Real Estate Tactics For The Upcoming Market Change

As a business owner, are you concerned about the status of your company?  Have you had to think about mitigating expenses?  , or do you worry your office workforce will decrease dramatically in the coming months?  The size of your lease may have been a perfect fit for six months or even six days ago, but your needs may have changed as your company tries to navigate the uncertain economic times we find ourselves in.  The global economy was gathering momentum heading into 2020. Assuming infections globally will abate by mid-year, and with more government stimulus now going into the markets, conditions will be primed for a robust rebound as pent up demand is unleashed.

That said, it is never too early to revisit your lease and consider what options you may have to mitigate your business expenses.  Typically real estate is in the top tier of high costs, making any adjustments and right-sizing of leased space or monetizing un-used space in your owned facility a significant area for economic improvement.  Our commercial property advisors att Benchmark Commercial are well versed in how to address market cycles like we find ourselves in today and are here to give you advice and prudent counsel on how to protect your business and your real estate during these uncertain times.

Early Lease Renewal:

An early lease renewal is a new lease agreement and renegotiation of existing lease terms.  Typically, there are two main conditions to consider before pushing for an early renewal; you are more than halfway through the current lease term, or you have sound creditworthiness and a good payment track record on your rent.  If you’re within two years of the end of your current lease, now may be the time to conduct a comprehensive review of your space requirements and to closely examine your landlord’s needs and potential pressure points to see if you can leverage the situation to your benefit via an early lease renewal.

Understand The Financial Role Your Early Renewal Has

Landlords enjoy financial benefits when they renew agreements with existing tenants. When a tenant leaves, the landlord stands to suffer a loss in rent, as well as incur additional expenses needed to make updates or renovations, as well as advertise and market the vacant space. This presents the opportunity for a successful negotiation.

It is essential to know the dollar amount associated with keeping you as a tenant, and leverage that information to help win back a portion of this profit when renewing your lease.

Get Tenant Improvement Dollars to Renovate Your Space

If your office space needs renovation or retrofitted to encourage productivity, employee retention, rebranding, or only a refresh to a more contemporary design motif, beginning the renewal process early may give you the leverage required to negotiate the tenant improvement (TI) allowance you need.  A tenant improvement allowance is a money from the landlord you can use to renovate your office space.

By renewing early, you can negotiate a higher TI allowance that will give you more opportunity to renovate and improve your office space to better fit your company and its mission, without coming out of your pocket for the expense.

Typically, less TI is allotted by landlords for lease renewals. However, with proper posturing and guidance from an exclusive advisor like Benchmark Commercial – landlords see the value if it keeps their buildings occupied to avoid any building vacancies and to maintain their cash flow and ability to pay their underlying debt. By ensuring the landlord you will stay in your space, they may be more likely to give you concessions such as an improved and more competitive TI allowance during your renewal in return for the additional lease term and long term stability your tenancy provides.

At Benchmark Commercial, our tenant rep brokers and commercial real estate advisors may recommend you look at other spaces on the market to create leverage. Your landlord may be more likely to allow you concessions to keep you if they believe there is a strong likelihood you will vacate at the end of your lease.  We leverage this process to provide our clients with the utmost in negotiation position and to ensure the renewal lease is the best choice upon careful consideration of the market options.

Finding the  Right-Size Space

If you’ve recently downsized your office, or your company has not grown as quickly as you had previously anticipated, you may no longer need your full space.  At Benchmark Commercial Real Estate, our savvy tenant rep brokers can work with the landlord to help you right-size your lease during an early renewal. If this can be negotiated, it can help you save thousands of dollars in rent on unused space.  In cases where an early renewal is unachievable, we can also help to alieve rental expenses by subleasing excess space to other commercial tenants.

Consider hiring a broker to help you negotiate properly.

If your company is not familiar with the market and rental negotiations, your office should consider representation from a tenant representation firm that can help win you the best deal. Take control of the situation by hiring a broker to aid in competitive negotiations. Benchmark Commercial’s brokers are always aware of current market conditions and opportunities and can help you leverage this information.

Engaging a broker adds value, not cost, and it will take time to understand your specific situation and business objectives. It is the only way to have a successful negotiation.

Here’s the bottom line: Your willingness to sign an early lease renewal can mean big benefits to you if the landlord needs the longer lease to meet their own business goals. It’s essential to keep in mind both the benefits to you, such as lower rent, and the leverage with the landlord can diminish as you get closer to the end of your current lease term. It’s essential to take advantage of the timing and to strike while you have maximum leverage.

Contact Benchmark Commercial Real Estate at 303-395-0111 or email our Managing Broker at Tanner@crebenchmark.com to learn more.

Stay Positive & Stay Connected!

Here at Benchmark, we miss seeing you. As Tenant and Buyer Representatives, we are accustomed to working closely together as a team and with our clients. This is one of the many reasons we love our job. We consistently get to interreact with different people and businesses in varying situations. Whether it’s touring clients, speaking with landlords, or getting coffee with one of our trusted referral partners, every day is different in the life of a Tenant/Buyer Rep.

These are unchartered waters for all of us, so how are we staying focused and connected during these tough times? By staying positive, while focusing on maintaining critical connections!

Practicing social distancing does not mean that you have to say goodbye to social interaction. Reach out to someone you haven’t spoken to in a while, set up a virtual happy hour, or even host a virtual game night. It’s imperative to stay connected with your clients and referral partners by checking in.

