Commercial Property News - October 2008 - (Page 33)

“Where the 10-year deal was commonplace, buyers are now looking for 12-year to 15-year lease terms. The buyer can secure lower-cost debt. Lease terms are being pushed out further.” Jim Wilson, CB Richard Ellis Inc. vacancy or vacant land that presented development potential. But they are less receptive today, owing primarily to the tighter underwriting standards from lenders. Assets that throw off stable, long-term income that can cover debt service are now most in favor. Time to Buy? But investors are not the only ones buying properties. While corporations have of late focused more on leasing, with the exception of some headquarters buildings in core markets, declining building values may create buying opportunities that are too good to ignore. “You can buy at better pricing,” said Rick Kimball, executive vice president of NAI Global. “If you’re a strong corporation, lenders may lend money to you faster than they would to a developer that they don’t know. It could be a great time for that.” One of Rudy’s clients recently made the decision to buy. The Fortune 50 company, located in a second-tier market, had abundant capital and a year-and-a-half left on its lease when it opted to buy its headquarters building. “They decided to put in a bid, and they were able to buy the building for well below replacement cost,” he said. As corporations are con- cerned that the credit crunch may impede their landlords’ ability to refinance and thereby obtain capital for maintenance and building improvements, large tenants could offer to refinance their landlords’ loans themselves, Kimball suggested. —Reach senior editor Eugene Gilligan@eugene.gilligan@nielsen.com. Out on the Street Among New York City’s long roster of financial services firms and related companies, many are keeping a close watch on industry problems’ effect on demand for office space, particularly in the wake of Lehman Brothers Inc.’s bankruptcy filing and Bank of America Corp.’s offer to purchase Merrill Lynch & Co. The Manhattan office market has experienced what Robert Bach, senior vice president & chief economist for Grubb & Ellis Co., called a “recurring nightmare” of financial services-firm failures this year, beginning with the collapse of Bear, Stearns & Co. in March. A significant amount of sublease space entered the market in August, according to GVA Cawley executive committee chairman Michael Cohen. That amount will likely increase. “It’s anybody’s guess, but I don’t think anyone would be surprised if we see a million square feet of sublet office space tumble onto the market between now and the end of the year,” he said. “(A recession in the) financial services sector could turn quickly,” said Peter Hennessy, managing director for Jones Lang LaSalle Inc.’s New York City office. “These firms find ways to put capital at risk,” he said, and they will find avenues to do that before long. limited to certain offices? And what are your expectations for expansion? Kaiser: It is companywide, and so far we have delivered solutions in the United States, Latin America, Asia-Pacific and Europe. We don’t have a timeline to shift the whole company to a BlueWork environment. Instead, when a real estate event occurs—whether a lease is expiring, an office has some vacancy or an area of the business is growing bigger than its real estate space—we move forward with this approach.We look at opportunities to adjust the space standards, to increase new environments that support collaboration, to pilot mobile workers and to improve the look and feel of the space. We create solutions that make sense for the business. Ultimately, all locations will become part of the program. CPN: How successful has the program been thus far? Kaiser: We’ve increased utilization about 10 percent on average in BlueWork environments. Between 2006 and 2008, we’ve avoided over $17 million in expenses. Both the BlueWork program and the human resources team’s work have been recognized with prestigious company awards from our chairman. We are monitoring several metrics to track the progress and success of the program, as well. In fact, BlueWork is evergreen: From the feedback we get from leaders, employees and metrics, we are constantly evolving the program to keep it fresh and relevant. CPN: Were there any particular challenges that arose when implementing the program? Kaiser: There is always the challenge of getting buy-in with new programs. Initially, we sought the support from our colleagues in human resources and technologies because we thought they would see this initiative as having opportunities beyond just real estate savings. We found that (by) working on specific projects at a local level,we were able to collaborate with HR and (the technology department) on a site-by-site basis. From these early, smaller suc- cesses, we gained momentum and have now achieved interest from around the globe. We also learned that change management and communications throughout any project are essential.This concept requires a cultural shift:We need to get people to realize BlueWork is not about taking away space and forcing people to become mobile.It’s about realigning space with collaborative environments; it’s about bringing the brand into the space; it’s about getting the business involved in identifying the right solution.To that end, we created a change-management and communications toolkit that aligns with the real estate-delivery process. And within our global real estate team, we learned early on that implementation requires our project managers to express the vision, develop a solution and be a change agent at the same time as physically implementing a project. CPN: In light of the somewhat rocky state of the economy, how will a space-efficiency program like BlueWork increase in importance from a moneysaving standpoint? Kaiser: Providing the business with the flexibility to grow without increasing their real estate costs is an important aspect of this initiative, but the benefits are more far-reaching than (monetary) savings alone.This program is helping us to attract and retain talented employees and is creating innovative and more functional working environments for our employees. CPN: Have you seen or do you expect to see an increase in the number of such programs at other firms? Kaiser: Absolutely. Because of the state of the economy, the focus on environmental sustainability and the desire to attract talented employees, many companies are looking closely at how to maximize their real estate assets. This is a real focus area for the real estate profession, as was evident at the CoreNet Global Summit in San Diego, not only during the formal presentations. The topic was also the subject of many conversations during the breaks. It’s the wave of the future. u 33 www.cpnonline.com • October 2008 • COMMERCIAL PROPERTY NEWS http://www.cpnonline.com

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Commercial Property News - October 2008

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