read the details here.

Here are some interesting and reassuring comments from the Question and Answer period.

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Posted in: Commercial Real Estate, Peggy's Travels

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