At this time, we can reinforce the values that define your company. At Benchmark, we have strong industry relationships, we are Colorado proud, and we empower our clients with knowledge about the local real estate market. Please feel free to reach out if you have any questions or concerns about your current lease, how COVID 19 is affecting the market, or if you would like to talk. We are here for you, and we look forward to seeing you in person soon!

Ellory Read is an Associate Broker at Benchmark Commercial, an internationally capable, Colorado proud commercial real estate firm specializing in tenant representation and building purchases. Please feel free to discuss your specific situation at Ellory@CREBenchmark.com, or call at 303-395-0114.

We’re working from home, I have a commercial lease for space I can’t use, am not using, or am now under utilizing. Now what???

We are indeed in unprecedented times and the lens to look at history and how we might come out of the current pandemic is murky at best.  Never before has the world in an interconnected world economy stopped “non-essential” business and industry to curtail a virus.  It’s safe to say we don’t really know exactly how business will look in the future other than it will be different than it is today or was before the Shelter in Place orders shut down our major cities and commerce.  For this reason, we are currently working with our clients to dial in both short term solutions and only securing long term solutions where the specific situation or inducements we achieve warrant execution.

Because each situation is different, and because the motivating factors behind each side of a negotiation are different, we are suggesting our clients and friends talk to us to strategize on how to navigate facility leases in the current climate.

Jason Bollhoefner is a partner of Benchmark Commercial, an internationally capable, Colorado proud commercial real estate firm specializing in tenant representation and building purchases. Please feel free to discuss your specific situation at Jason@CREBenchmark.com; or call at 303-395-0116.                    

3 Steps in Dealing with a Financial Pandemic

A few thoughts from our friends at C Squared…
This is a three-part process summary that we recommend getting through the current economic shutdown.

Step 1: Cash is King

  • Contact your landlord and negotiate a 90-day rent delay. You may have to settle for a major reduction rather than 100% but you are in the driver’s seat. Many local governments have suspended eviction and foreclosure processes.
  • If you have a bank line, draw it all down and keep the cash available in your accounts. Once you have the cash, you have leverage to deal with your banker.
  • If you have leased equipment, contact the lessor to negotiate interest only payments for six months.
  • Analyze your accounts receivable to determine who will pay and who won’t. Some of your customers will also ask for reduced payments so you be prepared to deal with them.
  • Look at your sales pipeline to determine if anyone will still be buying. Offer deals where needed to get the order. The more pending sales, the stronger your future.
  • Contact your venders to set up payment plans and be more flexible with those vendors that you need in the future. Conserve cash but don’t burn bridges.
  • Put all this information into a 90-day, weekly cash forecast. We recommend having three scenarios: best case, likely case and worst case.

Step 2: Back to Basics

  • Look at every aspect of your daily operations. Tie your expenses to a sales ticket or to a customer. If the expense does not have a direct link, question whether it can be postponed.
  • From Step 1, look at your sales forecast and look for ways to offer deals to boost it. Look for possible new clients that would jump on a deal. If you can lower inventory, do so.
  • Look at your staffing to who supports sales, product/service delivery, or support for those people. If a person is not directly involved in these areas, they go on furlough.
  • For the remaining staff, defer 25% compensation for six months. Defer rather than reduce so they will feel respected and put in the extra effort needed for an understaffed company. Communicate, communicate and communicate. It is critical that employees know the survival plan which directly affects their survival plan!
  • Communicate your COVID-19 plan to your landlord, banker, key customers and key suppliers. This tells them that you will be there to fulfill your obligations.

Step 3: Survive or Grow

  • With the information gathered from parts 1 & 2, determine what will be needed past the initial 90 days.
  • Determine who your weakest competitors are and call on their customers. Their worry may move them to you since you have a plan.
  • Work with your key suppliers on your growth plan to see if they will support you. If growth is not an option, work with them on an extended survival plan.
  • Use your three scenarios from step 1 to develop alternative plans for survival and growth.

This information was brought to you by our friends at C Squared Solutions. C Squared Solutions offers fractional CFOs and COOs for businesses in nearly all industries. Visit their website today at https://c2solves.com/ or call them at 3003-409-6048.

We’re With You:  Three steps to manage your facility/commercial real estate during the crisis.

Real Estate costs are the 2nd or 3rd largest line item for most companies.  Things to consider:

First, talk to your insurance provider to see what coverage you have.  Business interruption insurance might be a possibility if you have it.  We asked if it would cover the current situation to commercial insurance folks, and the answer is, it depends.  Some policies clearly exclude pandemics, others don’t.

Second, call your property manager/building owner and tell them what position you are in.  Communication is key.  You aren’t the only one.  The property managers we have discussed this with are busy fielding these exact issues and concerns.  Let them know your needs and your specific request.  Some owners are being flexible, some aren’t, and many in between.  They need details to figure out how to best work with you.

Third, look into SBA disaster recovery loans.  Open to companies under 500 employees.

Finally, if changes in your business aren’t temporary, and you need to reduce your real estate footprint, here are a few options:

  1. Facility assessment – existing space functionality – what do you have and what do you need
  2. Recast your lease: This will take some time to work through with the landlord.  Figuring out the best win/win is a process.  Committing to more term is likely part of the equation.
  3. Consider subleasing all or a portion of your space: We don’t know how deep this slowdown will go just yet, subleasing is about cutting losses, get aggressive to move the space quicker.

Remember to communicate.  We’re happy to discuss these and see how we can help.

Tanner Mason is the Manager Broker of Benchmark Commercial Real Estate

303-395-0112

tanner@crebenchmark.com