The Real Estate Hunt - Finding Office Space that Fits your Association's Needs & Budget

For associations, the biggest expense after salaries is office rent. When it comes to renewing or extending your current lease, or considering a relocation, today’s commercial real estate market is sophisticated, complicated, and always changing. A typical non-profit organization only addresses its real estate situation once every five to 10 years, and may not be familiar with the day-to-day/year-to-year evolution's and complexities of a local market.

The general business of real estate has not changed much over the years - ifs still about supply and demand- but today’s landlords know you better than you think. They know that increased costs of construction and the disruption caused by relocation can result in a non-profit renewing or extending a lease instead of choosing to move. It is your duty to level the playing field by being up to speed on the real estate market and proactively considering your options, hence creating leverage for your organization. Here are some points to remember:

Involve your board and members

Involve your board in real estate decisions - do not assume that organizational autonomy automatically extends to real estate. It’s important to have discussions because poorly conceived or quick decisions on real estate can reverberate throughout your organization for years to come. It also helps to know what your board expects in terms of locating to alternative markets and the question of buying versus leasing. Give board members all of the tools necessary to collectively approve the right decision.

Define your space requirements The next step in the process is to define the requirements of the office. What size and layout do you need? What image and quality do you want to project? What are space standards and office space best practices used by other associations? Are there geographic constraints? What price can you afford to pay? Is there room for expansion if required?

Plan for the future Leases generally run from five to 10 years. While a business’ current space needs will be considered, an understanding of the organization’s long-range plan can help to accommodate any growth down the road. It is common to project out three to five years and lease space to accommodate that growth.

Understand the classes of office space Like many products, offices come in a variety of grades or levels. Trophy offices are premier properties, often with desirable interiors with numerous amenities in the building or close by. They are located in the best neighborhoods and near public transportation. You can expect to pay top dollar for such properties. Class A buildings are also very attractive for tenants but may not have as many amenities. Class B and C office buildings tend to be older and perhaps not as well located, but are very cost effective. You will want to match the quality and location of the office building to support your organization’s mission, culture, and budget.

Seek representation Seek third-party representation by a real estate professional with recent and relevant experience in the market. Understand that your landlord is not always your friend. Your landlord’s goal is to enhance its stockholders’ equity or to seek real financial gain from each and every square foot of the space you occupy. Your goal, on the other hand, is to pull yow organization out of the “captive tenant” pit and place it firmly atop the “free agent” market.

Know your position - increase your leverage in landlord negotiations Before entering into negotiations, do your homework so you fully understand the dynamics of your current building or the building where you plan to lease space. For example, what percentage of the building do/or will you occupy, what are the current and historic vacancy rates of the building? What other leases are expiring in your building and when do they expire? Are you or any other tenant of the building paying above- or below- market rents for space?

Analyze the building’s infrastructure You wouldn’t buy a car without looking under the hood, and office space is no different. Find out the age of the building and status of its physical condition. The roof, boilers, and chillers can require significant capital expenditures, as can the re-facing of the building and upgrading of the lobby, elevators, and bathrooms. These potential and unexpected operating expenses can be passed onto tenants. It is critical to have a professional investigate the building and provide a thorough analysis of any deferred maintenance items or performance issues with the building’s infrastructure.

Security In today’s security-conscious environment, tenants look for services such as lobby security, additional guards during business and non-business hours, key card activated elevators, and secure floors. These factors are critically important to many businesses, especially those that have an employee base that works long hours.

Negotiating the lease As with any legal transaction, the process of negotiating a lease can be confusing. An experienced commercial real estate broker can craft a lease that represents your best interests. Flexibility is critical in changing times, and organizations must focus on much more than the rental rate, including deal points such as the length of lease, an exit strategy, sublease capability, expansion options, and favorable renewal options.

Timing and schedule A transaction process typically requires nine to 24 months to complete, so give your organization enough time to consider all the real estate options and to effectively execute any of those options.

If your current lease provides a renewal option, understand how far in advance you must give notice of your decision to renew. Typically, leases require nine to 12 months renewal notice in advance of the scheduled lease expiration date.