While writing my INBiz article for the Indiana Economic Development Corporation last week, I did some informal research to better understand the primary reasons businesses relocate facilities.  My informal research caused me to look back at the businesses I’ve worked with during the seven years I was employed by Duke Realty Corporation and the last 15 years since starting my firm, Carmen Commercial Real Estate Services.  This process brought to light some interesting observations that I thought I would share over the next week or two.

First, there seems to be a direct correlation between a company’s growth and the level of need it has for assistance to manage the business’ real estate strategy, planning and events, such as complete relocations or facility expansions.  What I found was that in general, businesses that are relatively static, stable, and simply aren’t growing, seemed to take on more of the responsibility to manage real estate leases, facility actions, etc. themselves.  On the other hand, businesses owners and managers that I would qualify as “growth oriented” seem to need, or are more willing to bring in outside support for their real estate needs.  I don’t think it stops with the real estate.  It seems that these same “growth oriented” firms utilize a broader scope of outside professional services.

I attribute the greater need for assistance of the growth businesses to a number of characteristics.  Maybe first and foremost is a lack of in-house resources to perform duties related to managing commercial leases and facilities.  Why do they lack in-house resources?  I don’t think there’s any science here.  These business are growing, or trying to grow, and its human capital is dedicated solely to fulfilling its core objectives.  In other words, employees of the company are focused on meeting company objectives and any effort directed to ancillary duties simply dilutes the company’s ability to meet its objectives.

I’ve found that employees within high growth businesses usually don’t have a lot of time to allocate toward duties that are not essential to meeting company objectives and creating value.  Further, taking people away from their day-to-day duties to perform work that is outside their expertise not only reduces company productivity, but also produces a lower quality of work from people ill equipped to perform this work in the first place.  Some of these duties might be real estate cost analysis, negotiation of facility leases and building operating expenses with landlords, property searches and evaluations, construction planning / pricing, and relocation project management.

Therefore, the theme within these companies seems to be focused on the business objectives, while outsourcing all other duties to outside professionals.
In the upcoming week, I’ll post more key items that I’ve found in my research about growing businesses.

I received a call yesterday from a friend who was putting together budget numbers to roll-out his young tech business.  Although he’s been doing ground work for his company for a few years, Todd was nearing the point of rolling-out his company and executing on his business plan. Todd asked for my help in developing numbers for everything from office rent, voice & data infrastructure, right through monthly rent for water coolers and coffee service.

Todd’s call echoed the handful of calls that I receive each year from entrepreneurs for similar help.  It got me thinking about my greater role as a professional service provider and the responsibility it entails.  Specifically, I’m a commercial real estate broker.  But from a greater perspective, I’m an advisor, a coach, and a cheerleader to my clients; a responsibility that a person in my position cannot to take to lightly.

CARMEN’s typical customer, if there is one, is a privately held small to medium sized business.  Often times, these are young and rapidly growing companies’ resources are already stretched and can ill afford to reallocate its staff to duties they’re unqualified to perform. In many ways, I’m well suited to advise these businesses in the respect that “I’ve been there and done that”.  I’ve been a self employed business owner since starting my tenant representation firm, Indianapolis based Carmen Commercial Real Estate Services, in 1993.  My firm, which helps businesses to locate suitable office and industrial space, negotiate leases, set-up facilities and manage facility leases, has served many types and size organizations.

A few weeks ago, I received a call from Bruce Kidd, a Director at the Indiana Economic Development Corporation. Bruce asked me to consider writing an article for an economic development magazine IEDC publishes each year called INBiz. The purpose of the article is to provide businesses managers with useful information to set-up a facility and to manage their facility leases.  I’m grateful to Bruce and the IEDC for giving me an opportunity to put on paper much of the knowledge I’ve been passing on to growing young businesses for years.  I’ll keep you posted on my progress and when to expect INBiz to be published.

As a follow-up to last week’s post regarding the merger of Jones Lang LaSalle with the Staubach Company, the appeal of exclusive tenant representation is that a client needing space is assured that the advisor is focused strictly upon meeting their needs. In exclusive "boutique" tenant representation firms, such as Carmen Commercial Real Estate Services, there are no conflicts of interest that arise when a real estate company offers leasing and management services. The practice of representing both Tenants and Landlords undermines any promise made to serve the tenant.

Exclusive tenant representation professionals understand fully the regional and local leasing trends because the very nature of their practice keeps them active and alert to the deals and relocations that define the space market. They are not saddled with the burden of serving on several full-service teams or helping a landlord market his building.

Finally, one last thought on Tenant Representation:  the most successful business relocations are rooted in tenant representation relationships that function as partnerships, not merely "agreements." With a single, dedicated focus and by not representing landlords, exclusive tenant representation firms offer the best opportunity for a company to secure the most productive and beneficial occupancy solution and lease negotiation.

