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EXPECTATIONS WHEN HIRING A REAL ESTATE BROKER

Expectations When Hiring A Real Estate Broker Photo

EXPECTATIONS YOU SHOULD HAVE WHEN
HIRING A REAL ESTATE BROKER
When a firm engages the services of a licensed real estate broker, what should be the expectation in terms of service and performance? There are many areas to note, but I will mention three that I believe are most important.

Experience.
Enthusiasm and hard work can make up for many deficiencies. There is no question that those two qualities are critical to any successful real estate assignment. However, people just beginning their careers in the brokerage business don’t start by tackling the most difficult deals. Standard practice in the industry is for a young person to be partnered with, and mentored by, a more seasoned veteran. There is much at stake in any real estate deal. Understanding how to structure the proper deal, familiarity with existing market conditions, editing lease language, and negotiating with area landlords generally is earned by riding the coat tails of a more experienced broker and on-the-job experience. Most of what I have learned over the years has come through time spent with experienced and competent landlords, attorneys and contractors . . . and making plenty of mistakes!!!

Honesty.
Absolutely essential! When any firm, large or small, places its trust in an individual broker, particularly with what’s at stake in a real estate deal, the broker must present an “open book” of himself and the deals he presents to the client. If a landlord is offering a special broker trip or bonus for concluding a deal, the client needs to know. If the broker represents a building they are recommending to the client, the client needs to know. A perceived conflict is sometimes worse than an actual conflict. In every instance, without exception, the broker must do what is best for the client.  There should be total transparency from start to finish.

Value.
The broker must provide value in every step of the process. If there is no value, what benefit is there to the client? Value comes in many forms and weighted differently by various firms. However, successful firms are focused firms, and taking the time required to complete a real estate deal can easily eat up lots of time . . . and money!!! Expecting a full-time employee with no experience or knowledge to represent the firm’s best interests in the marketplace is foolish. Landlords know their business, and you know yours; and someone needs to be an advocate for the client.

Looking For A Great Real Estate Broker? Look No Further!!!
Industrial Brokers:
Fred Hedberg, CCIM, SIOR, Principal
Phil Simonet, Principal
John Young, CCIM, Vice President
Joseph Schultz, Associate
Jack Buttenhoff, Associate

Office Brokers:
Nancy Powell, Vice President
 
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FOCUS ON WHAT’S IMPORTANT

Focus on what's important post photo

FOCUS ON WHAT’S IMPORTANT
Companies searching for new office or industrial space in today’s soft office market, or conversely today’s healthy industrial market and listing brokers and landlords are guilty of this as well… They often tend to focus almost exclusively on rental rate.  In other words, the lowest price should be enough to positively influence a tenant’s decision to lease space in a building.  The result? We’re “commoditizing” commercial space alternatives while losing the focus on what is right and best for the tenant.
SPACE ISSUES BEYOND PRICE
Let me be the first to say that economics are always important and competing buildings must be reasonably similar.  However, economics are not the most important element when it comes to making a real estate decision.  I have often told clients, “What difference does it make if the landlord provides the space at no cost, if the space is not functional and does not effectively work for you?”  Retail clients generally seem to have a better handle on weighing the intangibles when they make space decisions.  They understand that there are issues far more important than price.  Issues such as exposure, vehicle traffic counts, ease of access, parking and neighboring tenants.  Issues that will impact their long‐term success more than a marginal reduction in their base rental rate.
TOTAL COST SOLUTION
So many components go into a good real estate decision, and price is only one of those components.  Tenants need to look at a “total cost solution” rather than just a “rental rate” solution.  The latter is the proverbial tail wagging the dog kind of decision, and decisions like that never work well over the long term.  That’s why establishing a preliminary budget is critical to the process.  So that companies don’t waste time looking at what they can’t afford.  Companies often do themselves a disservice by discounting the importance that a well thought out facilities plan plays in their long‐term success.  Space, like any other component of a firm’s business plan, should function strategically.  Ultimately, ensuring long‐term success for the firm.  The list of items that ensure long‐term success generally relegates price to the lower tier of importance.
RANKING CRITICAL ISSUES
Companies must address, evaluate and rank the importance of critical issues.  These may include parking availability, access, visibility, building efficiency, flexibility to expand and contract, on‐site or close‐by amenities, public transportation availability, security, sustainability issues, building management, landlord financial viability ‐‐‐ and, obviously, the financial structure.  Whether internally generated or broker generated, tenants must understand the total cost of the deal.  One deal may provide more dollars for tenant improvements; another deal may offer less tenant improvement dollars but more free rent.  Yet another may offer to graduate or step the rent and pay moving costs.  And in the end, a simple consideration like ease of client access or proximity to public transportation may trump the lower base rent deal.
Guard against making an impulsive, “head in the sand” facility evaluation.  Select a member of your team and a competent real estate broker who will ensure that your firm makes a well thought out space decision, not a decision based on a single issue like rental rate.  Make sure you have completed the proper due diligence before signing on the bottom line!
NEED HELP FINDING THE RIGHT SPACE?
Reach out to one of our
TRUSTED. DEDICATED. EXPERIENCED.
brokers at Paramount Real Estate Corporation: 
Industrial: Fred Hedberg, CCIM, SIOR, Principal
Phil Simonet, Principal
John Young, CCIM, Vice President
Joseph Schultz, Associate
Jack Buttenhoff, Associate
Office: Nancy Powell, Vice President

