To View Or To Non View That Is The Question

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To View Or To Non View That Is The Question

  1. 1. To View or to Non-View. That's the Que$tion. Recently we completed negotiations for one of our clients—seeking Class A, CBD space. Within the same highrise building, our client had a few options ranging from lowrise, pleasant outlooks across the street and surrounding neighborhood; to splashy, unobstructed Bay views. To keep the story simple, our client decided on the more economical lowrise space—a nearly $25 per square foot per year discount to the space upstairs. A law firm (represented by one of our competitors) signed a $55/sf/year transaction. How do these economics make sense, especially to a service firm? We have the numbers for you to peruse: The law firm leased 25,000 square feet. At an efficiency of 650 sf/lawyer, the floor's capacity will be 38 lawyers. Like most service firms, the law firm should commit not greater than 8% of its gross revenue to pay its $55/sf/year rent [8% of their annual gross = $1.375 million/year]. So, the 38 lawyers of the firm must gross at least $17 million/year to comfortably afford to pay $55/sf/year in rent. Well, that's only $452,000/year in annual billings for each and every lawyer. If they bill 40 hours/week and do so for 50 weeks of the year, each and every lawyer will only need to charge an average of $225/hour…all to afford $55/sf/year rent. At $30/sf/year in rent, instead, the same law firm's rent would be $750,000/year. So, the same group of lawyers—capable of producing $17 million/year in revenues—could maintain rent at 4.4% of gross revenues. Or, the partners could decide to work fewer than 2,000 hours per year. At lower rental rates, there appear to be a lot more options available to the firm—to craft its practice and manage its team with less strain on the engine. Which direction would YOU want to take? Perhaps, through this example, you can see why the view-space market in the City is reserved for the select few. It's your money. We would be pleased to discuss this further. Dan Mihalovich President MIHALOVICH PARTNERS Tenant Leasing Services 655 Montgomery Street, Suite 810 San Francisco, CA 94111 T: 415-434-2820 F: 415-434-2830 E: dan@TheSpacePlace.net W: www.TheSpacePlace.net Mihalovich Partners, a San Francisco based tenant-representation firm, was formed in 1998 by Dan Mihalovich. Mr. Mihalovich brings to the firm 29 years of business experience, focusing on strategic and market analysis, negotiation skills and project management expertise. He has managed over 200 office- leasing assignments for many of San Francisco's most prestigious tenants, including The California Academy of Sciences; The Bar Association of San Francisco; and Wilson, Sonsini, Goodrich & Rosati. His career, and the focus of Mihalovich Partners, is solely driven to advocate the interests of San Francisco tenants in leasing negotiations of all types---renewals, relocations, renegotiations, and terminations. To avoid conflicts of interest, unlike most firms in the leasing brokerage business, Mihalovich Partners never represents landlords. Visit our website at www.TheSpacePlace.net to learn more.

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