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“The Code is more what you’d call ‘guidelines’ than actual rules.” - Captain Barbossa  The term “parlay” in Pirates of the Caribbean and “asking rents” in commercial real estate have different literal meanings, but there are interesting parallels between them when considering their strategic use in negotiations.
“Parlay” in Pirates of the Caribbean: Definition: In the movie, “parlay” refers to a formal negotiation or truce between pirates, allowing for peaceful discussions under a temporary ceasefire. It’s a pirate’s right to request a conference with their adversaries without fear of harm. Use: Parlay is invoked as a strategic tool, often used to stall, negotiate better terms, or to prevent immediate violence. It’s a way to reset the terms of engagement, opening a dialogue between parties who would otherwise be in conflict. “Asking Rents” in Commercial Real Estate: Definition: Asking rent is the initial price per square foot that a landlord or property owner sets for leasing space in a commercial property. It is the price they propose during the early stages of negotiation. Use: Asking rent is rarely the final rental price. It’s a starting point in negotiations, allowing potential tenants and their broker to discuss and potentially offer counter terms based on market conditions, tenant demand, and property value. Tenants can then negotiate for concessions, lower rent, or better terms. Comparing Parlay and Asking Rents Starting Point for Negotiation: In Pirates of the Caribbean, “parlay” creates a starting point for discussions that could lead to mutual agreements or compromises. Similarly, in commercial real estate, asking rents serve as the initial offer from which negotiations begin. Both create a formalized opportunity for dialogue and negotiation. Not Final Terms: Parlay does not guarantee a peaceful resolution or fair terms—it simply opens the door to discussion. Likewise, asking rents are not the final terms of the deal; they are meant to be negotiated based on factors like tenant needs, market conditions, and lease length. Strategic Leverage: Pirates use parlay as a way to buy time, gain leverage, or force the opposing side into a discussion when direct confrontation may not be in their favor. In real estate, landlords set asking rents higher than what they expect to finalize, giving them leverage to negotiate downward while still meeting their financial goals. Temporary Arrangement: Parlay only temporarily halts conflict, and its results can vary. Similarly, the asking rent is a temporary marker—it’s flexible and often adjusts based on market demand, concessions, or tenant requirements. Conclusion: In both cases, parlay and asking rents serve as tools for initiating negotiations and setting the stage for further discussions. Neither represents final terms but rather an invitation to engage in a conversation where both sides can potentially alter the outcome. Both terms highlight the importance of negotiation in shaping the final agreement—whether it’s between pirates or commercial tenants and landlords. About CroninCRE: At CroninCRE, we exclusively represent tenants. Never landlords. We provide real estate advocacy negotiating on our client’s behalf without conflict of interest.  When it comes to commercial real estate transactions, California lawyers and brokers are held to different standards regarding conflicts of interest.
Advocacy and Representation Lawyers are bound by strict ethical rules and must prioritize their clients' best interests above all else. Dual representation, where a lawyer represents both parties in a transaction, is generally prohibited due to the inherent conflict. In California, commercial real estate brokers also advocate for their clients' interests but are allowed more latitude in their approach. They can represent both sides of a transaction, known as dual agency, as long as both parties provide informed written consent. While this practice allows brokers to facilitate transactions, it limits their ability to fully represent each party's interests. The Risks of Dual Agency While dual agency may seem convenient, it can create conflicts of interest. Brokers representing both parties may have difficulty providing impartial advice or negotiating aggressively on behalf of one client without compromising the interests of the other. This can diminish the value of having broker representation. Practical Tips When working with a commercial real estate broker, it's essential to ask about potential conflicts of interest. If the broker represents both landlords and tenants, their ability to advocate exclusively for your interests may be limited. Choosing the Right Representation To ensure you receive the best possible representation, consider working with a broker who specializes in representing tenants. This guarantees that they will prioritize your interests and avoid conflicts that could arise from dual agency. At CroninCRE, we exclusively represent tenants. Never landlords. We provide real estate advocacy negotiating on our client’s behalf without conflict of interest. Navigating Property Tax Liabilities: A Guide for Commercial Property Tenants in California6/20/2024
 As tenant representatives, we emphasize that ownership quality is a critical factor when comparing similar commercial properties. The long-term ownership and management of a property often result in better maintenance and stability.
