We want to wish everyone a happy new year! 2011 was a great year for Synergy Real Estate Group and we look forward to working with your business in 2012. In the two years since we launched the site, we’ve helped a number of companies lease office, warehouse and industrial space throughout the San Diego area.
If you’re currently looking for space or you know you’ll need space later in the year, contact us today and we will be happy to get the ball rolling.
-Brent Peterson
Forester Properties announced they have acquired 110 Plaza in Downtown San Diego for a reported $80 million. The 18-story class A tower is located at 110 West A Street and is listed at nearly 326,000 square feet. The purchase marks the first time in 3 years that a downtown tower has changed hands with the last known purchase being the Diamond View Tower.
The transaction reportedly took less than 30 days to close after the property went under contract and the sale is hopefully a sign that institutional investors will be returning to the market. If you’re looking to lease space in downtown, contact us today and we can help you find your next office.
24 Hour Fitness recently announced a two year plan to invest more than $20 million into it’s San Diego fitness centers. The San Ramon based company operates more than 30 clubs in San Diego County and is the nation’s largest privately owned gym operator in terms of total memberships.
The company plans to use the money to pay for upgrades and relocations for three clubs in Balboa, UTC and Westfield Plaza. America’s fitness industry generates $40 billion annually and will continue to grow especially as more people commit to healthier lifestyles. Despite the lucrative nature of the industry, fitness companies and gym operators have to continually upgrade facilities and add / adjust programs to match trends and it can be frustrating but very rewarding at the same time.
Synergy recently completed fitness related requirements with MMA facilities and equipment sales companies and if you run a fitness or wellness based company and are looking to expand, contact us today and we can help you take the next step on the path to success.
Once upon a time in the dark ages of commercial leases all leases were pure gross leases. What does this mean for us today? Well first and foremost, for tenants a land of fairy tales no longer exist where the landlord bears all the cost of inflation. Today virtually all leases have a provision that accounts for increased expenses at commercial buildings. So if leases are no longer pure gross leases what are the options today? The choices to use today are a net lease, a gross lease or a variant of the two.
If a tenant has a net lease they pay the landlord rent net of all the expenses, meaning that the tenant is responsible for paying a portion of all of the operating expenses for the building including maintenance, insurance, and tax expenses.
For a gross lease the landlord is responsible for paying the operating expenses. Often time the first year of a lease the tenant will be considered the base year, which means the landlord shall cover all the operating expenses. If in the second year of the lease the operating expenses exceed that of the base year then the tenant shall be required to reimburse the landlord in the amount that the expenses exceed that of the base year. Some landlords are willing to negotiate caps on the amount that the operating expenses can increase per year and be passed onto the tenant. For example, say in the base year the operating expenses were $0.50/RSF (Rentable Square Foot), and in the following year the operating expense went up to $0.60/RSF.
If the lease agreement did not have a provision capping the operating expenses for the tenant then the tenant has to reimburse the landlord $0.10/RSF in the second year to cover the increase in operating expenses. If a provision had been negotiated into the lease that capped the increase of the operating expenses for the tenant at 5% per year instead of reimbursing the landlord $0.10/RSF for the year they would only have to reimburse $0.025/RSF (0.05* $0.50= $0.025) for the year. Another issue that may arise in a vacant building is explained below:
One may ask well what if the building is 80 percent vacant and only has two small tenants in the building; are the two tenants then responsible for covering 100 percent of the operating expenses for the building even though they only occupy 20 percent of the building? The answer to this question is no, because “most” modern commercial leases whether it be a standard AIR or a landlord’s custom lease there should be a provision in the lease stating that the “Operating expenses for any calendar year during which actual occupancy of the Project is less than ninety-five percent (95%) of the Rentable Area of the Project shall be appropriately adjusted to reflect ninety-five percent (95%) occupancy of the existing Rentable Area of the Project during such period.” In other words, a tenant in a vacant building should be protected from covering an outlandish portion of the operating expenses for the building, because the landlord will always calculate a tenant’s share of the expenses as if the building were 95 percent occupied.
The above is a simple overview of net and gross leases. Whether your company is looking for a new location, renegotiating your lease, looking to downsize, or looking to upsize, it is 100% to your benefit to partner with a knowledgeable tenant representative to help you located a site and negotiate your lease. The services of a tenant representative come at no expense to your company and in the end could save you company a substantial amount of money on your bottom line expenses for office or warehouse space.
Sorrento Valley and Sorrento Mesa is a desirable location for any San Diego business in need of office space. Some of the main reasons that the Sorrento area offers such a great locations includes it central location, affordability, east freeway access, and it is perceived as one of the major corporate centers for San Diego based companies. Qualcomm, Chicken of the Sea, and Websense are examples of the quality or corporations that choose to have their corporate head quarters located in the Sorrento Mesa and Sorrento Valley areas.
Sorrento Valley and Mesa are easily accessible from all areas of San Diego County. If your employees or clients are coming from North County it is a quick shot down Interstate 5 for them to reach the office. If they are coming from south of La Jolla or Miramar it is a short ride up Interstate 805 or Interstate 5. Although no location is perfect for all employees or client the Sorrento area definitely offers a location and access better than many other office markets in San Diego.
