The Reata BizBlog

Useable and Rentable are both used to describe the number of square feet (SF) in a lease space.  Useable is the space that is actually available for the tenant to use exclusively.  This is space in which you can put desks, employees, files, conference rooms, merchandise, etc.

Rentable, on the other hand, is the amount of space for which you pay rent.  Shouldn't these two numbers be the same?  Well in a retail space, flex buildings, or office condos, they usually are the same.

But if you are in a multi-tenant office building, you share common areas like restrooms, elevator lobbies, electrical rooms and corridors with other tenants.  So a small portion of those common areas - also known as the "building core" - is added to each lease.

You may have heard the term "core factor" or "add-on factor" used.  This is simply the percentage added onto the useable SF to arrive at the rentable SF.

So if you leased 5,000 useable SF and the core factor was 15%, you would actually pay rent on 5,750 rentable SF.

For other real estate terms, see the Glossary on Reata's website.

So you need an office space quickly, but need flexibility and don't want to be tied into a long-term lease.  What are your options?

There are times when flexibility is critical to an organization - entering a new market, acquiring or merging with other companies, launching a new product or service, or growing dramatically in the short term. 

In these cases, you should first find a corporate real estate advisor who can help guide you through the process and then find and analyze the options.  These professionals work for you, but they are paid by the landlord, so they are effectively a free service.  Their expertise and involvement also frees you up to stay focused on your business.

So here are four options that you should consider to solve your need for flexibility.

1.      Executive suites

While this option will almost certainly be the highest cost on a per square foot basis, it offers the greatest flexibility, speed and features.  The executive suite operator can often arrange for secretarial services, high-speed internet, fax, phones, copier, printer, receptionist, voice mail, and furniture rental, all in the matter of a few days.  Some of these services are included in the base rent and others cost extra.  You also get to enjoy shared amenities including a kitchen, conference room and video conferencing in some cases. 

Rents in executive suites often start around $600-$700 per month for a standard size, interior office.  The nicer the building, the higher the price, of course, so the price for a big corner office in a class A high-rise can easily be $1,500 or more.  But the price will also vary with the length of the lease term (3-6 months is usually the minimum) and the number of offices you lease.

2.      Sublease

When companies vacate their space prior to the lease expiration they will often offer it for sublease to reduce their remaining lease obligation.  The rent is usually discounted from the landlord's asking rent depending on the amount of time left on the lease and whether any furniture is available.  For example, a sublease in a building where the landlord is asking $24.00 may go for $18.00 - $20.00.  The shorter the remaining lease term, the lower the price.

If you need a longer term than what is left on the lease, you can often negotiate a wrap lease with the landlord.  That is a direct deal which commences upon the expiration of the sublease.  It allows you to enjoy the lower cost of the sublease and the certainty that you can stay in the space for a longer term.

Subleasing can be risky, however.  If the prime tenant is not financially stable and the landlord doesn't get the rent, you could be evicted even though you were paying the subrent to the prime tenant.  Subleases usually are leased in an as-is condition so any changes needed to the space would be your cost.  That is negotiable, of course.  Finally, the landlord must approve the sublease before you move in.  If the business you are in does not mesh with the landlord's desired tenant mix or another existing tenant would be your direct competitor, you may be denied.

3.      Space sharing

Sharing space with another firm can provide flexibility as well.  It is sort of a hybrid between an executive suite and a sublease.  Like an executive suite, you may share services like a kitchen, conference room, copier, etc.  Because this is technically a sublease, it comes with the same risks as mentioned above, but with one additional issue - getting along with and trusting your roommate.  You must trust the people in the other company and have compatible business styles.  You wouldn't want to have a law firm share with a dot com or a credit restoration company share with a high-end financial planning firm.  All these companies are office users, but they use that space very differently.

4.      Direct Lease

Don't overlook the opportunity to lease space directly from a landlord.  While they typically prefer a 3-5 year lease, I have seen them be very flexible when a prospective tenant explains the business reason behind the request.  For example, a lender foreclosed on a company which occupied office space owned by a separate entity controlled by the former business owner.  So the foreclosed business had to move quickly.  We were able to find a few landlords who were willing to sign a one-year lease while the lender stabilized the business and found a buyer.  We even got a 5-year renewal option at a pre-determined rental rate so the buyer of the business would know exactly what the lease terms would be if they kept the space.

In the final analysis, business owners and managers will always have to evaluate the trade-off between their desire for flexibility and the risks and costs of actually having it. 

Bob Gibbons is a Corporate Real Estate Advisor with Reata Commercial Realty, Inc. based in Plano - a suburb of Dallas, Texas.  You can learn more at www.ReataCommercialRealty.com.

Several years ago I was talking to a friend and mentioned that I had sold my house as a For Sale By Owner (FSBO).  He was surprised that it was possible to buy or sell a house without a residential real estate agent.  I was shocked that he didn't know he could trade real estate without a broker - however ill-advised that might be.

Brokers can only negotiate the sale or purchase of a house, right?  Aren't they all the same since they have access to the MLS?  Even though I've been in the real estate business for 23 years now, these misconceptions surprise me.  I didn't have access to the MLS until 2 years ago and I've almost always hired a residential agent when buying or selling the homes I've lived in.

Real estate brokerage has evolved in the last 25 years to become a highly specialized industry.  Many brokers have essentially become real estate advisors providing financial analysis, demographic studies, market analysis, site selection research, business planning, portfolio analysis and management, marketing plans, and even construction management in some cases.  This is more the case for commercial brokers, but residential brokers have also become specialized.

