Yes, spring has sprung!  Nature is renewing itself from the long  cold winter.  We must do the same with the buildings that we own or manage.   Think about the damage from winter.  A roof, HVAC equipment, paving or landscaping will only get worse without attention, and will therefore be much more expensive to eventually repair.

Let’s work our way through the major areas of commercial building maintenance.  While our most important objective is to prevent further damage to deteriorating systems, now is also the time to consider relatively inexpensive cosmetic improvements that can enhance the image of your business.

Now is the time to get a roofer on your roof, particularly if you have a flat roof.  Most roofers will make this inspection free of charge.  Vertical leaders and roof drains should be free of debris.  There should be no ponding on the roof – standing water is deadly to a roof.  Blisters and alligatoring of the surface all must be addressed.  Flashing should be properly sealed and attached.  Any debris on the roof should be completely removed.  Is it time to apply a fresh aluminum coating to reduce your energy costs?

Paving does not last forever, but you can extend its life 50% by proper maintenance.  We highly recommend power sweeping if sand was used during the winter.  Sand is very abrasive to pavement (think… “sandpaper”.)  All cracking should be sealed and potholes repaired.  Seal-coating may be warranted.  Because of environmental issues, all line-striping paint today is water-based, which means it does not last as long as it used to.  If your line-striping is faded and hard to see, think about seal-coating with new line striping to follow.  Curbs should be inspected for cracking or chipping due to snow plows. And take a look at your drainage wells and make sure that they are draining correctly.

You should have a maintenance contract for your HVAC equipment.  All HVAC equipment requires regular maintenance.  Now is the time for a service call to replace filters, check belts and take care of any other problems.

Landscaping is next.  Underground sprinkler lines should be tested and readied for the season.  Take note of dead stock and order replacements.  Mulch in the beds is cheap, great for your plants and looks great.  Take a look around for dead or hanging limbs from trees.

A walk around your building is good idea!  Look for loose mortar, peeling or loose caulking or other signs of winter abuse.  Are doors shutting correctly and are there any obvious signs of air infiltration?  Water stains on the side of the building are indicative of drainage problems on the roof.

And, if you really want your building to stand out, consider some low cost items such as painting sign posts, protective bollards and curbs.  Washing windows and planting flowers at your entrance way will also create a nice impression.  Yes, spring is here, and as nature renews itself from the long cold winter, we can do the same with the buildings that we own or manage.

Professional landlords know that one of the best ways to reduce marketing and leasing costs when leases expire is to retain existing tenants.  In many cases, you may not be able to offer the departing tenant the space he needs, but if a renewal of his existing space is a viable alternative, you want to make sure that you have done all you can to keep the existing tenant.

In most cases the cost of retaining a tenant will be far less than leasing the space to a new tenant.  Let’s take a look at some of the common landlord costs of leasing to new tenants and how savings can be achieved with an existing tenant:

1. Landlords often overlook one of the most expensive costs incurred in reletting – the loss of rent while space is vacant and being marketed.  A loss of six months’ rent, or possibly worse, can be devastating to the cash flow of a building.  While you may get lucky and lease immediately, it is not likely in many markets.  In contrast, retaining an existing tenant keeps your space occupied and the cash flow healthy.  Even if a rent concession is part of the package to retain a tenant, it is a managed loss.  
2. Another major cost for a new tenant is the “build-out.”  New tenants, in many cases, are looking for extensive installations.  These installations hurt twice; the actual construction cost and once again, the loss of rent during the period of construction.  An existing tenant, on the other hand, is often satisfied with repainting and re-carpeting, or perhaps even better from the landlord’s point of view, a redecoration allowance.  
3. Brokerage is also a cost that is likely to be more expensive with a new tenant.  On Long Island, the brokerage rates for the first three years of the lease payments are usually more expensive than the balance of the lease.  Renewal options are typically at a lower rate or may not even apply, depending on your situation.  There are other expenses as well, such as; legal costs, marketing expenses, and utilities, which are almost always more expensive for a new tenant as compared to renewing an existing lease.

So, now we know how important it is to retain your tenants.  The tenant retention campaign is the best way to achieve this and one that must begin early.  Simply, a happy tenant is one that is going to want to renew in the future.  Tenant concerns need to be addressed quickly and fairly and the landlord’s obligations need to be met in a prompt and businesslike manner.  Your objective is to build a tenant retention program that makes it very difficult for a tenant to leave.  When your tenants consistently want to renew, your costs will decrease and your profits will rise!

David G. Hunt

Hunt Corporate Services, Inc.

When growing a business, it’s always a nice feeling to find out that you’ve expanded to the point where more space or owning your own space is an option.  Although there’s a lot of great deals out there in today’s market, you’ve got to think resale down the line.  Hey, markets change and ours is as I write this!  Here’s a few tips on what to look for when purchasing big or small in the real estate world.

• Make sure the space is suitable for you.  Don’t let the investment side of the acquisition deter you from meeting the needs of your business.
• Take location into consideration every time you buy.  It’s the one thing you really cannot change.  You can renovate.  You can raise the roof.  You can add an extension, but in most cases, you cannot move your building to a more desirable location.  Think about transportation, shipping and employment costs, and you’ll always come back to location.  This is critical in a place like Long Island where buildings that are close to limited access highways, will appreciate the fastest.
• When it comes to parking, try to think big, or make sure there’s more than adequate parking at the desired location.  How you or your renters use the space, could mean fluctuations in the number of employees.   Parking is so much more important than most think, and when it comes to future use, you don’t want employees having to park at the local deli or out in the street.
• Next I would be concerned about ceiling height.  If you own an industrial building and want to appeal to a wide section of business on Long Island, you probably want a ceiling height of 18 feet, under steel.  This accommodates for racking of 3 standard pallets, but won’t be to heavy on your heating bill.  If you go higher or lower than the 18 foot mark, you shrink your number of potential buyers.
• This may seem obvious to most, but a well constructed building is a much more desirable building to investors.  Paint and carpet is easy, but an engineer giving you the thumbs up on your roof, floors and foundation can mean the world.
• Lastly, you should think about the environment your building is located in.  This may sound like “Location”, but trust me it’s different.  Whether on site or in the general area of your building, you do not want there to be environmental issues.  Have a complete understanding of the area when it comes to anything from chemicals utilized and disposed of, to water runoff after a good rain.