After a long hiatus, I’m once again posting to my blog. This month, two of the most prominent commercial real estate companies, Jones Lang LaSalle and Staubach Company, merged.  This merger itself is not unusual, as it seems to follow the trend in the commercial real estate industry of consolidation to take advantage of expanded customer bases, expanded services, not to mention the benefit that often accompanies such consolidations, lower operating overhead through the alignment of duplicate services.  What I believe is most notable about the Staubach / Jones Lang LaSalle merger is the obvious differences in the operating models of these firms.  Staubach operated primarily as a tenant-representation firm throughout North America. Jones Lang LaSalle offered an array of "full services" around the world.

Staubach was a tenant representation stalwart that held firm to the idea that the best way to service tenants was to do so without the conflicts caused by managing and listing property.  The “Tenant Only” business model makes a very compelling case, which proved very successful for Staubach.  I too have subscribed to the “Tenant Only” model since forming my firm in 1993, Carmen Commercial Real Estate Services.  Now, as Staubach Company transitions into the larger “full-service” entity, I suspect that many of the clients represented by the firm, and there are many, must be considering what this merger will mean to them.

On one hand, many businesses engage a commercial real estate brokerage firm because of the firm’s principles and operating model.  However, over time relationships are built upon confidence and trust that customers have in the individual commercial brokers that are actually providing the service.  Nevertheless, the underlying principle remains: I’ve convinced businesses to utilize my services because I’m free from the conflicts of interest that accompany full-service brokerage firms. Subsequently, if I’m absorbed into an entity that provides a wide array of services, some of which conflict with the services that I have previously provided to customers, I have to believe that my clients might be justified in having concerns that my firm’s business model no longer reflects, in fact, may contradict the basis by which I was hired to represent them.

Once your office needs are identified, as discussed in my previous blog, your office broker should be able to provide you with a list of properties that meet, or come close to meeting, your geographic parameters and physical facility needs.  In many markets, such as the market my firm, CARMEN Commercial Real Estate, primarily works, which is the Indianapolis commercial real estate market, a search can uncover many possible alternatives.  Therefore, in order to conduct an effective evaluation of the property alternatives it makes sense to make a first pass through of the property survey provided by your broker to further identify the best alternatives to meet your needs.

 It may seem easy to eliminate building alternatives that at first glance don’t appear to meet your needs; however, be cautious and maintain an open mind in tossing out the weaker alternatives.  Often times, the buildings which are most frequently dismissed can be a “diamond in the rough” because owners of these buildings will frequently discount the rental rates or provide tenants with greater tenant finish and other moving related allowances to induce tenants to lease space in these buildings. 

Once the survey provided by your Commercial Real Estate Broker has been thinned out you will be prepared to take the next step, which often times is an actual tour of the various properties

When you, as a business owner or manager, hire a commercial real estate broker to represent your business in its search and negotiation for office or warehouse space, the above question: “What do you need” is often the first question you’re asked by the commercial broker.  Needless to say, the question is often received with surprise and perplex.  More often then not, the commercial tenant doesn’t know their needs as it pertains to office space.  Further, the business may have naively hired the broker to help them identify space needs.

During my 23 years of leasing all types of commercial real estate, but specifically Indianapolis office space and Indianapolis warehouse space, as well as representing tenants throughout the US, it is not uncommon that business owners and managers are not aware of their specific needs for commercial space. Additionally, many businesses have hired a broker to help them uncover some important questions about their future office space.  Ironically, commercial real estate brokers, including me, are not equipped to uncover these needs, unless of course, the broker was trained in space planning and design.

When my clients lease Indianapolis office space or warehouse space, unless they have a very clear understanding of their needs, I will recommend their hiring a commercial space planner and / or designer to help with a needs assessment.  In fact, this step has become so important, my firm, CARMEN Commercial Real Estate Services, as a service to its clients, has a project manager and designer on staff to guide clients through a programming process and needs assessment.  Until the business’ needs are identified and clearly defined, I cannot effectively perform my work.

As a further note on this subject, you should beware of the commercial real estate broker that feels compelled to first ask its client:  “What do you need?”  You have to ask yourself if this is a professional that is willing to do all of the ground work that is necessary to understanding your business and its needs.  Or worse, is this broker more focused on getting your business to a closing, as opposed to providing your business with a valuable service.

Visit our project management post.

A talented commercial real estate broker is worth their weight in gold, unless of course, the broker is packing on a few extra pounds as I am currently. In general, I’ve found that when a broker represents a business in its lease negotiations, the business will save approximately 10 to 25% purely on the economics of its lease occupancy cost. These savings are gained through rental abatement, above standard tenant improvements, and moving allowances. Further savings are incurred by a business that utilizes a commercial broker through time savings and, in the cases of a firm that provides clients Project Management services, through efficiently managing a relocation and procurement of furniture, fixtures and equipment

Most businesses conclude that it makes a lot of sense to bring an expert on the team and engage a broker for the reasons I identified in my earlier post, Part II – Why use a Broker.. In the Indianapolis commercial real estate marketplace, where Carmen Commercial Real Estate Services is based, approximately 98% of all transactions that occur in the Indianapolis commercial real estate marketplace involve a broker representing at least one, but usually all, of the parties involved in the transaction.