Understanding Proposition 13 and Its Impact on Property Taxes Proposition 13, passed by California voters in 1978, limits annual property tax reassessment increases to 2%. However, a full reassessment to market value occurs if the property is sold, more than 50% is transferred, or significant new construction is completed. This reassessment can significantly impact tenants, as commercial landlords typically pass on property tax costs to tenants. Lease Types and Their Implications In California, commercial leases generally fall into two categories:
Example of Property Tax Impact on Tenants Consider a prominent San Francisco office building with 500,000 rentable square feet (RSF). A tenant leasing 10,000 RSF (2% of the building) would share 2% of the property tax burden. Assuming a 1% property tax rate and a base year of 2023, with an assessed value of $80,000,000 and property tax of $800,000, the scenario changes dramatically if the building is sold. If sold in 2024 for $250,000,000 ($500/RSF), the reassessed property tax would increase more than 200% to $2,500,000. The tenant's share of the increase would be $34,000 annually, significantly higher than a 2% Proposition 13 increase before the sale. The Hidden Risks of Property Tax Liability Tenants in long-held properties face substantial tax liabilities if these properties are sold or transferred. Even with decreasing office property values, many buildings owned for decades by family offices carry significant reassessment risks for tenants. The Role of Brokers in Mitigating Property Tax Risks A key differentiator between similar properties can be the tenant’s potential property tax liability. We meticulously calculate this liability for every property option presented to our clients. As a tenant-exclusive brokerage, we strive to negotiate protections such as caps on OPEX increases, including property taxes. While landlords often resist these caps due to the impact on property sale value, the post-pandemic market shift has made it more feasible for tenants to secure such protections. The Conflict of Interest in Traditional Brokerage Many commercial brokerages represent both tenants and landlords, creating a conflict of interest that can prevent them from addressing property tax liabilities effectively. If your broker isn't discussing this critical issue, it might be due to the inherent risks to their business model. Actionable Advice for Tenants Before signing a lease, tenants should thoroughly assess their property tax liability by determining the property's last reassessment date, its assessed value then, and its current assessed value. This helps forecast potential increases due to ownership changes. Understanding and negotiating property tax liabilities is crucial for avoiding unexpected financial burdens. By prioritizing ownership quality and understanding property tax implications, we help our clients make informed leasing decisions, ensuring they avoid unforeseen expenses and secure more favorable lease terms.  In commercial real estate, Rentable Square Footage (RSF) plays a crucial role in determining the amount of space available for lease within a building or property. Let's break down what RSF means and how it impacts cost of occupancy for office tenants:
Usable Square Feet (USF): USF represents the actual space occupied by a specific tenant. It includes offices, conference rooms, and other areas directly used for business operations. Excluded from USF are common areas shared by all tenants, such as lobbies, restrooms, stairwells, and storage rooms. Rentable Square Feet (RSF): RSF combines the tenant's usable square footage with a portion of the building's shared or common space. Common areas contribute to the overall functionality of the building and include amenities like hallways, elevators, fitness centers, and lobbies. Each tenant pays for these common areas based on their leased space proportion. RSF is calculated as the sum of USF and the pro-rata share of common areas. Load Factor (LF): The load factor accounts for common areas and is expressed as a percentage (typically between 10% and 20%). It adjusts the usable space to account for shared amenities. The formula for calculating rent based on RSF is:
Why Load Factor Matters: Load factor ensures that tenants contribute to the maintenance and use of common spaces. No two buildings have identical common areas, so spaces with the same RSF may differ significantly in usable space. Understanding the load factor helps tenants evaluate the best fit and value for their office space. Surprisingly, load factor information is often missing from marketing materials and industry databases and it’s not uncommon for listing brokers to be uncertain about the building's load factor when showing spaces. In summary, understanding RSF, load factor, and usable space is essential for making informed decisions about office leasing.  Whether you’re a startup seeking your first office space or an established business expanding to new markets, your decisions can significantly impact your bottom line.
