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.

As I mentioned last week, we continued the River Place “road shows” in Austin and Dallas.  While on the road, I had the opportunity to meet with the Vice President of Real Estate for Whole Foods Market at the company’s headquarters and flagship store in downtown Austin.

The reason for my visit to the Whole Foods HQ was simply to bring our contact up to speed on our plans for River Place, in the event the company decides to open new stores in Indianapolis.  The amount and type of consumer traffic that these stores generate is very desirable to a development like River Place, which is why many of the most successful mixed-use projects around the U.S. host a Whole Foods stores.

If you’ve not been to a Whole Foods store, it’s an amazing experience. Whole Foods Market has grown from a single, natural and organic foods store to a chain of 270 stores in North America and the UK. They are highly selective about what they sell and dedicated to quality standards and committed to, as they say on their website “a sustainable agriculture; while keeping the balance of the food chain, people and Mother Earth.” The Whole Foods website goes on to say that they respect the neighborhood and want to become an integral part of the community and demonstrates their neighborhood commitment by supporting food banks, sponsoring neighborhood events, compensating their team members for community service work and contributing at least 5% of total net profits to non-for-profit organizations. My conclusion after our recent meeting is the company’s employees embodies the philosophy stated on its web site.  Clearly, the people and culture that Whole Foods nurtures is the basis for this successful organization.

If you’re like me and the other 566,127 people that live within a 10 mile radius and roughly 15 minute drive time of River Place, keep your fingers crossed that Whole Foods considers our site, or at least a location somewhere between Fishers, Carmel, and the Geist Communities.  Here’s a couple blogs to check out: General Company blog or the blog of John Mackey, CEO of Whole Foods.

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.

Tomorrow, we continue our “road shows” for Centre Properties' River Place development.  My collegue Dean Almas and I will be meeting with national retailers based in Austin and Dallas, Texas.  From these Road Shows we hope to build the identity of River Place, provide retailers with a clear understanding of what we hope to accomplish with our development, and ultimately attract retailers to what we believe is going to be the most exciting mixed-use development in Indiana.

During our trip we’ll have the opportunity to also visit some of the most well known and successfully developed mixed-use lifestyle centers.  While in Austin we’ll visit the Domain. Simon Property Group, the developer, successfully integrated a retail lifestyle center with office, residential, entertainment, and hospitality products.

When we arrive in Dallas, we hope to take enough time to visit Legacy in north suburban Plano and Southlake Town Square, located in northwest suburban Southlake, Texas.  Both are innovative mixed-use projects that once again have combined a variety of retail, office, entertainment, and residential products to create thriving communities.

Later this week I’ll share my observations about these projects.

Over the past month, I have been doing “road shows” for Centre Properties to build awareness among national retailers of Centre’s new River Place development, which is an 86 acre mixed-use development located in north suburban Indianapolis.  During recent trips to Seattle, New York City, Milwaukee, Chicago, and Las Vegas, I’ve taken the opportunity to visit mixed-use projects, which incorporate residential and office elements into retail lifestyle centers.

I’ve taken note on how diverse these projects are in size, scope and product mix.  I was also struck by how successful some of these projects seem and how developers have found the one ingredient that may be the most influential element of creating a successful mixed-use project: the creation of “a sense of place” that holds the attention of consumers longer than the occasional trip to the mall. The sense of place comes from creating a pedestrian friendly environment that holds consumers with a more engaging experience than merely the traditional passive shopping experience found so often in enclosed malls and power centers. 

This was clear two weeks ago when on a Tuesday evening a colleague of mine and I dropped by Bayside in north suburban Milwaukee.  We arrived at the project at roughly 9:00 PM and were immediately struck by how many people remained at an hour and on a day of the week that I would have ordinarily expected to see little sign of life.  Instead, people milled around, ate in open air restaurants, and gathered in a square that was the central focal point of the development.  Clearly, the developer of Bayside found the ingredients that resulted in a broader experience for its visitors.

These experiences have been invaluable in helping to shape River Place and incorporating features, such as a gathering place and the river front park that we’re developing alongside the lifestyle center.

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.

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.

Last week one of my long-time clients referred me to an Indianapolis business owner whom I'll call Ed.  Ed is an accomplished business man and the owner of a small accounting firm that, due to its business growth, required expansion of its offices. 

