Why You Need a Tenant Rep
The Landlord Broker ALWAYS works for the Landlord
The goal of any landlord is to maximize the income that they make from renting their units. When you get to the negotiating table, you need someone who knows the Minnesota commercial real estate market inside and out looking after your interests. Otherwise, you can’t be certain that you’re receiving a fair deal.
You Can’t See or Get Into Every Property
Often times, office spaces in highly desirable buildings and locations within a city fill up before the property is even advertised as being available. If you don’t have a Minneapois tenant rep broker who can get you in the door at places that are newly vacant, you could miss out on great opportunities in your area.
You Have Enough to Do
If you truly want to get the best space for your business needs and your budget, you need to invest plenty of hours familiarizing yourself with the market and searching through listings to find properties that are a good match. A tenant rep broker will take over the responsibilities for you, so you can focus on running and growing your business, not following the commercial real estate market.
Common Area Factor:
Rentable vs Usable
Usable Square Footage (USF)
Usable square footage is the actual demised office space you occupy from interior wall to interior wall. This space is yours and is not meant to be shared with other tenants.
Rentable Square Footage (RSF)
The rentable square footage is the combination of usable square footage plus a fraction of the building’s shared space. The shared space constitutes the common areas of the building, including restrooms, shared hallways, elevators, stairwells, and storage rooms, cafeteria, lobby, fitness center, utility rooms, etc.
Common Area Factor
The common area factor, also referred to as “load factor” or “add-on factor,” is the increase in the rentable square footage above the usable square footage. The equation that can help you figure out the load factor is as follows:
CAF = (RSF – USF) ÷ USF
If RSF is 10,000 and the USF is 8,000, then the CAF factor is calculated as follows:
CAF = (10,000 – 8,000) ÷ 8,000
However, in the Minneapolis/St Paul, the market common area factor for office space is 15% – 20% even if the actual calculation is greater.
Why Do You Have to Pay for Common Areas?
Landlords expect to be paid rent on every square foot in their commercial building. All common areas cost them money while adding value to the tenants, so the costs have to be passed on to the tenants. Landlords assign all common areas between their tenants based on what percentage of the building each of the tenants occupies. Therefore, you have to pay for common areas mainly because:
- You need to use elevators, hallways and stairways, and bathrooms, which all require maintenance.
- The availability of a pleasant lobby on the ground floor will enhance your visitor’s perception about your business.
- Without an office kitchen, you’ll find the services of a cafeteria in the building handy.
In other words, common areas attract certain costs, including maintenance and repair costs. Since you as a corporate tenant will be benefiting from your access to these common areas, it’s wise when you and your fellow tenants contribute a certain percentage.
Should I Use a Commercial Real Estate Broker
The Pros and Cons of Using a Commercial Real Estate Broker
Everyone wants to save a dollar. If you work hard, you can knock a few thousand off the cost of a real estate deal and many of us are inclined to go it alone. But is it worth your time to sift through many online listings and try to negotiate without using a commercial real estate broker? This article examines the pros and cons of finding your own office space versus using a commercial agent’s guidance.
Is their Potential Cost Savings?
Unwillingness to pay the commercial real estate broker commission is one of the top reasons that companies choose to forego using a tenant agent. Yet businesses seldom have to pay out-of-pocket for this commission. The landlord budgets a commission for the listing agent, which is split with the tenant broker upon completion of the lease. In general, the broker’s commission costs the company nothing. One notable exception, if your broker is asking for above-market fees.
A commercial real estate broker can gain cost savings for a company through the broker’s market knowledge, access to privileged information, and skill and experience at negotiations. A business owner could successfully navigate the lease or purchase process, but might miss important market information a broker could supply that would maximize profits as the business expands. He or she might not recognize potential negotiation items that would save them hundreds or thousands of dollars over the course of the lease. Having an agent that represents your interests could translate into money in your company’s pocket.
Who is Working for You?
Commercial Real Estate Listing agents are always working for the landlord, as they are duty-bound to protect the landlord’s interests. If company managers only works with listing agents, they must rely on their own wits to protect the company’s interests. This creates a decided disadvantage at the negotiations table, as only the landlord is represented by professionals familiar with the process.
A fiduciary bound tenant agent will work for your company’s interests at every stage of the process. They can more disinterestedly search for properties listed with all other brokerages and can take into account your company’s situation and needs, rather than working to fill a building at the best price for the landlord.
Save Time & Money!
Without a commercial real estate broker, narrowing down the list of properties available online can be overwhelming. Our brokers bring experience and a solid understanding of Minneapolis/St Paul area, and can help remove spaces that are not ideal for what you do.
In addition to avoiding the heavy investment of time just to find the property, time savings can be realized as the deal progresses, in organizing inspections, negotiating and re-negotiating terms, completing plenty of paperwork, and making offers. Because the broker has experience and connections, the search for a property, as well as the completion of all the contingent steps to signing the lease can be streamlined.
There is a con to the time element of using a commercial real estate broker. Your agent does not get paid until the deal is signed. This may motivate him or her to rush the process along, without giving full consideration to your company’s needs. Tenants will need to be aware of this fact in order to insist on moving the deal along at the speed that is best for their businesses. Our agents have flexibility in how we structure our fees to avoid this potential problem!
Should You Hire a Tenant Commercial Real Estate Broker?