The Familiar Faces It’s common to know someone in commercial real estate: a kid’s little league coach, college roommate, neighbor, relative, or someone from the commute train. It’s natural to gravitate toward familiar faces when embarking on your leasing journey. However, the familiar isn’t always the best choice. The Dual Agency Dilemma Over 90% of commercial real estate brokers represent both landlords and tenants. However, this dual agency can blur fiduciary responsibility, leading to conflicts of interest. Tenants may find themselves at a disadvantage, unaware that their broker’s allegiance is divided. Imagine hiring a lawyer who represents both you and the opposing party. Yet, this scenario occurs daily in commercial real estate. Brokers who serve both landlords and tenants face conflicting loyalties, akin to a referee supporting both teams. Tenants often find themselves caught in the crossfire. Renewal vs. Relocation: Leveraging Negotiating Power Imagine being up for lease renewal, only to discover new tenants securing better terms. This discrepancy highlights the pitfalls of dual agency. Landlords and their brokers know most tenants opt for renewal, stripping away negotiating leverage. A tenant representative treats your renewal as a relocation, exploring alternative options to restore negotiation leverage. Beware of the “Scarcity Wolf” Landlord brokers may create a sense of urgency by claiming that their available spaces are in high demand, even in a market with vacancies. Tenant representatives focus on finding the best value and exploring multiple alternatives without pressuring into disadvantageous deals. The Tenant Representative Advantage
Conclusion Consider the power of exclusivity before relying on familiar faces. A tenant representative is more than a broker; they’re your strategic ally in navigating real estate decisions. In commercial real estate, having someone exclusively in your corner is essential. At CroninCRE, we exclusively represent commercial real estate tenants, focusing solely on finding value and representing clients' best interests without conflicts of interest.  Embarking on the journey of leasing commercial space can be both exciting and disruptive. Whether you're a budding startup or an established corporation, finding the perfect space for your business can be a daunting task. These tips provide invaluable guidance on the leasing process, negotiation strategies, understanding lease agreements, and optimizing space to meet your business needs.
Finding the Right Space: The first step in leasing commercial space is to identify your business's needs and objectives. Consider factors such as location, size, layout, amenities, and budget. Take the time to research different neighborhoods and properties that align with your criteria. Negotiating Lease Terms: Negotiating lease terms is a crucial aspect of the leasing process. Be prepared to discuss factors such as lease duration, rent escalation clauses, tenant improvements, and renewal options. It's crucial to understand each provision of the lease agreement and negotiate terms that are favorable to your business. Try to strike a balance between securing favorable terms and maintaining a positive landlord-tenant relationship. Understanding Lease Agreements: Lease agreements can be lengthy and complex documents filled with legal jargon. Before signing on the dotted line, it's crucial to thoroughly review the lease agreement and ensure you understand all the terms and conditions. Pay close attention to clauses related to rent escalation, common area maintenance charges, utilities, insurance requirements, and permitted use of the space. Seek clarification from your tenant representative on any ambiguous language or provisions that may have significant implications for your business operations. Always have a legal advisor review the lease agreement. Tips for Optimizing Space: Once you've secured a lease, it's time to optimize the space to meet your business needs efficiently. Consider factors such as workflow, branding, employee comfort, and customer experience when designing the layout. Invest in ergonomic furniture, adequate lighting, and technology infrastructure to enhance productivity and creativity. Collaborate with architects, designers, and contractors to create a functional and inspiring workspace that reflects your brand identity. Whether you're looking to create a collaborative workspace, a customer-friendly retail environment, or a functional warehouse facility, strategic space planning is key to maximizing productivity and efficiency. In conclusion, leasing commercial space requires careful planning, negotiation, and execution. At CroninCRE we understand the challenges and complexities of the commercial leasing process. From site selection to lease negotiation to space optimization, we're here to provide expert guidance every step of the way. Even though we are typically paid by the landlord, we have a fiduciary duty to represent your needs in everything we do. Contact us today to learn more about how we can assist you with your commercial leasing needs.  Imagine navigating the streets of post-pandemic San Francisco, eager to find the perfect office space that suits your needs and budget. Armed with newfound leverage as a tenant in a market rebalancing post-pandemic, you're ready to seize the opportunity and return to the office. Yet, as you delve into the market, you encounter a puzzling phenomenon – landlords and their brokers keeping the asking rent undisclosed.
But why do they do this? What's the rationale behind concealing the starting point of lease rates, leaving tenants in the dark even when they hold the upper hand? If you asked a landlord’s broker why they don’t quote asking rates, most will tell you it's because they don’t know how much tenant improvements (TIs) will cost for any given tenant. That's not a very honest response because nearly all landlords have market driven TI allowances factored into rental rates. Why is it that unknown TI costs don't prevent other landlords and brokers from quoting asking rates? Traditionally, asking rates have served as essential guideposts for both tenants and landlords, offering clarity and efficiency in the leasing process. However, in today's market, where tenants wield increased bargaining power, withholding asking rates has become a strategic choice for some landlords and brokers. Withheld rents are a good way for the brokerages and the landlords to pump up the rates they get. Enter the realm of "Asking Rent: Withheld." In post-pandemic markets, where tenants hold more sway than before, this practice remains more prevalent than ever. It's a playground where tenants, despite their newfound power, are left to navigate a market with limited information. In such a landscape, seeking the guidance of a tenant representative emerges as a practical solution. Tenant representatives specialize in navigating the complexities of the real estate market, advocating for tenants' interests, and ensuring transparency throughout the leasing process. Armed with knowledge and a trusted advisor by your side, you can navigate the intricacies of the commercial real estate market with confidence. In a post-pandemic environment where transparency is paramount, leveraging professional guidance becomes essential for leveraging your newfound power as a tenant and securing the ideal space for your business. At CroninCRE we are a tenant-focused, conflict-free commercial real estate advisory that maximize your leverage in every transaction. In the world of commercial real estate, fortune favors the informed and empowered tenant.  The current state of the office market in San Francisco presents both challenges and opportunities. Here's our perspective on the market and a prediction for the coming year.
