Too Much Space? Sublet, Divest or Move

Has your sales or business operations changed to need less commercial space than you signed [a lease] for? Is your rent bill using too much of your operating budget? If you face this problem, a prompt strategic approach to solving it is necessary. Look at the financial impact and legal exposure of your options. I explain below how to approach this dilemma, how to solve it and free up your operating budget.

Assess the problem. What’s causing your business to use less space than you signed for? Were signs of change let go when you signed the lease, or is this a new emerging trend likely to stick? If a percentage of staff will be let go, how would you re-seat the staff kept to free up space to divest? Is additional rent more than you expected (and planned for)?

How many years are left on your lease? If less than 4 years and space is in move-in condition, the space could be relet for a longer term at current market rate, ending your lease.

What are your space and location alternatives? Finding the right building, in the right location for your business can be challenging. The scope of Tenant Improvements to the new space will dictate the base rent and lease term. What lease term can your business accept with some uncertainty of its future? (Note: Keep the math difference in mind that less construction cost equals fewer lease years, more construction cost equals more lease years (until rent exceeds construction cost)).

Compare Lease Terms of Buildings. Key clauses to review are operating pass thru’s, expense stops and operating increases. Paying the difference between year to year operating expenses is best; paying increases over a base year gets expensive to your operating budget.

Transaction model. The most effective way to compare deals is to prepare transaction models. (Your Tenant Rep broker has software to do this.) Modeling shows the financial difference between deals, some of which may look alike in the offer.

Personal Guaranty and Good Guy clause. If there’s a default of rent payments, the person guaranteeing the lease is responsible to pay. Good Guy clause versions are a) keep the rent paid through the lease term or b) leave the space broom clean, pay all rent due through the last due date, return the keys to be legally released from further lease obligations. Work to secure (b) because it releases you from rent you will not/can not pay and gives the Landlord back a space to relet without paying to evict you.

Sublet terms. What legal rights does your Landlord have to list your space for sublet? The time frame to list affects how quickly you can dispose of the unneeded space. Remember the leasing commission [and any construction costs] you’ll pay to sublet.

Delivery of Space and Move. Sublet of the vacant space or moving should be done during the least intrusive time of your business year. Expect to take 45 days to plan the move and another 30 days to execute/close it. That time needs to be compatible with your subtenant or your new Landlord.

Sublet. Sharing up to 3,000rsf of unused space is a quick solution; costs are limited to a background check, a credit check and fees to Landlord. If you’ll be compatible sharing the common areas of the space, pursue a space share.

If you must separate the vacancy from your space, expect to pay an architect and construction costs. Only choose that option if costs are dramatically less than your potential moving costs, future additional rent and escalated rent you’ll collect from the subtenant. Always review at least the two most recent years of signed financial statements from the Subenant and talk to 2-3 creditors to ensure they can afford to pay you their rent.

Divest. Sometimes, there’s a market for your vacant space to the Landlord, either in whole or as part of an adjacent space. However the market exists, hire a Tenant Rep broker and Tenant Rep attorney for a consulting fee to ensure your lease is amended with less space to bill for with your interests in mind.

I trust this post has been a simple read for you and helpful if you’re faced with this issue. I’ve helped companies deal with this issue in the past. If BREG can help you, please click “Request A Consultation” link in the upper right of the screen. Enter “Sublet, Divest or Move” in the subject line; please include your name, email address and telephone number in the message body; I reply within 24 hours. Thanks for reading and listening. ###

Lease or Buy

The space your business operates from represents an investment of available cash to bring a product or service to market to generate a return on investment. I have preached for many years that real estate is a tool to operate a business. This tool must be flexible in use and marketable to relet or sell when its no longer useful to your business. Space size and price do not offer enough of a means to compare options to choose from. Factors to consider include physical space, price, acquisition costs, holding costs/benefits, tax effect, return on investment. Merely looking for space within a budget leaves you vulnerable to taking ill-fitted space that you’ll live to regret using. A savvy Tenant Rep will show you the qualitative and quantitative modeling of how to look at your space options to decide which deal meets your operating needs. Such modeling has worked well for my clients since the late 1990’s.

