Published January 19, 2000 in the COLORADO REAL ESTATE JOURNAL
Owners, Property Managers Win With Disclosure
by Warren Kieding
PERHAPS THE MOST SIGNIFICANT CHALLENGE in evaluating lease space is its maddening intangibility. You can't see "space." You can't touch it, or tell if it's good space or bad space. Sure, office spaces are defined by windows and walls and ceilings and wiring, and all the other materials that one can see and touch. But those are only parameters. The reality of space is that it is a product, no less real than an automobile, or a computer, or a box of cereal for that matter. Building owners and property managers who embrace this philosophy have a distinct advantage when marketing tenant space.
We like to refer to this practice as "product disclosure," a term which can sometimes be misconstrued. Building owners and property managers certainly don't hide what their spaces have to offer. That would not serve their interests, or anybody else's. But it is a fact that the more documentation available on any given space, the more quickly and thoroughly it can be evaluated and qualified to fit a tenant's particular requirements.
So what does that mean? How is a space qualified if you really can't see it or feel it?
Try to think of a lease space as a box of cereal, or a new car. When you look at the label on a cereal box, you see the complete story of what that product has to offer, good and bad: the vitamin and mineral content, nutritional value, calories, grams of fat. Similarly, the window sticker on an automobile details just about everything you need to know about that car: how many cylinders, leather seats, power windows and locks, cruise control, fuel economy statistics. You get the picture.
The key here is that the consumer doesn't have to ask twenty questions to get to the heart of whether or not that product may be the right one. It's already spelled out and qualified. Tenants and those who represent them have a number of bona fide questions to ask of property managers at the very outset of the lease space marketing phase. The more that the property manager can disclose, the more effective and faster the evaluation process and possibly, the subsequent lease negotiations.
Giving the right answers
So what issues are key for the property manager and building owner to illuminate for the tenant? What is the tenant getting in its lease face rate, or dollars per square foot? What construction improvements are included in the tenant finish allowance? If the allowance is in simple cash terms, what does that buy? Here are some key issues for property managers and building owners to explore when dealing with tenant space, and how they're designed:
The rentable / useable factor. In a nutshell, this is the amount of space available for occupancy, and for which rent is being charged. Tenants need to know exactly how this amount is being measured, whether it be the BOMA / ANSI standards, or other variations.
Beyond typical sales hype like "great views, easy access to interstates," hard facts must outline in detail what the space has to offer, like electrical and telecommunications and building security systems; HVAC (heating, ventilation and air-conditioning) service, hours of operation and any charges for off-hour operation of these systems; and the type of structural systems and capacities affecting the location of concentrated loads, like file and UPS systems, for example.
Quantifiable real property improvements.
This is the demarcation line in new buildings between the base building improvements and the tenant improvements. Base building improvements frequently exclude core finish drywall, acoustical ceilings, light fixtures or even window treatments. Again, the key for the property manager is to outline in minute detail who pays for what.
Building standard tenant improvement specifications. Building standards are the materials that the owner has designated to be of significant value past the period of any given lease, like doors and hardware, or lighting, for example, and must be clearly described in writing. Many buildings, especially older ones, don't have published building standards, so tenants are left to discover for themselves what the owner might propose, or require for a new building, or what existing assets in a space might be reused.
Record documentation. The absolute basic requirement for both new and older buildings is an accurate plan of the proposed lease space. These record documents should be periodically checked, updated, and filed for safety and accuracy. Unfortunately, record documents frequently are found to be outdated, incomplete or inaccurate. Even spaces in new buildings sometimes include errors and omissions, such as the location and size of HVAC shafts and roof drains. This can profoundly affect the plan layout of prospective lease space, causing needless revisions and lost time.
All this, of course, boils down to give-and-take communication. But in a sharply adrenalized marketplace like this one, good communication oftentimes takes a back seat to getting to the next point of the deal. In the end, the success rate of early tenant occupancy will always be in direct proportion to how quickly and efficiently information is exchanged and applied by both tenant and property manager.