- Lease audit requests have almost doubled in major cities in 2009 as tenants look for ways to reduce real estate expenses. Around 75% of audits uncover landlord overbillings or incorrect charges related to operating expenses. - Common disputes involve landlords incorrectly including capital expenditures or management fees in operating expenses, which tenants partly pay. Audits also find landlords incorrectly calculating expense adjustments from declining occupancy. - In response, some landlords are adding lease clauses that restrict tenants' rights to audit or hire certain types of auditors. However, estimates show auditors find modifications in over 90% of lease audits.

2. Need assistance with a renewal, renegotiation, relocation, or subleasing of your space?
We are Tenant Representation Specialists. We represent your interests, not the landlord’s.
OFFICE
Robert Lowery & Rick Cagnolatti
FACING OVERAGE$
WITH MARGINS UNDER ENORMOUS PRESSURE, commercial tenants are looking for ways to shave dollars on
one of their biggest expenses--real estate. Some are pleading with landlords for emergency rent relief.
Others are taking matters into their own hands by hiring lease auditing companies, from specialists to the
Big Four accounting firms.
Lease audit requests have almost doubled in major metropolitan cities in 2009. Operating expenses on
leases, which may have been overlooked in the past, are now being challenged--aggressively.
Often, those challenges are successful. Around 75% of the exams uncover overbillings or incorrect charges.
Tenants are increasingly disputing such things as the level of landlord management fees and the tendency
to sneak capital expenditures--the landlord's responsibility--into operating expenses, which are shared with
tenants. In addition, auditors are uncovering overcharges via adjustments that stem from slumping
occupancy levels.
Many of the overbillings are simply matters of the escalations not conforming to provisions in the leases
negotiated at the time of signing. A building with 30 leases can have 30 individual lease clauses and most
landlords take a 'one bill fits all' approach to charging for operating expenses.
More difficult disputes arise from billings that depend on how expense provisions are interpreted.
Items like capital expenditures or outside management fees have a tendency to be reinterpreted by
landlords and filtered back into operating expenses.
Then there are the less innocent mistakes. We are aware of cases where after years of steady escalations
to cover common areas, the square footage tenants are being charged for is so large it would ‘extend into
the middle of the street’.
While these are few, watch out for this type of creativity. Sometimes lease auditors are the best bet.
In return for that help, contingency-fee lease auditors typically get anywhere from 25% to 50% of the
overcharges recovered.
IN THE FACE OF THE WAVE of successful--from the tenants' point of view--lease audits, landlords are fighting
back. They are adding contract clauses that discourage audits.
Sometimes, leases are written to deny tenants the right to audit. Or in other cases, they stipulate the tenant
may have to respond within 30 days of an annual statement or lose the right to challenge.
Other landlords are adding clauses that allow tenants to hire only CPAs from the major accounting firms or
fee-only auditors, thereby excluding the specialists who work on a contingency basis and are seen as more
aggressive.
Smaller tenants especially have to face the risk of having the audit cost more than [the overcharges] it
uncovers.
Finding an overcharge may be more likely than many landlords would prefer to believe. Estimates are audit
firms are able to get modifications of overbillings in more than 90% of the lease audits.

3. Need assistance with a renewal, renegotiation, relocation, or subleasing of your space?
We are Tenant Representation Specialists. We represent your interests, not the landlord’s.
OFFICE
Robert Lowery & Rick Cagnolatti
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Exxon Mobil considering building campus north of Houston

4. WE’RE EXPANDING!
THE TENANT REPRESENTATION GROUP LED BY
ROBERT S. “BOB” LOWERY HAS OPENED
LOCATIONS IN DALLAS & AUSTIN.