Lease, Renew or Relet

You can choose to move to lease, exercise an option to renew or to relet space within your building at new terms. Critical questions to ask are space amount, engineering of use, layout, construction and space equipment costs, moving costs, budget and cost of capital, tax effect, flexibility of use (sublets/assigns, expansion or contraction rights). Each space considered should be presented in column format to facilitate a decision of accept, fine tune terms or drop the space from consideration. This format also enables preparing fighting alternatives to secure the deal you need. Overall, this method of comparison uncovers fine points of options to root out the right one for you. Give your business enough time to conduct this search and analyze project at a leisurely pace, relative to market conditions. Signing the term sheet of the deal testifies that the choice made from the search process is to move, exercise an option to renew or draft a new lease for your space met the operating needs of your business with a predictable outcome.

Purchase. Purchasing calls for placing available cash for acquisition costs, construction and property management, mortgage and property taxes; all other costs being equal if leasing. Analysis performed by your Tenant Rep shows how your investment will perform as compared to placing the money in other investments and how the real estate adds value to the business. If you’ll lease the unused portion of the property, the Tenant Rep prepares a financial model about how the net profit from Tenant(s) would be invested to enhance investment yield. A financial model for purchasing space shows how your cash will work for you plus net proceeds of sale, projected over a holding period.

Sale-Leaseback. If you own your property and are considering to unlock its cash value from a sale-leaseback, a financial model will show the present value of the property, the interest rate to pay rent, any operating costs, how investor’s holding period may affect your rent responsibilities. Tax impact influences your consideration to complete a sale-leaseback transaction.

Comparing to lease, buy or sale-leaseback shows your cash outlays, productivity of staff from space design and location, and shows tax impact.

If a change of the real estate for your business is on your horizon of projects, I encourage you to contact me to talk it out. Please click “Request A Consultation” link in the upper right of the screen. Enter “Real Estate on My Horizon” in the subject line; please include your name, email address and telephone number in the message body; I reply within 24 hours. Thanks for reading and listening.

NYC Showroom Listing: 5th/35th Fashion Sublet

 NYC Showroom Sublet5th/35th Newly built / furnished, ready-to-wear, fashion showroom for accessories, no hat sales please. Top-pick accessories bldg. Unique/high-end finish, white, brightly lit, display shelves, voip phones, music, gross rent. 610 rsf ($2796/mo.) divisible to 215 rsf ($1075/month). Executive suite style recep and desk space for additional fee. Click request a consultation in right of screen, post “NYC Showroom for Sublet” in subject line,include your contact information; I reply within 24 hours.###.

Did You Plan for No?

In the midst of negotiating your deal for space with key stakeholders’ talking to secure their position in the deal, have you planned for them to say “No” to your critical/important needs or worse, act out to meet their needs?? Finding these issues out now could derail/end your deal unexpectedly; that’s to be avoided.  Most stakeholders of a deal don’t prepare for such contingencies…yet such preparation is essential to close the deal. Making compromises (that may include agreeing to split the difference) in the midst of negotiating can harm or eliminate meeting critical/important needs. Negotiating is a conversational debate among stakeholders to meet their needs of doing a deal. Maintaining positive relations is key to stakeholders agreeing that a deal is worth doing.

Naturally, any negotiation will factor in time to compensate for general disagreements, even some issues may need tuning or re-engineering to realize interests. However, no interests should be compromised or deal terms’ forced to re-trade that harms anyone’s critical/important interests.

While negotiations are being planned, consider the risks that key stakeholders may say no to your critical and important needs. What would your options be to meet your needs AND stakeholders to meet their needs? (Consider these steps akin to your attorney preparing you for trial.) Here are brief recommendations to assess risks before all stakeholders talk to negotiate.


i) Identify the key stakeholders.
ii) What’s important to them (you included)?
iii) Brainstorm what they or you may do if neither gets what’s important to them.
iv) How likely are options in brainstorming likely to occur?
v) How do unilateral actions affect stakeholders?
vi) How do unilateral actions affect you?
vii) As you perform the preparatory process, has it inferred that you forgot to identify/address any issues/interests you were planning to negotiate for? If so, return to analyze/fix what’s missing, then walk through all steps, including this one, to ready yourself to negotiate. If you or stakeholders do not meet your needs, an option should be to drop the deal.