For example, residential agents usually specialize based on geography first and then by the price range of the house, type of house (single-family, high-rise condos, etc.), type of client (owner-occupant or investor, buyer or seller), and type of service (sales or property management).  Many will be a combination of these specialties - seller agent for high-rise, luxury condos in the Uptown area of Dallas.

Commercial brokerage is for more specialized than residential.  Agents will often specialize based on 4 factors.  First, by geography.  Dallas or Phoenix.  Arlington or McKinney.  Second, by product type.  Office, industrial, retail, hospitality, or multifamily.  Third, by client type.  Seller or buyer.  Landlord or tenant.  And finally, fourth, by service provided.  Investment sales, tenant rep, project leasing or property management.

These criteria can be cumulative, of course.  So an agent may focus on McKinney, retail properties, for landlords, for lease.  One broker I know only represents church properties, but does so throughout the country.  Another only sells large office buildings on behalf of owners in Dallas.  While yet another handles only corporate real estate services for corporate tenants in Collin, Dallas, Tarrant and Denton counties.

The degree of specialization is often a function of the size of the market.  For example, a commercial broker in Amarillo may have to represent both owners and users of several product types because there isn't enough business in any one to make a living.  In Chicago, on the other hand, it's more likely that a broker would focus exclusively on owners or users with further specialization by product type.

Rarely do you see brokers cross the residential/commercial line though many of the national residential brokerage companies are trying to set up commercial divisions. 

The good news is that owners and users of real estate have an incredible array of options when hiring a broker to represent their interests.  The greater the specialization, the better the quality of service in most cases.  It's important to find an agent who specializes in the area, product type, client type and service that fits your assignment.  The agent must be of impeccable integrity, be willing to listen to your needs, and have the time to focus on your assignment.  Don't be afraid to use one broker to help your company lease space, another to find a house to buy, and yet a third to handle your investment property.  Ask for referrals even from a broker you have used.

Oh, and by the way, there is no law saying you have to use an agent at all.

Bob Gibbons is a Corporate Real Estate Advisor - Tenant Rep - with Reata Commercial Realty, Inc. based in Plano, Texas - http://www.reatacommercialrealty.com/.  You may contact him by email at bob@reatacommercialrealty.com or by phone at 972-679-1142.

So you have a client who buys or sells a house.  What's the average commission going to be?  In my area of Dallas/Ft. Worth, one side of the transaction will generate a commission of approximately $5,000 assuming an average sales price of $170,000.  So you the client on your marketing list and send them stuff for the next 6 years until they are ready to buy or sell again.

What if you could get another $5,000 from that same client without any additional work?  Sounds good, doesn't it? 

Well it's possible.  Most residential agents get to know their clients fairly well during a transaction - where they work, what their hobbies are, the names of their kids and what sports they play, etc.  This information can be useful in earning additional income.

I'm not talking about selling your customer's name to a telemarketer.  I'm talking about arranging for an additional service for your clients that they need anyway.

Corporate Real Estate Services.  Companies hire Corporate Real Estate Advisors or Tenant Reps to represent them when they lease or buy commercial space for the company to occupy.  Office buildings.  Warehouses.  Retail stores.  Medical office condos. 

A commercial real estate agent who specializes in providing real estate services to companies is an expert at searching for space and negotiating with commercial landlords and sellers.  An office lease, for example, can easily be 50 to 100 pages or more and contain language that most people have never heard of.  Corporate Real Estate Advisors deal with this all the time and undestand the process, the language, the differences from one product type to another, and can guide companies through the maze.

Realtors often feel intimidated by the complexity of corporate real estate and don't ever even think about it.  But they are leaving money on the table.

So how do you make money from corporate real estate?  Referrals.

Your referral to a Corporate Real Estate Advisor could result in a 20% referral fee.  So to get your additional $5,000, here's the math. 

You introduce your client who works for a small, local company to your Corporate Real Estate Advisor referral partner.  The client introduces the Corporate Real Estate Advisor to the company owner or manager and gets hired.  Let's assume the company occupies 6,000 square feet of office space and after researching the market and negotiating with their landlord, they renew their lease for 5 years at an average rental rate of $18.75. 

The total lease value is then $562,500 - 6,000 SF x $18.75 x 5 years.  Let's assume the Corporate Real Estate Advisor negotiated a 4.5% cashout commission making the total commission $25,312.  You get 20% for a simple introduction and you get a check for $5,062.50. 

Sweet.  And the best part is that you have provided your client with an additional service that they really needed.  Guess who the hero is?

The $5,000 is just an example.  The actual number could be smaller or higher depending on the size of the deal, the rental rate or sales price, the number of years on the lease, etc.  I've seen referral fee checks as small as $500 and as large as $250,000.

As you have probably guessed by now, I am a Corporate Real Estate Advisor and I want to be your referral partner.  My clients are all kinds of companies in every industry type you can think of - doctors, lawyers, high tech, insurance, retail, distribution, restaurants, manufacturing, financial services, even residential real estate.  I only represent the corporate users.  I don't have any landlord listings so I can be totally objective in the recommendations I make to my clients.

But I used to be a landlord for the first 20 years of my career.  So I understand how landlords think, what motivates them and what they will typically agree to in a lease.  I was the guy who signed the leases for the landlord on over 6 million square feet of deals throughout Texas and the Southwest in my last company.

Feel free to check out my website - http://www.ReataCommercialRealty.com/ - and feel free to call me to discuss this further.  Thanks so much.