Working the above tips into your thought process when  making a purchase can significantly boost your resale value years from now.

David G. Hunt

Let us know how we can help.

Many people often ask me the difference between a right of first refusal and a right of first offering  Well, I have some thoughts to share.  A right of first refusal is a contractual right, giving you the option to purchase the building before it can be sold to a third party.  An option, is the right to exercise something, but not the obligation to do so. Ask for the right to purchase the building that you lease in the event that the landlord is prepared to sell it to someone else, but you are not obligated to do so.  Most often, this right can be exercised at the same price that the third party was prepared to pay.  A right of first refusal is often a reasonable request, particularly if you are making a substantial investment in improvements.  

With a right of first offering, a landlord is offering you something completely different.  What he is offering is basically the right to negotiate.  When and if he decides to sell, he is agreeing to offer it to you first.  Thereafter, he may come to agreement with you or not, or simply come to agreement with someone else after he has offered it to you.  I won’t say that a right of first offering is meaningless, but you will truly have little recourse if you are offered the building and then are out-negotiated by a third party.

In the real world, many landlords would naturally talk to their tenant as a potential purchaser before anyone else, so that a first right of offering is merely a statement of the obvious.  The tenant knows the value or condition of the property, and may have invested large amounts of money in improvements, so from the landlord’s point of view, the tenant should be willing to pay the highest price.  The landlord may also be able to avoid marketing costs and a brokerage fee by working directly with his tenant.

Why might a landlord not want to grant a right of first refusal?  After all, if he is going to sell the building anyway, why not to the tenant?  One reason might be that the landlord is contemplating something other than an “arm’s length” transaction.  As an example, he might wish to eventually transfer the title within the family for estate purposes. Another reason is that it is very difficult to market a property for sale that is encumbered with a right of first refusal.  Neither potential buyers nor their brokers really want to spend the time negotiating on a property that can be swept away at the last minute by an existing tenant after the negotiations have been completed.  In addition, the broker may have a claim for a brokerage if he has produced a buyer, “ready, willing and able” to purchase the property, whether his potential buyer closed on the property or not.

So what does this mean?  It means you have to look closely at how important it is that you eventually own the property.  A normal transfer of property title does not void your lease rights, so one solution is to ask for a lease term plus options to renew that satisfactorily allow you to amortize your start-up costs and protect your interests.  If future property ownership is critical, you will want to stand your ground in lease negotiations for a right of first refusal, or even better, an option to purchase at a pre-determined price.  If the landlord will only grant a right of first offering, you must be prepared to move on to another alternative.  It is not a satisfactory substitute for a right of first refusal.
David G. Hunt

Let us know if there is anyway we can help!

Are you considering modernizing and re-configuring your office space, but think there is no practical way to shut down the office for construction?  Here are some suggestions.

Of course, I don’t know your complete circumstances but I can tell you that it is certainly more desirable, if possible, to relocate your present operations temporarily while construction takes place.  But with careful scheduling (and a lot of understanding) construction can take place around your operations.

We recently renovated the administrative offices, lobby, waiting area, lavatories and locker rooms for an indoor tennis facility.  By careful planning, scheduling critical items during off-peak or closed hours and cooperation from staff and patrons, there was never a time that a customer could not come into the facility.  How this was accomplished might be a good model for your own renovations.

First, in cooperation with our client, we chose the absolute quietest part of the year to begin our work.  While the administrative offices had to be open to handle calls and paperwork, the courts were closed for one week to allow resurfacing and new lighting.  This was the perfect time to get real “dirty” work done, in this case, demolition and removing an antiquated boiler, piece by piece.  The staff was temporarily relocated to the lobby/waiting area, the administrative area was isolated with heavy plastic and the demolition began.  Indoor tennis is usually run 16 hours a day, 7 days a week, so finding time when the building was completely vacant was difficult.  For your own construction, however, the scheduling process should limit particularly noisy operations, such as cutting metal or chopping concrete, to evenings or weekends when no one is in the building.

In order to renovate the lavatories and locker rooms, we shut them down one at a time.  Luckily, there was a third lavatory available that was not to be renovated, so we were almost always able to maintain “his and hers” lavatories.  When the administrative area was complete, the staff was moved from their temporary location to the renovated office space.  The lobby and waiting area were then renovated in sections, always maintaining a heavy plastic barrier between the actual construction and public areas.

The downside of construction during operations is that it will cost more, and take longer, than the same job that would allow complete and total access to a contractor.   And of course, no matter how hard you try to completely isolate the noise and dust from construction, there will still be distraction and discomfort for your employees or customers.  But for our indoor tennis client, unobstructed access to the space would have put him out of business for three to four weeks, an alternative that would have been a lot more expensive than our scheduling and construction solution. 

You will have to weigh the advantages and disadvantages of completely shutting down the office for construction, or planning carefully to allow construction during office operations.   It is usually a comparison of the additional time and cost of piecemeal construction versus the cost of relocating or taking your operation offline during construction.

David G. Hunt

Let us know how we can help!