Prior to my engagement with the firm, the managing partner had entered into negotiations with the building landlord to expand the offices.  These negotiations didn't quite pan out the way the firm had hoped.  Fortunately, we were able to renegotiate this and other lease terms that had already been negotiated by Ed, which ultimately improved the firm's rights as a tenant in this particular office building.

The issue at hand was the firm’s ability to continue expanding within the building.  During my meeting with Ed, he proudly proclaimed that he had been able to obtain this right for the accounting firm with a Right of First Offer.

Upon reading the proposed term, I asked Ed what the proposed expansion language meant to the firm.  He responded, “the landlord will have to ask his firm if it wants to lease any adjacent office space, prior to the landlord's finalizing a lease with another tenant for the same space”.  At this point, I felt compelled to clarify that the firm was provided an expansion right, however, not the right he thought the firm was getting. 

What Ed thought he was getting is known as a Right of First Refusal, meaning, before a space is leased to another tenant, not when the space initially becomes available, the landlord or its leasing agent must first offer Ed's firm the office space.  The Right of First Offer that Ed had originally negotiated meant the landlord could offer the firm space as it comes available and if the firm does not act upon the offer they lose the right for the remainder of the lease term.  This is an important distinction in respect that a commercial lease tenant may not be prepared to expand into additional office space when the space becomes available, however, may want to lease additional space downstream before the space is leased to another tenant as a last resort to protect the firm's ability to grow.

Ironically, in this particular case, the adjacent office space that was the subject of the accounting firm’s Right of First Offer, was vacant as the terms were being negotiated.  Therefore, if Ed's firm had executed an agreement with this term in place, in theory, the landlord could have immediately offered the firm it's Right of First Offer and if the firm declined, the right would have been lost for the remainder of Ed's lease term.

The bottom line is this: Rights of First Offer are good; Rights of First Refusal are much better when trying to protect your business' ability to grow.  Be cautious in your negotiations.  If you don't know, ask for written clarification.

On Monday, I received a press release from a business that I have worked with since the company was founded in 1998. This company, Aprimo, announced that it had filed for an IPO to raise $50 million dollars.

This announcement was particularly gratifying. Like many IT companies that were founded in the late 90’s, Aprimo had operated through the “tech boom” and “tech bust”. Unlike many of its IT peer companies, Aprimo survived the bust and through the perseverance and leadership of its people, has flourished and emerged as the market leader in its respective niche of the marketing software industry.

Over the course of my nine year history with my friends at Aprimo, I managed eleven lease transactions. Each creative in its own way, designed to ensure that Aprimo was able to maintain flexibility, while minimizing its lease risk.

In upcoming posts of my blog, I will look forward to writing about some of the lease projects we’ve worked on together and hope that some of the lessons we’ve learned on these projects can be applied by other Indianapolis business owners and managers.

While recently reviewing a client's lease, it occurred to me that office and distribution center expansion are probably the leading reason commercial leases are renegotiated prior to the planned expiration date.

How often have we, as consumers, felt like the Seller has us "over a barrel" as a result of an extenuating circumstance that places us in a less than desirable negotiating position?  In my case, it was turning in a leased auto early.  Somehow I convinced myself that I would only drive ½ the number of miles than I had historically driven my car year after year. Let’s put it this way.  The salesperson could have told me that my new Chevy was a bargain, in spite of the monthly payment that would have allowed me to comfortably drive a new Bentley, and I could only smile.

Too often, business owners and managers seem to concede that they’re over the proverbial "barrel" when their business requires an expansion of its office or warehouse well in advance of their firm’s scheduled lease expiration date.  This can lead to unnecessarily paying more rent under highly rigid lease terms. 

Leased facility expansion is an opportunity to renegotiate an existing lease and improve upon terms originally negotiated.  It’s also an opportunity for a business to reconsider how it uses its space; possibly remodeling its existing offices to better suit any changes that have occurred in the business since the office was new.

Keep in mind your landlord wants and needs to lease more space.  Your business is the key to making that happen.  The business owner and manager should capitalize on the landlord's needs by improving the office or distribution center lease terms.   When negotiating facility expansions on behalf of clients, I never fail to make it clear to the building landlords that only through its being creative and aggressive, will it realize benefits of increased occupancy and greater building operating income.

Think of it as a partnership between landlord and tenant.  The landlord creates expansion opportunity; the tenant uses this opportunity to expand its business.  The landlord's increased building occupancy and rental income increases the value of its real estate.