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Commercial Real Estate Investment/Tenant TI's
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Question
Jim,
My organization recently purchased a 450,000 SF commerical builidng in a major downtown city. The building currently has a few government tenants. We want and expect them to continue as tenants for a long period. Would you recommend a formula or standard for determining what percentage of rent should be set aside for future tenant improvements for lease renuwals?
Bruce -
There are so many variables involved, and the potential for so many unexpected events in the future that will impact the best projected values for each of those variables, you will have to expect a significant variance after you crank through your formula.
Will the government junk their plans to adopt many of the new - more costly - "green" building standards 2,4,6, or 10 years from now if our current recession experiences a second "dip" in unemployment as many expect? What would that do to the currently projected reserves required for renewal improvements?
Will government agencies restructure operations to create two eight hour working shifts each weekday to reduce the volume of square footage they lease now to realize massive facilities savings when (and if) China decides to stop financing our ridiculous deficit? What might this do to the volume of your anticipated space renewals?
Will office buildings continue to consume the same types of energy they do now when the renewals arrive? Or will we see a major and dramatic focus on new energy sources and thermal structures that will exclude your property from compliance at renewal time?
It would be a worthwhile effort to develop the base knowledge needed to attempt creation of this type of planning, but your formula or standard will have to anticipate significant variance.
Sorry, considering the significant changes in our culture and economy during the last five years, I cannot recommend an accurate formula or standard until I know what the future holds.
Good luck.
- Jim
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Answers by Expert:
Jim Avancena, CPM
Expertise
Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.
Experience
Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.
Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.
Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".
Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.
Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.
Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.
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