CPN - February 2009 - (Page 9)

OFFICE He has also observed landlords initiating renewal talks 18 to even 24 months before expiration and reducing rent to the prevailing market rate before expiration. “If you have a tenant who is a good credit tenant who is paying their rent, you don’t want that tenant to go out on the market,” he pointed out. Golub & Co. is among those open to negotiating rent reductions under certain circumstances, said CEO Michael Newman.“Why would we do that? In exchange for a rent reduction, we may ask for an extension in lease length, for example, from four to six years,” he said. Office investors favored San Diego before the credit crunch took hold, but many area properties now exhibit increased vacancy, and their landlords are unable to charge the rents they envisioned when they bought the buildings at top-of-market prices, noted Voit Commercial Brokerage/CORFAC International senior vice president Brian Mulvaney. Some landlords have cut 20 to 30 percent off the pro forma rents they planned when acquiring the properties. Mulvaney has also recently observed 30 percent TI increases. Landlords have also put more money into installation of new tenants’ IT and telephone systems. Still, landlords must navigate the waters between their and their tenants’ requirements, Farris said.“It’s a constant balancing act.” Owners must be careful that they don’t sign too many short-term leases that all expire in the same year, she pointed out. And they should proceed cautiously when inserting termination MARKET INTELLIGENCE rights into leases, as banks typically count a 10-year lease with a termination right after seven years as a seven-year lease. Additionally, Farris cautioned that right-of-first-refusal clauses, which allow a tenant to expand into space that becomes vacant, may get in the way of other tenants that want to expand, forcing them to leave. Despite the hazards, FirstService Williams vice chairman & principal Martin Mayer claimed that the landlord’s landscape is not as awful as it seems, noting that falling energy prices strike a positive note. In the near term, however, a quality, creditworthy tenant is worth its weight in gold.“The reality is that many cities are seeing only a handful of tenants looking for space, not dozens, and sublease space has been increasing in the last two quarters,” Ellis reported. “And things aren’t going to change for the better tomorrow.” —Reach office editor Eugene Gilligan at eugene.gilligan@nielsen.com. For coverage of other sectors, visit www.cpnonline.com/propertytypes. At Your Service As vacancy declines across many office buildings, landlords are tempted to cut back on amenities. But Spire Realty president & owner Caleb Smith cautioned that his tenants appreciate their amenities. Spire’s 1.1 million-square-foot Bryan Tower in Downtown Dallas features a doorman, roving shoeshine service and regular art exhibits. “We have an obligation to our tenants who signed a lease two years ago to keep those amenities,” he stated, noting that the costs of these extras are nominal. The art exhibits also help align the building with the surrounding neighborhood, the city’s burgeoning Arts District. As part of its $34 million renovation of Los Angeles’ 5900 Wilshire Blvd., The Ratkovich Co. touted the high-design lobby to attract the type of entertainment and media clients that it desired for its tenant pool, noted executive vice president & COO Clare DeBriere. Tenants also want ways to communicate quickly and efficiently with their landlords, said Graham Tasman, managing director for the real estate practice of SMART, a business-process-management and technology-consulting firm. They would like instant access, such as the means to send work orders electronically. “That’s the model they want,” he said. And working in a green office environment is important to many tenants, noted Robert Francis, president & CEO of Planned Cos., which provides concierge and janitorial services to landlords. “(Green) is not a fad,” he stated. “Cleaning offices with green, non-toxic cleaners is something that is very important to tenants.” Paid to the order of: accomplishing your commercial real estate dreams Growing Financial Partnerships Atlanta, GA • Austin, TX • Bloomfield Hills, MI • Boston, MA • Chicago, IL • Dallas, TX • Darien, CT • New York, NY • Spokane, WA • Uniondale, NY http://www.cpnonline.com/propertytypes http://www.arbor.com

Table of Contents Feed for the Digital Edition of CPN - February 2009

CPN - February 2009 Contents Starting Line Buzzworthy Office Data/Analysis Washington, D.C., Market Profile Ranking: Mortgage Banks & Brokerage Firms Top Deals of 2008 Mortgage Banking Mexico Brokerage Sustainability CPN-Nielsen Claritas Special Report Resource Guide

CPN - February 2009

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