Having an experienced advocate working for you can only be in a company’s favor. However, tenants must be aware of and vigilant about the inherent conflicts of interests in the process.
We avoid conflict with how we work and how we structure our fees. These negative incentives can be moderated in your contract with the broker. Depending on the project, we have flexibility on how we structure fees. Rather than having the landlord pay a commission, the company can offer a flat fee for the broker’s efforts, whether or not a space is found; or an hourly fee credited toward a success bonus if a lease is signed.
1404 Central Ave | Minneapolis, MN
12,595 SF | 0.62 Acres
The Pipe Fitters Union called on CRE Partners to assist them with selling 1404 Central Ave in Minneapolis, MN. The main goal was to maximize the value of the current site and additional, find a new home for the Union.
1404 Central Ave was a great site in a hot neighborhood. The challenge was the sale and purchase of a new location had to happen simultaneously. With the wide range of potential uses, closing timeframes were potentially very long.
CRE Partners worked with the owners on a marketing plan to focus on a wide range of buyers to achieve the highest and best use for the site (and highest selling price). After reviewing 10 offers, we moved forward with a user that had a short closing timeframe. CRE Partners helped navigate the multiple offer process, building inspection, and risk involved with the corresponding relocation. Ultimately, the building sold for $1.6M. Ultimately, the owners sold and purchased a new home on the same day. Even better, they doubled their space with very limited additional cost. With a brief leaseback, they were able to smoothly transition into their new building.
Commercial Real Estate Market Update Q4 2017
The industrial market as a whole finished the year strong with just over 2.1M SF of net absorption. Though the twin cities metro is not a hub for national distribution, the growing need for last-mile delivery brought about by the rise of e-commerce has spurred most of the activity.
The health of the office market is very mixed. The market is very fragmented with certain locations and property types doing very well, and others not so much. Employment is the driving force behind the office market trends. With the cost of replacing employees so high, office space is viewed not just as a place to work but as a recruiting tool designed to attract and retain high-caliber employees in this very tight labor market.
Commercial Real Estate Tax Reform
How the tax reform plan will affect commercial real estate – From INMAN
“The tax plan’s authors left an array of tax subsidies in place for commercial real estate developers and owners, who fared far better than individual homeowners. Unlike homeowners, those in the commercial real estate market didn’t suffer a repeal of a longtime tax subsidy or get slapped with something new.
“Commercial real estate really dodged several bullets here,” John Pickering, a partner in the real estate practice of Balch & Bingham, a Birmingham, Alabama firm focused on the Southeast, said in a phone interview. “There’s nothing in here that cries out ‘tremendous new opportunities that didn’t exist before.’ It’s more like let things continue.”
And that’s great news for the commercial real estate industry.
The new tax law leaves unchanged the provision known as the 1031 Exchanges. Sellers of commercial properties will still be able to defer paying capital gains taxes on such sales if they use the proceeds to purchase another similar property.
Tax-free exchanges of “like-kind” property have long-fueled transactions, and are likely to continue to do so.
Though earlier versions of the Republican tax plan had eliminated the 1031 provision, the subsidy ultimately survived.
The same can’t be said for personal property, which will no longer be given a deferral on capital gains.
“That was huge because a very large percentage of commercial real estate and sales are done through 1031s,” Pickering said. “If that had gone away, people would try to structure deals around that, but you’d probably end up with a lot of people unwilling or unable to sell buildings because they’re fully depreciated and can’t afford the tax hit.”
Another plus for commercial developers is that the historic tax credit also survived the Republican’s rule-writing process.
Renovations of buildings listed on the national registry will continue to receive a 20 percent deduction.
In Birmingham, Alabama, for example, more than two-dozen older, historic buildings have been renovated in its downtown over the past 10 years, Pickering said. Normally, renovating such structures is prohibitively expensive. But with a combination of local, state and federal historic tax credits, such projects are possible. It’s a scenario that’s been replayed throughout urban centers, large and small, in recent years. “That’s really brought our downtown back in a way that wouldn’t have happened without those credits,” he said.
Other credits were also maintained. Among them, the New Markets Tax Credit Program that offers subsidies for development projects that bring jobs to low-income areas. Private activity bonds were also sustained, a possible precursor to an expansive federal infrastructure bill.
As a group, real estate developers came out ahead. Like real estate agents, developers will be able to more easily establish themselves as a “pass-through” business thereby having 20 percent of their income taxed at a business rate rather than a much higher business rate.” From INMAN. Follow link to see full article.
212 3rd St | Minneapolis, MN
5,285 SF | Office
Punch Through Design called on CRE Partners to assist them with finding new office space. The main goal was to accommodate growth, but limit lease term risk.
The Punch Through office space project had numerous challenges. First, they wanted to be located in one of the most competitive office markets in Minneapolis, the North Loop or NE. Second, the company was growing at a rapid pace, but taking on the extra burden of additional rent for space they may not be needed for a couple of years was worrisome. In addition, if the space was too small, would they be stuck in a long-term lease?
CRE Partners worked with the owners on a plan to focus on office space that would allow for growth, but also be flexible with lease terms and relocations. After viewing many spaces, we moved forward with a sublease option in the North Loop. Ultimately, CRE Partners helped negotiate favorable terms for the sublease that met their budget and limited lease term. In addition, furniture was included!