Offices are more economically priced than spaces in the neighboring submarkets of Del Mar, Carmel Valley, and UTC. Sorrento Valley even though the prices are lower than its neighboring submarkets still has a high professional and corporate appeal. Office rates in the Sorrento Valley and Sorrento Mesa area will range from $1.25/SF up to $2.50/SF.
If your company is looking for or thinking about acquiring office space in the Sorrento area it is best to team up with a professional and solid tenant representation company such as Synergy Real Estate Group, Corporate Advisory . You can visit our San Diego listing information websites by clicking the following links; San Diego Office Space, San Diego Warehouse Space, and Warehouse for Rent in San Diego. By working alongside a solid tenant representative your company will be in a much better position to acquiring office space in the Sorrento area. The services provided by a tenant representative come at no cost to their clients.
As your company strives to reduce costs and save cash, it is important to keep a look out on other companies that provide services to you that can have a material affect on your ability to conduct business productively, safely, and profitably. Specifically, your company’s landlord could be experiencing financial challenges that, if unresolved, could make it difficult for your company to enjoy a productive business environment, regardless of your continued rental payments.
A number of issues could signal that your landlord is having difficulties, or may be headed in a direction that leads to losing the building.
1. Significant increases in vacancy in your building
2. Increases in vacancy in other buildings where your landlord has an ownership interest
3. Construction projects that start at your building but, languish unfinished for extended time periods (typically a sign that contractors are not being paid on time or at all)
4. Decline in response time and / or communications for service, maintenance, or repairs (a sign that staff has been cut or is stretched too thin)
5. Increase in equipment and system breakdowns, such as elevators, HVAC systems, etc. (indicates a decline in preventative maintenance, staff cuts, or more)
6. Fewer landlord or management company employees visible on site
7. Decline in security, life and property safety services
8. Consistent lack of consumable items in restrooms and other areas
9. Interior office, common area, or window cleaning occurs less often
10. Trash not disposed of in a timely manner or is stored in basements and other areas
11. Landscaping not updated or maintained and / or grass is cut less often
12. General deterioration of the appearance of the building, parking lots, and grounds
13. Deferred capital improvements
14. Preventative maintenance announced or planned but, not implemented
15. Floors, glass, and metal and other interior components not polished or maintained
16. Band-aid repairs being made in place of needed capital replacements
17. Real estate taxes delayed or not paid
18. Mortgage payments delayed or not paid
19. Water, utility, or other payments delayed or not paid
20. Increase in unresolved or unpaid fines from the municipality and / or other governmental authorities
21. Substantial and / or unexplained increases in operating expenses and costs of landlord or management company provided services passed on to tenants
22. Real estate brokers unwilling to show your building to prospective tenants, meaning that landlord is unable or unwilling to pay commissions. This is typically the sign of a landlord low on cash.
23. Contractors seeking payment from you instead of landlord (indicates a lack of confidence on the part of contractors in their ability to be paid on time, in full, or at all)
24. Multiple switching of leasing and / or managing agents, building managers, cleaning companies, security services, vendors, service providers
25. Landlord selling other assets
26. Landlord’s inability to sell or refinance your building
27. Change in landlord’s leasing program – agreeing to many short term leases to small, transient, and / or undesirable companies
What can you do to protect your company and assure that your environment remains productive, safe, and profitable, and that your company receives the services to which it is entitled?
Imagine planning and executing a well designed defensive operational and financial strategy, only to find out that the real estate your company leases may not be under your control and that the space may be pulled out from under you! Your landlord may not be as good at pruning expenses and could lose your building, throwing into question your company’s rights to remain in its space.
Even if you have been paying rent you may not be able to stay in the building if the Landlord loses the building. It depends on a number of factors, to who will end up with it, to what the process will be if the landlord does lose the building, to how thorough your company’s lease was negotiated in the first place and what protections that document affords you.
The first step is to read your company’s lease. Check all of the clauses that might impact your occupancy, including those pertaining to non-disturbance, landlord default, self-help, sublease, early termination, and others. Since your lease constitutes the rules of engagement, be certain to understand your company’s rights, privileges, and obligations, in the event of a serious landlord problem.
Make it your business to understand all lease components that could affect your company’s ability to remain in the building if the landlord were unable to support it financially. Specifically, does your lease provide for self-help (the ability to secure services that the landlord fails to provide) in the event that the landlord defaults in providing services to you? Can you contract for temporary cleaning and other services? Can you secure utilities directly from the utility provider? Can you do the above without putting your company into default of its lease?
What if the landlord actually goes bankrupt and ownership of the building reverts to the lender? Can the lender terminate your lease? Maybe! Does your lease require the landlord to secure a non-disturbance agreement for you from the lender? Has the landlord provided you with that document? A non-disturbance agreement, if written properly, will most often prevent a successor, like a lender, from terminating your lease.
By now, you’re likely asking: “Why would a lender terminate our lease? Wouldn’t they prefer to retain rent paying tenants?”
