The Reata BizBlog

If they are correct, it's time to lock in the current low rental rates before landlords decide it's better to wait for higher rents than to do your deal. Here is a link to their article - http://www.costar.com/news/Article.aspx?id=195F06A0749794A8335951CD840A973E.

How can foreclosures be good for anyone? Surprisingly though, foreclosures create an opportunity for tenants. I wrote an article about it that was published in today's Dallas Business Journal - http://dallas.bizjournals.com/dallas/stories/2010/06/14/smallb3.html.

This article (http://www.globest.com/news/1600_1600/newyork/183576-1.html) is talking about the New York City office market, but you could just as easily substitute Dallas in place of New York. Yes, the market is bad for landlords. Yes, tenants have lots of choices and rents have fallen while concessions (free rent, etc.) have increased. But certain submarkets are doing pretty well. Certain buildings have pretty good occupancy. So in those cases, the deals don't look as good and tenants are left questioning why the landlord isn't more aggressive. So you should shop widely when looking for space. And if you really just want to renew where you are, be sure your landlord thinks you will seriously consider moving.

It's good to live in Texas.  Those jobs create demand for office & warehouse space. And it will eventually change the balance of power in negotiating leases if it becomes a trend. So you might want to consider renegotiating your lease now before landlords start feeling confident of a recovery with jobs. We recommend that anyone with a lease expiring in the next 2 years evaluate their situation with their corporate real estate advisor (tenant rep) to decide when is the right time to take advantage of this depressed market.  Read the article here -http://dallas.bizjournals.com/dallas/stories/2010/02/08/daily4.html?ed=2010-02-08&ana=e_du_pub.

DFW office leasing is doing much better than other US cities. But even within the DFW area, there are winner and loser submarkets. Northern suburbs like Plano and Frisco will always do better because they are close to where people want to live.  The key is to have this information when negotiating a new lease or renewal.  That is the kind of information that a corporate real estate advisor (tenant rep broker) follows and will use to effectively negotiate on behalf of companies.

One of our clients is a French software engineering company that just opened an office in Plano, Texas - a suburb of Dallas.  We negotiated a sublease for them and were able to get full use of all furniture, cubes, phones, computers, copiers and even the server room equipment, all while also getting a huge discount off the market rental rate for the building.  Take a look at the article at the following link - http://www.ccbusinesspress.com/display.php?id=3936.

A report from Cushman & Wakefield reported that DFW office occupancy fell by 2 million square feet in 2009 and total leasing activity was down 43 percent.  Not surprising given the current economic situation, I know.

But like in most cities, there are winners and losers within the greater metropolitan area.  Buildings along LBJ Freeway and downtown Dallas were hit hard with lots of tenants moving elsewhere or just closing their doors.  The big winners were Plano and Frisco because those submarkets are close to where people live.

Quoted rental rates didn't change much though.  This seems odd when demand is so low.  You would think rents would be lower.  Well they actually are, but landlords prefer to give free rent and higher concessions to "buy down" the rental rate than to reduce the face rate shown on the lease.  So the average effective rental rate is lower even though the number shown on the lease is higher.  This allows the landlord to get the pain of the current market out of the way and then have good rents in the future.  This also helps them if they decide to sell the building in the future because the buyer won't have to deal with the free rent which should have burned off by then.

So what does this mean for companies whose leases expire in 2010?  

First, there should be lots of options from which to choose.  So allow yourself plenty of time to look around and negotiate.  I recommend that you start the process 3 months prior to the date on which you have to exercise your renewal option.  If you don't have a renewal option, start 9-12 months early.  That may seem like a long time, but if you move to a space which requires construction, you can eat up 9 months in a hurry.

Second, you should shop the market to see what's out there before blindly agreeing to renew your lease with your current landlord.  You wouldn’t buy a $40,000 car without shopping around a little first.  So don’t sign a lease which totals $500,000 or more without shopping either.

Third, you might want to consider trading up to a higher-quality building if image is something that might increase sales or allow you to hire better employees.  Or you might be able to move to an area close to home or close to customers.  Who knows, the landlord may pay for some or all of your move.

Finally, hire a corporate real estate advisor (tenant rep).  When I was a landlord, I found that landlords could get a 10-20% better deal for themselves when tenants handled their renewal directly compared to those tenants who were represented by a tenant rep. Don't hire any broker though.  Only hire one who specializes in representing tenants exclusively.  If the broker also represents landlords, you might find yourself in a situation where the broker is trying to juggle his loyalties to you and the landlord.  You don’t want to have to question your broker’s motivations or recommendations.

Have a great 2010 and happy hunting.

While at a party for tenant rep brokers thrown by a large office and industrial property owner last night, the CEO of the owner said that he thinks things are about to be worse than they were in the late 80's & early 90's. He's a smart guy so I don't discount his opinion, but we're still nowhere near those days….at least not yet.  I started in the commercial real estate business in February of 1984 so I've been through a few cycles now.

Things will have to get dramatically worse to come close to the 80's/90's. Then, there were only 2-3 groups bidding on property – one of them was that CEO. Prices got ridiculously low - $20.00 per square foot for high-rise office buildings in some cases.  The last company I worked for was one of the other buyers at that time. We bought buildings in the $30's and $40's which later rented for $18 to $22.

Today, there are dozens, if not hundreds, of buyers with war chests in the billions waiting to pounce on distressed assets. That difference by itself should keep prices far higher than the 80's & 90's. Time will tell. Stay tuned.

The Dallas Business Journal published a commentary I wrote on the commercial real estate market.  The article discusses why residential real estate is a leading indicator of the economy while commercial real estate is a lagging indicator.  Here is a link to it - http://dallas.bizjournals.com/dallas/stories/2009/10/26/editorial1.html  Let me know your thoughts.

Are we in a recession or not? Is this a tenant's market? The answer to both questions is obviously, "Yes." But you wouldn't know it sometimes by the way some landlords are acting. It's like they think it's still 1999.

I am a Tenant Rep or Corporate Real Estate Advisor so I spend my days talking to landlords on behalf of companies which need to lease office and warehouse buildings in the Dallas/Ft. Worth area. But I used to be a landlord agent. So I understand both sides of the table very well. The landlord and its leasing agents are suppose to treat tenants and their tenant rep brokers as the customer and make the transaction as easy and smooth as possible. That should be the case regardless of which party the current market conditions favor.

Now I'm not talking about what the rental rate should be or how much the TI (tenant improvement) allowance should be. Those issues are determined by the market. But I am talking about simple things like sending the lease document out as a Word file which can be edited instead of a pdf file or paper documents. Clients usually have 2 or more people involved in the transaction and they are often in different states. And their attorney may be in a totally different place. Paper and pdf files are not helpful. Send a document as a Word file. The old excuse of wanting to have control of the content of the file is ridiculous with today's software that allows for instant comparisons.

And then there is the leasing agent who offended because we requested some changes to the original lease document and the commission agreement for a tenant who plans to renew in their current warehouse. If this was a new tenant moving into a building, there wouldn't be a question about negotiating the language in both documents. Isn't an existing tenant worth more to a landlord. No down time between tenants. Less TI's. Treat them with every bit of respect and deference that you would for a new prospect.

I want real estate brokers to be viewed as professionals who add value, make the transaction easier, and put their clients' interests before their own. It chaps me when others ruin it for those who are trying to do it right.

Okay, the rant is over.