Once a business has determined that it will engage a broker to represent the business in searching for a new office or simply to renegotiate an existing lease, the question then becomes how to choose the right broker. Making the right choice can mean a pretty dramatic difference in the project outcome as measured in lease savings and minimizing the interruptions to a business..

Over the coming week, I’ll provide you with criteria and explanations that should be helpful in selecting a broker to represent your business.

Whenever I’m venturing into an area of my business that does not relate to my core expertise of Indianapolis Commercial Real Estate and the commercial real estate business in whole, my mood goes through three predictable stages: From bewilderment to frustration, and finally to wondering why I am spending time on something that is not directly related to Indianapolis commercial real estate.   For me, satisfaction is gained from doing what I do best, which is helping businesses evaluate commercial property, negotiate facility leases, and in general, being able to save my friends / clients time and money.

If you’ve experienced some of the same emotions when performing the necessary evils of operating your business, you can then appreciate the practicality of engaging an expert or firm that specializes in the areas you are not familiar

This is precisely the reason why a business owner or manager engages a commercial real estate broker or firm, such as Carmen Commercial Real Estate.  Our average engagement with a business, which begins by evaluating its existing needs and doesn’t end until our client is relocated, settled, and happy, averages roughly one year.  Some projects can take as much as two full years, which is not uncommon.

Most business owners, managers and their staffs cannot afford to take their eyes off the ball for the period of time needed to execute a successful facility lease or purchase project.  In fact, it’s not unusual for “side projects”, such as a search for a new office space, to absorb the focus of a business, causing the businesses to lose real productivity and dollars, which some businesses may never recover.

A commercial real estate broker will bring resources to the table, particularly Time and Expertise, which will save your business money.  If a business is astute enough to engage a broker with superior knowledge and skills, the business will benefit immeasurably.   In this day and age of business transparency and the sharing of knowledge, there is no excuse for ignorance in selecting the right real estate broker.

“Tenant Representation”, as it has become known, is actually a term to describe the Tenant and Buyer Agency, which is the role a real estate broker takes when they act on the behalf of the business or individuals by providing its client with expertise, conducting communication with a seller or landlord and its respective agents, and providing its client with resources not readily available to most businesses.  But most importantly, the Buyer / Tenant Agent acts in the BEST INTEREST of its clients and has a fiduciary responsibility to its clients.

The above concept of representing buyers and / or tenants is in contrast to the role of a Listing Agent, which in theory represents property Sellers and / or Landlords, whereas the agent has the same fiduciary responsibility to its Seller and Landlord clients.

Real estate brokers that specialize in Tenant / Buyer Representation became more common in the mid 1980’s when a growing awareness occurred among buyers of residential and commercial property of the conflicts of interest that exists in real estate brokerage, which is when a broker represents a property owner in its efforts to sell or lease property, while also representing buyers or tenants.  Simply put: How can a real estate broker represent the best interests of a property buyer or tenant, while also representing the best interests of the seller or Landlord.  The answer is obvious, it can’t.

The concept of Buyer / Tenant Representation was further advanced by a few highly visible class action law suits brought against large brokerage companies for breach of fiduciary responsibilities, while representing both sides of real estate transactions. 

Remarkably, the real estate industry’s response to the market’s awareness of the conflict of interest, and the representative legal complaints against brokerage firms, was not to separate its representation groups to prevent such conflicts, but rather, to develop legal documentation that would allow firms to continue with a “business as usual” mentality.   The only solution that seems to solve the issue in the best interest of the customer is separation of business units that represent Buyers and Tenants, from those that represent building owners.  In the purest form, firms would exclusively represent Buyers / Tenants or firms would represent Sellers and Landlords exclusively, which was the model for establishing my firm, Carmen Commercial Real Estate Services, in 1993.

 Other News
The Indianapolis Business Journal reported reported today that vacancy for Indianapois office space located in the suburban market increased by 0.5% during Q3 - 2007 to 18% , whereas, the vacancy in the CBD decreased by 0.2% to 15.5%.  The citywide vacancy for Indianapolis office space increased by a net of 0.2% to 17% overall.  Full Story

Earlier this week, we released a video about a project we worked-on last year with an exciting company called CIK Enterprises.  Whenever I need a shot of enthusiasm and / or motivation, I think about my friends and founders of CIK, Andy Medley and Scott Hill.

When I met these guys in 2002, their office was set-up in one or two small rooms above a coffee shop in Danville, Indiana.   Although, I knew little about their business or the industry, after our first meeting, I knew these guys were winners.  I met Andy and Scott when they contacted me through the Carmen Commercial Real Estate website, requesting information about Indianapolis office space.

Since then, CIK's growth has been off the chart.  In 2006, CIK was picked by the Indiana Chamber of Commerce as the best place to work in Indiana.  CIK will undoubtably be known for years to come as one of Indiana's great success stories, not to mention, on a personal note, CIK has played an intregal role in the growth of my Indianapolis commercial real estate company.

Take a moment to watch and enjoy the video.