Now you’re ready to negotiate that includes talking out options if your /their needs are not met. The outcome is a positive choice for all stakeholders involved. My negotiating practices have used this method successfully for 10 years. If I can be of help to you securing your next piece of commercial space, please click “Request A Consultation” at the right of the screen, write “Planning For No ” in the subject line; add your comments, name, email address and direct dial number to reach you; I reply within 24 hours.) Thanks for reading. ###

Deal Get What You Need?

Before you sign a lease or contract for new space for your business, do the negotiated terms get what you need? Just because the deal is market competitive (and perhaps a good one), is that deal good for your business? Don’t sell yourself on a deal that didn’t get what you should have. (The deals to my past customers were always good for their needs and at market competitive terms.)

Brokers’ efforts are often driven by their need to generate commissions to feed the overhead of their business. Landlords make deals to realize property returns on investment and feed overhead cost s of building operations. Clients and Tenants respectively often give up too much to secure space they need.


How can your broker secure the terms your business needs to operate with? They learn about the issues important to you, what your interests and positions are of those issues, identify creative ways to secure your needs with the landlord or seller, and educate you of the risks of picking the wrong deal or property you ask them to secure. (Note: Savvy realtors have staggered payouts coming to them regularly, affording them the ability to engineer deals that are right for their clients and market competitive.

I suggest taking 2yrs to secure the space you want for every 7500rsf of office space and 15Ksf of industrial you need. The conversation begins to identify who the stakeholders will be for the move, a consensus of important issues among stakeholders, what the interests are among those issues, what interests are critical, important or tradeable. Your broker’s job is to identify creative options of how your interests will be secured, solving your issues, how to get the seller’s issues secured and how the agent will be paid to represent you. There’s a methodical process to prepare for negotiation and a methodical way to negotiate that keeps all stakeholders happy with each other.

The 2yrs lead time gives your broker the ability to find the best options for you to consider, secure the deal that’s best for you and is market competitive. The next time you begin to think about a need for commercial space, hold a holistic view of your assumptions and begin to create objectives. From that you will be ready to meet a savvy commercial realtor to help you identify and secure the terms worth signing for. I have worked this way for 10+ years. If I can be of help to you, please click “Request A Consultation” at the right of the screen, write “Interest-Based Negotiation ” in the subject line; add your comments, name, email address and direct dial number to reach you; I reply within 24 hours.) ###

Tenant Rep – Project Manager

Is your Tenant Rep steering your space change(s) to reach its objectives, keeping to schedule and budget?  Changes to commercial space is Project Management.  A structured, proactive approach to project management could assure the project realizes its objectives, perhaps ahead of schedule and under-budget.

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Tenant Rep services are about meeting client needs plus project management, similar to a corporate real estate director.   Meeting the objectives of change requires a seasoned project team with project leader.   Having managed many change events, I offer a comprehensive perspective to assess, plan and monitor a seasoned team to manage a project. My services include:

  • Agreement on objectives between us;
  • Scope of Work that gets you the deliverable you expect;
  • A cogent plan, subject to field conditions, to deliver the Scope of Work;
  • Competent project team and project manager to execute the plan;
  • Astute, timely, monitoring the project to keep scope, schedule and budget on track;
  • Brief yet detailed recap that project objectives were met, comforting you to accept the deliverable received, agreeing to close the project.

If your Tenant Rep is not giving you these services, ask why; once you experience structured project management you’ll ask yourself why you waited to.  See my education and experience at LinkedIn to understand how I can serve dual roles as your Tenant Rep and Project Leader, from initial conversation to post project support.  If you have an initiative you’d like to discuss or would like some free advice, click “Request A Consultation” link, fill out the form and send; I reply within 24 hours to learn about your specific real estate needs. Thanks for reading. ###.

Shared Workspace

Thurs 4/19/12 10:00a EDT.

