1. Do It Yourself?
Not too long ago, everyone needed a
lawyer to draft a lease or incorporate
a company. Those days are gone
thanks to web sites like Legal Zoom.
Also gone are the days of relying
on an accountant or H&R Block to
file a tax return. While many people
still hire accountants to prepare tax
returns, far more people use tax
preparation software to get the job
done – and save a fee at the same
time.
And let us not forget the mother
of the “do it yourself movement” -
Home Depot (or Lowes if you prefer).
Those stores enable weekend
warriors, handy men and women,
and weekday office professionals
to become carpenters, plumbers,
electricians, painters, etc. Not only
can you get what you need, but
some friendly associate will tell you
and show you what to do.
Does The DIY Approach to Leasing
Office Space Really Work??
Thought Leadership for www.smartceo.com on Office Space
presented by JLL
continued on back
The Threshold Question to Ask
So here’s the question we raise on behalf of the self-confident, entrepreneurial, business executives who
believe they can do anything and everything – “Do I really need a real estate broker to help me find space
and negotiate a lease?” Our answer, which could be admittedly self-serving, is “it depends.” Here is why.
Pretend you are a capable professional in a do it yourself mode. If you wanted to install a sink and vanity
combination in your guest bathroom, you would go to Home Depot or Lowes with a list of questions and
items needed. The same could be true with leasing office space – you need a list of what you need.
What You Need to Effectively Find and Lease Office Space
Here is a partial (but reasonably comprehensive) list of some of the things you need:
1. Potential locations where you want to be, buildings having the space you need;
2. Comparable rents for leases in the building you are considering;
3. Comparable rents for leases in buildings nearby of comparable quality and size;
4. The cost of expenses in the building (electricity, janitorial, repairs & maintenance, payroll,
etc.) and an understanding of who pays for what expenses;
5. The cost of real estate taxes for the building and an understanding of who pays for the
taxes and how they are paid;
6. The Cost of interior tenant improvements needed to get your space in the condition you
want it and who pays that cost and how;
7. The average length of the lease term required (1, 3, or 5 years) and the ability to get
options to renew the lease;
8. Credit worthiness of the Landlord and its ability to pay for improvements and cover
expenses;
9. The reputation of the Landlord as to property upkeep, responsiveness to tenant service
requests, position on late payment of rent, etc.; and
10. An understanding of contracts and lease documents, as the lease for office space can run
from 10 to 75 pages of small (9 point font) print.
2. The Stations along the Journey
Finding Space
For the intrepid among you, there are web sites like Office Space, LoopNet or Kinglet that provide information
on available office space. Craigslist also has information about available offices. So you can start your journey
online.
Just remember the following: There are different types of rent structures used in leasing office space –
full service, modified gross, triple net, net of utilities, etc. Make sure that you understand each of those
structures so that you know what is covered by the rent and what is not.
Learning Comparable Deal Terms
Like buying a car, unless you know someone who bought the car you want from the dealership you like,
finding out what other tenants are paying in a building is tough. There are no really accurate databases
available on the internet. This information tends to be hoarded by landlords and industry professionals. It is
valuable information that people treasure and guard – unless swapping it with another industry professional.
Understanding Operating Expenses and Real Estate Taxes
This is a “good news, bad news” situation. The good news is that you can look up a building’s taxes
courtesy of the State Department of Assessment and Taxation web site. It’s free. What are not free are
property management trade association databases with expense information. They can run more than
$1,000, and sometimes you have to be a member of the association to get access. But fear not, you can
always ask a friend that is located in the building.
Interior Improvements
RS Means publishes comprehensive construction data for more than 85,000 construction items. It is an
online service that will give you a free trial and then a subscription, which can be monthly or annually.
The big challenge is understanding just what construction will be done and by whom. Instead of using RS
Means, if you have a friend in the business who can do take offs of space plans, then you are good to go.
Who’s Your Landlord?
There are various credit rating services that provide information on people and companies. While most
Landlords are single purpose entities, many are publicly traded Real Estate Investment Trusts whose status
can be determined via Yahoo Finance, which is free. Of a greater challenge is determining how well the
building is maintained, is expansion possible, and what do tenants think of ownership and management?
For that you should contact existing tenants in the building for their feedback.
Who should Review and Negotiate the Lease
Unlike apartment building leases that are fairly standard and must meet certain state and local requirements,
commercial leases are a different animal. Unless you have had experience with commercial leases, we
recommend that you find and hire someone who does – and preferably a lawyer. We worry about clients
who want to rely on us for lease review, and one of us is a trained attorney and the other has a graduate
degree in real estate!
Is the Juice Worth the Squeeze?
That is up to the individual and how much time and expertise he or she has in this area. There are clearly
internet-based tools out there to help, tools which did not exist 20 years ago. However, like Home Depot or
Lowes, the tools may help with part of the process (finding a location or installing a sink) but not the entire
process (like building a house).
And one other comment. Like the insurance agent compensated by the carrier – and not the client – real
estate brokers are typically compensated by the owner of a building. Stated another way, someone needing
to address the 10 issues outlined above can find trained, educated, competent assistance without writing a
check for the services provided. The check is written by the Landlord, who gets the money in the rent paid
by the tenant being represented over the term of the lease.
That’s like Home Depot paying you to install their sink and vanity in your house. Why would you want to do
it on your own when someone else can do it at no direct charge to you, the tenant?
continued from page 1
Jonathan D. Manekin, MSRE
Jon.Manekin@am.jll.com
Office: 443-388-5785
Robert A. Manekin, SIOR
Robert.Manekin@am.jll.com
Office: 443-297-9030
http://www.jll.com/baltimore