Ownership can benefit tenants

Nationwide, a slow residential market will continue to impact the rate of growth in the commercial sector. The Triangle has one of the nation’s most productive residential markets, relatively speaking, so we will see some benefits from the ongoing influx of new residents and transaction volume generated from locals looking to seize great deals. “People are discovering the affordability of the current market based on prices and interest rates, and are beginning to take advantage. Supply (inventory levels) are back in check with November 2005 levels,” stated John Pace of Pace Realty Group, Keller Williams North Raleigh.

From the most fundamental perspective, the Triangle remains an outstanding place to live, so we’ll always have that helping to bolster our market. Additionally, North Carolina’s business relocation incentive program was ranked second nationally in terms of job creation effectiveness and accountability by Washington, D.C. non-profit Good Jobs First. This bodes well for the Triangle’s ability to continue to attract new companies.

Locally, office rent increases should occur and we will also watch vacancy decline slowly through the year. For clients, this means the windows of opportunity for the best concessions are slowly closing, something we mentioned in our June newsletter, “Companies hoping to seize similar opportunities would be wise to begin considering a survey of the market.”

Still, across the board growth is not expected to knock off anyone’s socks. Fundamentals continue to improve at an un-even pace so it will take time for them to stabilize enough to support any sort of notable boost in market conditions. Retail and warehouse will most likely be the last to recover.

As we’ve said a number of times, the best real estate decisions are the ones that best suit your company. If your company’s performance demands it in 2012, then it’s the right year to make a real estate decision. And that’s why we’re here. 

Happy Holidays to everyone. Stay safe, have fun and we’ll see you in 2012.

So for this newsletter, I’ve asked the staff at Rich Commercial Realty to also share what it is they’re thankful for. It was a rewarding process:

“I am thankful for all of the great clients that I have worked with over the years and for the friends that I continue to enjoy through our business relationships. I look forward to 2012 being a great year.”
- Harold

“This year I am extremely grateful to work with such a great team! We are all truly fortunate to get to work with such passionate clients, business people, and entrepreneurs, each and every day!”
- Bo

“The things that I am most thankful for are the people I work with each day, the incredible women and men that I network with and the great clients I’ve had the opportunity to meet and help during the last 6 years.”
- Tawnie

And me? Well, I am most grateful for our great team of dedicated professionals who give our clients extraordinary service that adds value and inspires their loyalty. Our mission today is as relevant as it was 23 years ago this month!

Thanks again for your business, feedback and encouragement that keep us striving toward what’s next.

Happy Thanksgiving!

It’s hard to talk about social media without sounding cliche or trendy. Sure, it’s changing things, but really, what role does it play in business?

Well, as it turns out, social media plays a big role in business today. And it’s something Rich Commercial Realty and to a larger extent, Keller Williams, is embracing.

Social media is not just about reaching out to customers anymore either, as social media tools and tactics also have terrific internal advantages, as well. Department blogs can be used to keep members in disparate office settings up to date on company happenings, just as a Twitter account can be used to make quick alerts to fellow employees. Social media is also being used to identify the best potential employees, as its use is quickly increasing as a human resources and recruiting tool.

Here’s a good recent article (http://www.ragan.com/Main/Articles/43730.aspx) about a number of solid case studies for social media in the workplace. (Ragan.com is a website for professional communicators and writers.)

Here at Rich Commercial Realty, our plan is to share news and insight about the local commercial real estate industry with our clients, local companies and anyone else who follows our industry’s developments. Changes in conditions over the last few years, as well law changes, pending lease accounting issues and other industry fluctuations have made it increasingly difficult for decision makers to account for how office space impacts an operation. We can help ease these challenges by sharing what we see and know as industry practitioners, as quickly as we see and come to know it.

Our goals are many-fold, one is of course to expand our tenant footprint. We realize though, that a few social media tactics only go so far; we’ll still have to practice terrific tenant representation and solid, southern-bred customer service.