This article outlines how large enterprises are using office space more efficiently.  With real estate being more expensive, efficient use of space while fostering a productive work environment is necessary. Perhaps this article will give you take-aways to implement in your business.

Warming Up to the Officeless Office WSJ Wed 4/18/12 P. B1 Rachel E Silverman & Robin Sidel

As companies seek to cut costs and accommodate an increasingly mobile work force, some employees have had to say goodbye to their personal work areas.

Office workers, grab your bobblehead dolls: The boss may be coming for your desk.

As companies seek to cut costs and accommodate an increasingly mobile work force, some employees have had to say goodbye to their personal work areas.

Unassigned workspaces, sometimes called “free address” or “nonterritorial offices,” have long been a fact of life for consultants or employees who do their jobs mostly on the road or from home.

But a growing number of workers, including some who spend more time at the office, have had their cubicles replaced by communal tables or unassigned desks they share with a sometimes shifting cast of colleagues.

Instead of assigned desks, employees often get storage lockers to hold their files and supplies. Spots can be reserved in advance—a practice called “hotelling”—or snagged on a first-come, first-served basis, depending on company policy.

Most companies that have embraced unassigned workspaces have done so to cut real estate and other costs, in some cases by placing workers closer together. Shrinking an office’s footprint can save millions of dollars annually in rent and energy expenses.

But the new configurations also have brought some unexpected benefits—from encouraging workers to collaborate to reducing internal email.

At American Express, roughly 20% of the 5,000 workers at the company’s New York headquarters are considered “club” employees, who come to the office just a few days a week and set up in unassigned desks. These employees are part of a companywide program called BlueWork, which is intended to spur creativity and save money by doing away with traditional office space.

The company is reconfiguring floors of its 51-story building, at a rate of three to four floors a year, to shift more workers to unassigned workspace, and has begun a similar transition at its London and Singapore offices.

Susan Chapman, a senior vice president at American Express who is overseeing the redesign, says that studies show traditional office space has a utilization rate of just 50% due to sick days, vacations and travel. That doesn’t count wasted drawer space that holds stacks of old paperwork, cookware, shoes and other personal items.

“Those are just not things we want to pay for. We want to efficiently use that space,” Ms. Chapman says.

American Express made some adjustments based on feedback—for example, it provided rolling stools near its storage lockers after women employees griped that they had no place to sit down when changing out of their commuting shoes.

Kimberly D. Elsbach, a management professor at the University of California, Davis, who has researched the effects of nonterritorial offices on workers, found that most workers adapted to their new work environment, but some of those who didn’t felt they had lost some of their identity in the office because they weren’t able to personalize their space.

Other workers, she says, felt less organized. “They said ‘every day I had to unpack everything and recreate some semblance of my space before I get started.’ ”

Still, the system appears to be gaining traction. In a survey of 950 companies, the International Facility Management Association, a trade group for office-facility managers, found 60% had some unassigned workspaces in their offices, and about half said the number of employees using the unassigned space had increased in the past two years.

GlaxoSmithKline says it has saved nearly $10 million annually in real-estate costs by gradually shifting 1,200 employees at its Research Triangle Park, N.C., office to unassigned seating. Similar moves outside the U.S. have saved the U.K.-based company some £25 million ($40 million) annually, says Christian Bigsby, Glaxo’s senior vice president of world-wide real estate and facilities.

Employees work in “neighborhoods” defined by job function, such as marketing or finance, so workers sit near those they interact with regularly in the course of a workday.

Glaxo thought through a number of logistical hurdles. Its desks and chairs, for instance, can be adjusted for workers of varying heights, as part of an ergonomic setup it says was designed to take just 45 seconds.

Robert Nash, Glaxo’s director of U.S. environment health and safety, previously worked in an enclosed office, decorated with photos and a map of the North Carolina coastline.

Since the changeover, he comes into work with his laptop, equipped with an Internet phone, picks a spot at a worktable—he likes to be near the window—and stows his backpack under the desk. Since he keeps his documents online, his paper files now occupy a single file drawer.

“It’s an instant office. Everything I need is just in my backpack or laptop,” says the 49-year-old Mr. Nash.