That, too, depends! It is possible that your building could have a greater value or a greater likelihood of being sold if it were vacant. Perhaps a larger tenant, or one that for some reason is more desirable, may want your space. Or, maybe your company’s use of its space is not conducive to the lender’s future plans for the building. Without a non-disturbance agreement, your company could receive notice to vacate and have little choice.
When commercial landlords experience financial difficulties, the tell tale signs may be easy to spot. In many cases, payments to vendors, service providers, taxing authorities, and others become delayed or are sometimes not paid at all. In others, the building shows signs of neglect.
If you believe you have reason to be concerned, do a little detective work. Check with the local property tax dept, utility companies, and other building services providers to confirm that bills are being paid in-full and on-time. Ask around, too. Are vendors, commercial real estate brokers, contractors, and others being paid in-full and on-time? But, be careful here. You wouldn’t want to spook anyone and create concern about your landlord if problems don’t exist.
Here are 10 ways you in which you know you need to go back to the drawing board.
1. While the size of the spaces you’re shown seem OK, none are laid out remotely close to what you need.
2. When you ask if the suite can be remodeled, you’re told, “Sure, no problem.”
3. Your broker sends you a 50 page computer print-out of every building in a 20 mile radius and asks you to point out which ones you’d like to see BEFORE meeting you or discussing your business.
4. The broker is so familiar with the buildings you are seeing that the landlords actually let the broker put his name or his company’s name on a sign in front of their buildings.
5. The broker’s cell phone burns up from calling ahead to landlords from his car with you in it to check on availabilities- assuming it’s not one of those “friendly” landlords.
6. Three hours into the tour, the broker doesn’t know the name of your company or what you do.
7. You tour so many properties you end up having breakfast, lunch, and dinner with your broker.
8. The sign on the side of the broker’s car reads “Tours-R-Us.”
9. You can stand to not hear any more stories of how many BIG deals the broker did.
10. At the end of the tour the broker assures you you’ll get your first choice building and hands you a reminder card to call him in five years.
With a Tenant Representative from Synergy Real Estate Group we can guarantee you will not have a nightmare ending. At Synergy Real Estate Group, we provide value to our clients because we only work with tenants and can show them the complete market inventory as opposed to listing brokers that only show their own properties. We do not represent landlords and that allows us to avoid any conflicts of interest during the negotiating process. We have successfully helped businesses ranging from startups to Fortune 500 companies locate space in San Diego and Nationally. Contact us today and we can provide you with a free consultation regarding your office space needs. Remember, your primary business is running your company. Synergy brings a diverse “skillset” of not only the best but the most respected local corporate real estate tenant and buyer representives in the US and Canada who specialize in office, industrial and retail space including 3PL Space, temporary office and warehouse swing space and executive suite space. Do the right thing by your business and contact Synergy Real Estate Group today!
Last month, it was announced that Md7 will relocate their North American headquarters to Del Mar’s Torrey View Corporate Center. The company will take about 24,000 square feet of Class-A space on West Ocean Air Drive at the Irvine Company owned property. The building itself is roughly 70,000 square feet and is known for its great views.
Del Mar and the surrounding areas are becoming a hotbed for leasing activity in San Diego especially for class A. With higher than average vacancies and landlords willing to make deals, leasing activity is beginning to pick up. If your business is interested in leasing space, contact one of our advisors for more information
As someone who is constantly reviewing financial information, I know one simple rule, don’t buy something you can’t pay for. It seems simple enough but the Federal government hasn’t been following this rule for decades. We are now at a point where we recently assembled a commission to come up with policy suggestions to cut spending and ultimately lower our deficit.
While I appreciate the proposals and think they are well thought out, if implemented, they would produce an incredibly negative effect on the commercial real estate market.
There are two items that I am specifically referencing:
- Cutting defense spending by $100 billion
- Reducing the federal workforce by 10 percent
While its important to review spending and look for ways to optimize efficiency, each proposal could devastate the commercial real estate market. Obviously reducing the federal workforce by 10 percent would result in cuts of at least 150,000 to 300,000 jobs. If we say that the average amount of space allocated per employee is 200 square feet (keep in mind space for hallways, conference rooms, executive offices) then we’re looking at a loss of up to 60 million square feet of space.
Furthermore cutting defense spending would produce even more losses as contractors would have to cut back on space and each proposal would hurt landlords in the DC area and beyond.
I realize the precarious financial position that our country faces but I think that any cuts should be thoroughly reviewed and phased in over time to allow any negative market reactions to be absorbed gradually rather than a large shock that would produce a destabilizing affect in the market.
A recent post by our Manhattan affiliate highlighted some of the problems that face Government tenants when they lease space but find their commercial needs have changed.
In the NYC example, the SEC needed to find space following the Sept. 11th attacks and when their new space was discovered to have asbestos, they quickly moved to a new location. They were under the impression that their landlord would assume the remaining obligation on their lease but that did not happen and subsequently the organization has been paying rent on two spaces, one occupied, one unoccupied for 5 years.
In 2009 it was revealed that space leased in San Diego for California’s Department of Corrections and Rehabilitation went unused for four years between 2004 and 2008. In that case it was stated that bureaucratic mismanagement and communication issues were the factors behind the oversight.