We encourage you to find us on Facebook (and Twitter!), watch for some changes to this newsletter and check out our company blog. We hope you’ll share with us, via these tools, what you think of the Triangle market and what else we as business owners and leaders can do to continue to augment it.

Thanks, as always, for reading. And start watching for more from our team at Rich Commercial Realty.

The Financial Accounting Standards Board announced last year that it was considering changes to the way all companies, private and public, account for their commercial real estate leases. The suggestion, which is now approved and in its official comment period (the International Accounting Standards Board is also involved), is to change office space leases from back-office operating leases to capital leases.

The news and comments ramped up quickly. After months of “down time” in the subject’s news cycle, we find it critical to remind readers (and hopefully even introduce), friends and clients about this very important pending change to our businesses.

FASB’s stance is that the lease accounting changes will provide more insight into a company’s true financial position by showing additional assets and liabilities on the balance sheet. This means that those who oversee their organization’s leases will have to possess very in-depth understanding of every facet of every lease, because specific options and time-sensitive clauses will carry future economic impact to the company.

Accounting personnel, operations staff and leadership roles will have to come together intimately to assess how their office leases will impact the company’s public financial picture. Moreover, the highest levels of company leadership will need to know how to address leasing intricacies to company stakeholders.

The administrative burdens involved with leasing office space will increase significantly, as will the amount of information commercial real estate teams will need to make leasing decisions.

We are preparing ourselves to assist clients with how to address these changes. The first step is this newsletter, as industry events have revealed that knowledge of the changes is not yet widespread. There is no need for panic, of course. There is need for preparation. We are happy to help you with getting your plan underway.

Finding new office space needs to be approached in a very business-like manner. While it can be fun at times to poke around nice new offices and imagine all the new things you can offer your employees, touring potential offices is actually the first step of the negotiation process, especially when representatives of the landlord are present.

It might seem like common sense, we thought we would share here some hints we advise tenants to consider when around potential landlords. For example, do not show too much of your hand. Let the building’s management team know you just want to inquire about the physical aspects of the space and avoid any form of financial discussion. In fact, initially you can just offer your first name and say you are looking. If the matter is confidential, which is often times the case, you can just reveal generic information. For example, you could disclose that you are in “financial services” or use some other broad identifying statement. If they probe, just say you are not at liberty to disclose more at this time. And, do not ever be afraid to ask if you can tour the space by yourself. Certainly you don’t need someone to point out to you “the kitchen” or the “conference room.”

Visit our website for all ten of these great tips. Even though it will only take a couple of minutes to read, the advice can be used indefinitely.

Remember, communicating with your landlord is ultimately only one of the many reasons why any company that leases space should work closely with an exclusive tenant representative. A knowledgeable business real estate professional with an understanding of your local market conditions can provide countless operational and financial benefits. Our case studies help you see how we have helped numerous clients in saving them time and money in obtaining new leases, lease renewals or expansion or even subleases.

–Rich Commercial Realty Welcomes Bo Hargrove–

We are pleased to introduce you to Mr. Roy “Bo” Hargrove IV, our newest Brokerage Team member.

Bo has a rich background in commercial real estate, having spent several years in a national property management company. His tenure on the landlord side provides Bo unique industry insight to assisting office and industrial clients with their tenancy needs. We found Bo to be an outstanding fit to our team-oriented approach, which we are confident he will soon demonstrate to a number of area business leaders.

Bo attended Hampden-Sydney College where he graduated with a degree in Economics and Commerce. He is licensed in North Carolina and Virginia and leads the local chapter of the Hampden-Sydney Alumni Association.

The Triangle is not immune to natural disasters, a very unfortunate lesson we were reminded about a few months ago when a wave of tornadoes swept across our communities. Those of us who have been living and doing business here for a while all too vividly remember Hurricanes Fran and Floyd.

Whether it be a named, predictable weather event or a sudden, violent rainstorm, there are a number of things out of our control that can severely impact our businesses. However, commercial real estate tenants can put in place safegaurds to protect themselves when the worst happens.