Mr. Nash says he is spending less time emailing with colleagues and more time instead in brief, casual meetings, which lead to quicker decisions.

In surveys of employees who switched from assigned cubicles and offices, Glaxo found email traffic dropped by more than 50%, while decision making accelerated by some 25% because workers were able to meet informally instead of volleying emails from offices and cubes.

Glaxo has shifted employees in 20 offices globally to unassigned seating; the company says it plans to do so wherever it redesigns office space. In Philadelphia, for example, Glaxo’s 1,300 Center City employees will move to an entirely unassigned office by next spring.

PricewaterhouseCoopers has long had a desk-reservation policy, allowing employees who visit other offices to use vacant cubicles and desks.

Now 2,000 employees in its offices in Denver, San Diego and San Jose, Calif., are using a new arrangement in which workers who come into the office regularly still have their own offices and desks. But when they are out of the office for work or on vacation, other employees can reserve their spaces, either through an online system or at a computer terminal in the office.

Before making the switch, PricewaterhouseCoopers encouraged its employees to follow some basic rules of etiquette, reminding them, for instance, not to leave uneaten food in someone else’s office and urging them to replace office supplies they used.

Anne Donovan, a human-resources executive at PricewaterhouseCoopers, says she has learned a lot about her colleagues by sitting at their desks, surrounded by personal items. “I like looking at everyone else’s kids,” she says. “I think it makes us all feel closer to each other.”

Office Etiquette (sharing workspaces).

1. No sneaking up. 2. No Loitering. 3. Use your indoor voice. 4. Never eavesdrop. 5. Limit chit-chat. 6. Use headphones.

Learn Real Estate Costs Ahead of Needs

Small-Mid size users of commercial space (5K-100Krsf) often analyze their space needs just before starting a search; such timing would likely cost your business the wrong space size, overpriced deal terms and bloated operating costs. Also, merely comparing market rates to your rent [or mortgage] does not accurately measure the economics of your space. Do you know how much your occupancy costs take as a percentage of revenue [generated from the space ]?

The costs to operate space are: rent (or mortgage and property taxes), utilities, IT network and phones. The one-time costs to expand/relocate can include: movers, architectural and/or project management services, construction (beyond landlord’s work), furniture & fixtures, voice and data wiring, phone and computer equipment. If changes to your space are in-review [among executives], knowing both the revenue generated from the space and its occupancy costs will help expedite planning and decision-making within budget.

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A triumvirate of academics and experience are blended to deliver this service; it sets me apart from conventional real estate analysts. i) a complex understanding of commercial real estate, ii) academics and hands-on experience assembling/interpreting the economics of business operations, iii) training/experience with spreadsheet software.

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I often performed this analysis for clients as commercial realtor; I was a virtual real estate department to emerging businesses with 5-100 employees in metros New York and Atlanta, 1995-2007. (Figures and space needs came from collaborating with the Comptroller and CEO). The results enabled me to source the right spaces and negotiate the sharpest of terms a landlord could afford; those business terms matched or cut the client’s projected occupancy costs.   I deliver this service in five steps:

  1. Identify gross revenue from space / current occupancy costs (by category) = % occupancy costs claim from revenue.
  2. Estimate future space needs and occupancy term; scrub to market conditions.
  3. Project revenue from new space. How much more revenue could be kept as profit if occupancy costs were less?
  4. Identify space costs for the next occupancy term via a projection of entry costs, rent and operating costs (mentioned above).
  5. Compare sales projections to projected occupancy costs to reveal how much space is needed and what to budget for it. Add one-time relocation expenses outlined above.

(Note: Your results from this service will be most effective when completed two (2) years before operating from new space (up to 20Krsf; up to 4 years prior for 100Krsf). The lead time positions your business to negotiate from strength.)

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I can work directly for your company, collaborating with your Comptroller, or as subcontractor to the CPA firm you work with. I work per diem or by project; I estimate 24 hours per assignment; the work is completed in 5 consecutive days. If you’d like to talk with me, please click “Request a Consultation” at the mid right of the screen and fill out the form; I’ll reply to you within 24 hours. I trust that the content of this post was helpful to you. ###