If You're Not a Ten-Ton Elephant,
What Do You Do?
You're a solid company—you've been in business for over ten years, are profitable, and you’re highly respected in your industry. Through circumstances beyond your control, you have to move from your comfortable office into new quarters. Seems simple enough. Well, not if you're a small firm looking for a small space—think again.
OK—so you are not a ten-ton elephant. Several years ago, Dr. David Birch of Massachusetts based Cognetics, a real estate research company, addressed over 600 builders, developers, and commercial brokers at the annual University of California at Irvine Real Estate Conference. His advice to the audience, located in the nation's greatest concentration of start-up and entrepreneurial firms, was to stop looking for the full floor “IBM-type” companies, and be satisfied that a three year, 2,500 square foot deal would be the "bread and butter" of 90s real estate transactions. Even after the good doctor introduced cold hard fact, after cold hard fact, no one in the room seemed to want to accept his theories. For the most part, his predictions have come true, while landlords still seem to want to shun the little guy and hold off for the big deal.
If you're a small user, what can you expect in an ever-changing market? To achieve the best (and most painless) results, clearly identify your search requirements, learn to be patient, and know when to fight for your rights.
A building owners' goal is to lease as much space as possible to the best credit worthy tenants. Whatever deal you thought you had can vanish faster than you can say, “I only want a small piece of your building." If a building owner has the slightest idea a larger tenant may be looking to move and your potential space may encumber that deal, whom do you think gets blown out of the water?
If time is not a critical issue—say, if you started your planning 12-18 months before any potential move—you may be able to get away with a more global search, as long as you are aware you may get bumped at any time. On the other hand, if you're like most small companies, the idea of moving is probably an afterthought, and you have limited time to secure space. In that case, here're a few things you might want to think about or consider:
Focus on spaces located on multi-tenant floors where no tenant occupies more than 4000 RSF. It is too costly for a landlord to move four or five tenants to accommodate one large user.
Look at buildings where no tenant occupies more than 4000 RSF. If smaller tenants occupy the building, the landlord is more likely to understand your needs.
Identify space that needs little or no tenant improvements. Not only do landlords hate to make improvements on small spaces (one wonders how they built the space out in the first place), but small build-outs are much less cost efficient than larger ones. Spread the cost of $150,000 over 1,200 RSF versus 12,000 RSF. Enough said.
Be prepared for long response times from the landlords or their brokers. If it's a non-TI deal, landlords will typically wait until the last minute to commit in hopes of getting a better offer. If you need TI's, the landlord needs to get a contractor to bid for the job, who in turn needs to get sub-contractors to bid. Bids need to be submitted and evaluated and counter offers have to be carefully calculated to make economic sense for the landlord. This process can take weeks. Remember that the broker representing the landlord may not be as motivated to push your deal for the $500 or $600 he may personally net. Hopefully your broker doesn't also happen to have his sign on the outside of the building. If he does, that means he represents both you and the landlord.
Let all your lease requirements be known early on. Landlords love to hand a lease to a smaller tenant and have them sign the standard lease. They say something like this: "We can't make changes to the lease for such a small space." Smaller tenants, more often than not, need to be more specific in their lease requirements than ten-ton elephant tenants. A small problem may have a far greater impact on the smaller tenant than the larger user who can bury the problem under a corporate blanket. While the space may be only 1500 RSF out of the landlord's 250,000 SF building, it’s your only 1500 RSF.
Most of all, try to remove emotion from the equation. Small users, by their nature, tend to be more involved in all aspects of their business. It's easy to get wrapped up in the process. Don't take anything personally.
Therefore, small users should attempt to do the following:
Focus on multi-tenant locations.
Be flexible with improvement requirements.
Fight for their rights in the lease.
Keep emotions to a minimum.