Embarking on the journey to find the perfect office space can be both one of the most exciting and disruptive challenges for a business. Success lies in your ability to make informed decisions from the very start. In this guide, we'll walk you through the crucial steps of initiating the office space search, outlining key considerations, and providing insights to help you navigate the process seamlessly.
How to Start: To set the stage for a successful office space search, begin by clearly defining your business and real estate objectives. Whether it's planned growth, specific location preferences, transportation and parking requirements, estimated space needs, optimal configuration, or technology specifications – having a comprehensive list of needs is essential. Minimizing disruption and enhancing the efficiency of your search requires a deep understanding of your needs, budget constraints, and specifications. Achieve buy-in from all stakeholders upfront to prevent potential setbacks later in the process. Recognize that the timeline is a critical factor, and if you're pressed for time, it will inevitably impact your available options. Who Should Be Involved: Internally, designate a project leader as the central point of contact. Involve key departments such as IT, HR, and finance from the outset. The project leader should possess significant experience in corporate real estate and facilities. Build a team of advisors to guide you through the process. Beware of potential conflicts of interest when choosing a commercial real estate broker. Opt for professionals who exclusively represent tenants, ensuring your interests are prioritized. Utilize tenant representatives, who are compensated by landlords, providing you with expert advice at no direct cost. Engage an experienced real estate attorney to negotiate flexibility into your lease terms and ensure fairness and protection. Many initial lease drafts can be tenant-unfriendly, and a skilled attorney will help you navigate potential pitfalls while maintaining cost-consciousness. When to Start the Process: Underestimating the time and effort required to find suitable office space is a common mistake. While securing an executive suite or co-working space in 30 days is possible, it's an exception rather than the norm. Factors like space size, market conditions, negotiations, space planning, documentation, permits, and build-out time influence the timeline. For spaces under 10,000 square feet, plan a search timeline of at least 6-9 months. Larger spaces, exceeding 10,000 square feet, necessitate a lead time of 9-12 months. By understanding the intricacies of the process and planning accordingly, you position your business for a smoother transition into its new workspace.  In the wake of the transformative impact of the pandemic, businesses worldwide are navigating uncharted waters, seeking the optimal balance of office space to support a hybrid working model. The question of how much space is needed is complex, and traditional approaches no longer suffice.
Hybrid Workspace Evolution: The pre-pandemic shift from enclosed offices to open designs has now given way to a new era of workplace flexibility. Hybrid working models require a reimagination of office spaces, emphasizing collaboration and adaptability. A recent HqO report predicts a shift from 70% individual workstations and 30% collaborative space to a balanced 30% individual and 70% collaborative space by 2025. Out with the Old, In with the Hybrid: As the hybrid office design takes center stage, the traditional large conference room becomes a relic of the past. In its stead, innovative alternatives such as Zoom rooms, huddle rooms, phone booths, and flexible private workspaces emerge. This shift doesn't necessarily mean a reduction in space but rather a strategic reallocation to meet the evolving needs of the workforce. Rethinking Square Footage: Gone are the days of a one-size-fits-all approach to office space calculation. With only a fraction of the workforce present at any given time, the average square footage per employee model falls short. Enter the Space Allocation Approach, a tailored method considering the diverse elements of hybrid workspaces. Space Allocation Approach: This approach provides a nuanced understanding of usable office space, factoring in various components essential for hybrid working:
Navigating the Seas - The Pirate's Code: Embrace the Space Allocation Approach, but remember, it's more of a guideline than a rigid rule. Anticipate growth, project headcounts, and lease space strategically to optimize occupancy throughout the lease term. Efficiency matters; rectangular spaces often trump angled corners. Your unique needs will determine the ideal mix of flexible, collaborative, and private spaces. Conclusion: As Barbossa shrewdly pointed out in Pirates of the Caribbean, "The code is more what you’d call ‘guidelines’ than actual rules." In the evolving landscape of hybrid workspaces, these guidelines provide a compass, but the final map is yours to chart. Tailor your office space to the unique needs of your organization, embracing flexibility, collaboration, and the ever-changing nature of work. #CRE #CommercialRealEstate #HybridWorkspace |
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