Force majeure, or “greater force” is a legal term found in office leases that recognizes the presence of an impossibility to continue meeting the obligations of a lease by either party. It is language typically crafted by the landlord, which means a tenant should seek it out and work carefully with their tenant rep—and attorney if necessary—to ensure it covers the multiple forms of unpredictability that a weather event can bring. While it sounds contradictory to plan for which can’t be foreseen, lease provision precedents have long been set that can do so.

As a tenant representative, I work diligently to ensure the well being of my clients. That effort includes working aggressively with landlords when situations call for rent abatement during periods when a property can’t be productively occupied. This issue is not always concrete because the definition of “unusable” can be subjective after the primary damage has been re-mediated. For example, can a company work on damp carpet? Is a boarded window part of a safe working environment? These minor annoyances can escalate into serious reasons for work stoppage. Additionally, leases need to outline a time frame within which the landlord needs to complete repairs.

In some instances, it can be negotiated for tenants to temporarily (or permanently if needed) relocate to another property. This would most likely involve critical addenda to the original lease, which must also be carefully negotiated.

Tenants should also strongly consider business interruption insurance, which can cover the loss of income while a facility is being rebuilt after a natural catastrophe. Note that typical property insurance will not provide for profit losses.

Now approaching the heart of hurricane season, commercial office tenants and owners might take this season to review the policies they have in place to protect against what Mother Nature all too often has in store for us – before it happens.

It is the nature of complex markets to provide real estate professionals and business leaders with confusing information. Our current market is no exception, both locally and nationally. It is times like this when brokers really earn their stripes. And despite my tenure in the profession, I still find myself challenged every day by the ebbs and flows of the marketplace. (If you’re not challenged, what would be the point of coming to work, right?)

At a recent company conference in Atlanta, Keller Williams commercial professionals gathered to talk shop, learn from each other and share data about the activity in our respective markets. I was not surprised to learn that the Triangle was a common topic among some other brokers, especially when it was identified as one of the nation’s healthiest.

Per the “Regional Trends and Opportunities” presentation assembled by fellow team members in Atlanta, Raleigh’s market conditions are characteristic of being in the “third stage” of the recession. Our presenters explained that in only a short time, we should be confidently entering into recovery. Additionally, I was pleased to see our Atlanta team agree with my notion that every sector of our market—industrial, retail and office—are in the same position. Our apartment sector, however, is even stronger, having already entered into its recovery period. (Multi-family is always a solid indicator of market strength because it is intimately tied to job growth.)

Something that also came out of our conference was the fact that Class A office space is being absorbed at a rate much higher than Classes B and C. A great deal of Class A space was built in the run-up to 2008. Thus, it is now offering tenants the best opportunities for savings.

Raleigh market activity has also demonstrated that contiguous spaces of 20,000 sf and more are becoming scarce, as companies seeking long-term savings and confident in the local economy are tracking them down to secure growth flexibility and the accompanying concessions. Companies hoping to seize similar opportunities would be wise to begin considering a survey of the market.

Without question, we need job growth to be stronger and recent stock market losses are not doing a lot for national consumer confidence. This is why when brokers like me try to explain that things are actually on the move, we sometimes receive funny looks in return. The key is to apply the market’s conditions to your specific needs and business position. Numbers are just numbers. And the only ones that matter are on your bottom line.

Every year, Keller Williams celebrates Red Day, a company-wide movement to better the communities in which our agents work and live. Given the nationwide reach of our company, projects take every shape and help just about any cause one can dream up. The point is to simply give back and pay forward. I’m glad to be part of a company that expresses this kind of gratitude to the cities and towns in which it is a corporate citizen.

RED Day, which stands for “Renew, Energize and Donate,” is our initiative dedicated to celebrating Keller Williams Realty’s year-round commitment to improving our local communities. Each year, on the second Thursday in May, tens of thousands of associates from across the United States and Canada participate in a wide range of projects, devoting our time to renewing and energizing aspects of the neighborhoods in which we serve.