5. JANUARY MARKET STUDIES
As most of us are now aware, Houston was not immune to Comparing Costar’s Mid-Year Office Market Report to Our
the ill effects of the stock market crash, credit crisis, and oil office specialist team was given data for comparative analysis
volatility that have occurred over the past few years. Due to from 2Q 2009 to Year-End 2009 via Costar Group, a leading
these three issues, Houston businesses have been forced to provider of commercial real estate information, marketing,
audit their balance sheets to determine where cuts were and analytics.
necessary. Because the cost of employees and rent are usually
the first and second largest expenses, it is understandable that A comparison study was performed for office building rents in
the employment and commercial real estate market, the Houston metro over the final six months of 2009. The
especially the office market, would be greatly impacted. chart (see below) shows % differences in asking rents over the
period – for each submarket and building type.
To assist Houston businesses understand the impact that these
events had on the commercial real estate market, my tenant Given this information, my office specialist brokerage team
representation team performed a study based on Costar data concluded the following:
as of 1/15/2010. The data is for the Greater Houston market
area includes in the following counties: Bellaire: The greatest percentage decrease of asking rents in
the last 6 months occurred in the Bellaire submarket –
Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, specifically, class B office space. We think at around $17 p/sf
Montgomery, and Waller (asking price) in an area that hosts a stronger tenant base is of
exceptional value and rates should not drop much lower. In
Source: Costar Group Bellaire, it is time to act on B office.
Office Leases signed during the past 12 months: 692 Downtown: Class A rents have actually risen in Downtown in
*data includes signings beginning on 1/15/2009 to 1/14/2010, the last 6 months. We believe Class A asking prices are
includes renewals, not extensions ‘cooked’ in light of Marathon, Chevron, Shell, Exxon, and
Conoco’s end of year announcements. We expect significant
Office Leases signed during the previous 12 months (2008- decreases in Downtown asking rates – accelerating into year-
end 2010.
2009): 853
*data includes signings beginning on 1/15/2008 to 1/14/2009, E Fort Bend/Sugar Land- While Class C rents remain above
includes renewals, not extensions Class B rents in the area (???), we expect a continuing decline
Total % Decrease in Office Leases Signed: 18.8% even as the submarket posted over a 10% decrease in the
second-half of 2009. Healthcare will continue to be the
driver for the area.
FM 1960: Class C rents lower and vacancies higher, future
road construction will slow business, and rents will continue
their slide. The submarket is significantly overvalued due to a
tremendous amount of available space for rent (retail &
office).
Greenway Plaza: Class A rents at close to $30 p/sf are
overpriced and will see retrenchment, given that JP Morgan
gave the keys back for its Crescent purchase, the A rents will
We also found that the median square footage of office be of much better value to tenants – in 2011. We do think
space leased was considerably lower over the past 12 months, the Crescent buildings asking rents are undervalued, though.
when compared to the same period in 2008-2009.
Katy Freeway: With the pickup in oil and gas activity in the
Median Square Feet of Office Space Leased in the past 12 latter part of the year, it is no surprise that this market saw
months: 2,058 SF green. For the year, the Class A Katy Freeway market had
the greatest amount of net absorption of all submarkets in the
Houston MSA. But, due to the abundant supply and some
Median Square Feet of Office Space Leased in the prior 12
say weaker tenant base, the B buildings saw declines in the
months (2008-2009): 2,708 SF rental rates. C buildings were of good value, thus a rise in
rates.
Total % Decrease in Square Feet of Office Space Leased:
Continued at http://leasinghouston.org
24%

6. Tenant
Representatives…
Analyze your space needs.
Investigate all properties and determine which are the most appropriate for your needs.
Create a bidding war amongst several landlords for your business.
Protect you during lease negotiations.
Identify lease provisions that may cost or save you money during your lease term.
Handle paperwork.
Settle disputes that arise even after the lease is signed.
Ensure you get the most value from tenant improvement allowances.
Win concessions that anticipate your current and future needs.
*Obtain payment from the landlord for procuring you, the tenant, for their building.
Robert S. “Bob” Lowery & Rick Cagnolatti
Tenant Representation
Coldwell Banker Commercial
2121 Sage Road, Suite 150
Houston TX 77056
832-275-6514 or 832-659-5355
Office: 713-840-5000
http://cbcworldwide.com
http://leasinghouston.org