The Reata BizBlog

Some people are just natural marketers.  I'm not sure I could ever be this creative.

I used to carry a micro-cassette recorder so I could make "notes" to myself when I was driving.  When I got to the office I would listen to the recording and write down my To Do list.

Then mobile phones and voicemail came into the picture and I would then just call my office phone and leave a message with the reminder.  But I'd still have to listen to it and write it down.

Well all that is behind me now.  I now use www.Jott.com - a free service which converts my voice memos into emails both to myself and others.  So here's how it works.  I call a toll-free phone number using a speed dial button on my mobile phone.  The Jott system recognizes that it's me calling (I guess it uses caller ID to know it's me) and asks me, "who do you want to Jott?"  I say, "me" and it responds, "Jott yourself." After the beep I leave my message and hang up.  The voice memo is then converted to text and an email is sent to me automatically.  I can Jott my wife, one of my agents, or even a group all at once and emails go directly to them.  I could make a call to them just as easily, but sometimes I don't have time for a conversation and just want to send a quick message.

You can sign up for Jott for free.  It takes a couple of minutes, but will save you lots of time, keep you from crashing your car while taking notes, and prevent forgeting something that's really important if not written down that second (maybe that one is just me).  There are other services that do this as well, but I haven't used those.  CopyTalk (www.CopyTalk.com) is one of those.  It requires a fee but then it probably offers additional services or features.

Bob Gibbons can be reached at bob@reatacommercialrealty.com. 

Recapture is a term used for the landlord's right to terminate a tenant's lease for all, or a portion, of the premises in order to prevent a sublease or assignment.

I saw this happen one time on the day before a business sale was expected to close.  It was really the fault of the seller of the business who was the tenant in an office building.  The buyer came to the landlord to let him know of the sale.  The landlord referred the buyer to the sublease and assignment clause of the lease in which all subleases or assignments had to be approved in writing by the landlord.  Furthermore, that clause gave the landlord the right to terminate the lease if he chose to do so.

In this case, the market rent for the office building had gone up by about 25% since the lease had been signed and there was very little vacancy in the submarket.  So the landlord terminated the lease because he knew he could get more rent for someone else. 

Of course, the buyer of the business needed a place to conduct business and he didn't have time to move.  So he asked the landlord if he could lease the space.  The landlord agreed but at a rental rate 25% higher.  The business no longer had the same value since the expenses had gone up and the net operating income had gone down.  So the buyer went to the business seller and demanded that the purchase price be reduced by the amount of additional rent.  The seller accepted the deal and walked away with far less cash in his pocket than he had planned.

Now this situation could have been avoided in two ways.  First, the seller of the business could have approached the landlord long before the day before the sale to determine his attitude about assigning the lease.  He could have then used that information to plan the sale better and get a more accurate estimate of the business value.  Someone should have been watching the lease or consulting their corporate real estate advisor.

Second, the business seller who was the tenant in the office building lease should have addressed the landlord's recapture right when he signed the lease in the first place.  If that had been negotiated out of the lease years before, he would have kept the extra money he lost.

If you know of someone thinking of signing a lease, you might mention that they look at the sublease/assignment clause carefully.  Or if you know of someone thinking of selling or buying a business, please tell them to read this clause of the lease carefully.  Or better yet, have them contact their corporate real estate advisor.

Bob Gibbons is a Corporate Real Estate Advisor with Reata Commercial Realty, Inc. in Plano, Texas - a suburb of Dallas.  You can reach him through his website at www.ReataCommercialRealty.com.

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.