Recognizing her leadership in guiding the culture of our company, RED Day is held in honor of Mo Anderson, vice chairman of the board of Keller Williams Realty. I would also like to thank Tawnie Gainer in my office, who did an outstanding job coordinating this tremendous week of volunteerism.

This year, our entire Triangle community of agents decided that one day of service wasn’t enough and decided to do RED Week to amplify our impact. Rich Commercial Realty, together with our team of Keller Williams agents from all area offices, spent the first day of Red Week connecting local Meals on Wheels participants with the organization’s services, handling delivery for all 18 routes. Just like in previous years, it is compelling beyond words to see the joy a simple meal can bring to those who need it. This is a wonderful organization we always enjoy helping.

On Wednesday we carried out “Christmas in May” by delivering clothes and general living needs to a local family in need of some assistance as well as delivering clothing and specifically requested items to InterAct. Several families were helped through InterAct, including the provision of 10 new bathing suits to enable some of the children to attend camp in the summer, a terrific local agency that assists families who have been victimized by domestic abuse and sexual assault.

We also spent a day in Downtown Raleigh, where we focused on the Governor Morehead School for the Blind, spending time on its exterior taking on gardening and overdue maintenance issues. We also assisted in general organization and cleaning projects around the campus.

The team came up with a new idea this year to collect recipes from local KW agents for compilation into a cookbook which would then be sold to raise money for two families in need of assistance. This turned out to also be great fun. Who doesn’t need a few new ideas for dinner every week?

While we wish we could offer events like Red Week more often, we couldn’t be more pleased with the motivation and sincerity that our local agents demonstrated in their efforts. There are more needs out there than we could address with 52 Red Weeks but hopefully, we’ve done enough to make a difference in the lives of a few of our neighbors.

We in the business world often have to fight the mental aspects of an economic slowdown. That is to say, we let fear challenge our business instincts. Risks, once considered smart, suddenly become definitive refusals. Capital expenditures are put on hold and we hunker down to ride it all out.

But for how long should we let the storm whip our sails? At what point do we decide to once again step back on to the deck and right the ship? For us here at Rich Commercial Realty, that time is now. We’re taking a firm stance on the condition of our market and declaring it safe to come out and get back to trusting our instincts.

SPACE magazine, a quarterly real estate data publication from the Triangle Business Journal, will soon be in print with market stats for the first quarter. There is a buzz in the broker community about some real positive market signals. Not just speculation this time … but real proof that the market is stabilizing.

For commercial office tenants, this could translate into upticks in rental rates and declines in vacancy percentages, thus making landlords less inclined to concede additional benefits. However, the opportunity to secure very affordable space in sought after locations will remain for quite some time. But not forever.

Thus, one of the smartest business decisions a person can make in this kind of market weather has to do with their real estate. Whether considering an early renewal or a relocation, this is the time to be active; this market can become a crucial advantage for your business. But only if you recognize the conditions.

Recently, a client of ours was able to save more than $800k in an office lease, saving more than 30 percent from the first proposal to lease signing. As part of those savings, they received more than $500k in tenant improvements.

This has been a rough couple of years, without question. There has to be a point, like the client referenced did, when we lift the shroud and look around. I’ve done that recently and was pretty impressed with the landscape I watch unfold around me. It’s not 2006. But we don’t want it to be 2006. What we want is confident business leaders in every sector out there doing what they do best.

I know that’s what I’m going to start encouraging friends and colleagues to do. I think they’ll like the view as much as I do.

What it’s going to take is confidence in risk. We need to tap back into the spirit of entrepreneurship that pushed us to become the decision makers we are today. Real estate decisions are business decisions. Critical business decisions. And until we shake off the dust and decide to regroup out in the marketplace, nothing about this recession will change. It’s all up to us. And we only control our own decisions.

So who’s with me? Let us know your thoughts on how to respond to today’s market conditions.