LEASE VS. OWN

Lease vs. Own

LEASE VS. OWN
Many business owners dream of owning their own industrial or office building rather than lease space and pay rent to a third party landlord.
One should consider both the costs and benefits of commercial property ownership to understand if it’s the right financial and operational move for the individual owner (what ever form of ownership it may be) and the company occupying all or part of the property.
Potential Benefits of Ownership:

Better control of building operating expenses
Potential property value appreciation creating more personal wealth
Principal reduction on the loan via rent payments from the tenant
Tax benefits such as depreciation
An excellent marketing tool (the bldg.) demonstrating the success of an organization
May be less expensive than leasing space in today’s market

Potential Costs and Risks of Ownership:

Generally less flexibility to expand or contract space size
Requires equity up front: 10%-25% down payment
Responsible for ALL building maintenance (roofs, parking lot, HVAC, etc.)
Could lose value during a market downturn
A default on the loan may result in foreclosure by the lender

If you are interested in a more thorough review and recommendation on Own vs Lease feel free to call Paramount Real Estate Corporation.  We have decades of experience leasing, acquiring and disposing of commercial real estate properties.
Written By: Phil Simonet, Principal | Paramount Real Estate Corp | TCN Worldwide

WHY OPERATING EXPENSES VARY FROM PROPERTY TO PROPERTY?

Why Operating Expenses

WHY OPERATING EXPENSES VARY FROM PROPERTY TO PROPERTY?
Have you ever wondered why operating expenses vary from property to property?  Energy consumption, service levels and service contracts can vary greatly so it is advisable to secure the details prior to lease execution.
Expenses May Vary
Paramount has been involved in several recent office lease transactions.  Many, highlight the need for a close review of the property’s operating budget.  Some “full service” leases may include daily cleaning, vacuuming, replacing light bulbs and cleaning your breakroom.  And then others may not include these services at all or the services may be on a more limited basis.
Avoid Surprises
Most property owners reserve the right to change rules and regulations and janitorial specs.  It’s a good practice for your representative to take the time to request the budget and janitorial specifications.  Once you have the detailed information you will be better able to compare properties.  After settling on your most desirable property, a close review of the associated lease language is advisable.  Although, this may uncover conflicts or missing details that might surprise you during your term.  As an example, say your employees prefer to eat lunch in your office suite.  As a result, this practice most likely makes it imperative that janitorial specifications would include daily trash service.  No one wants to smell that reheated salmon the first time let alone the rest of the week!
Knowing the service level upfront will allow you the opportunity to verify the details are incorporated into the final lease.  After all, operating expenses and real estate taxes can be 50% or more of your overall rent and you should only be paying for services you receive.
Need Real Estate Advice.  Call Paramount.
TRUSTED.  DEDICATED.  EXPERIENCED.
(952) 854-8290
Or reach out to one of our Trusted Agents:
Office Agents: Nancy Powell, Vice President | Jeffrey Swanson, Associate
Industrial Agents: Fred Hedberg, CCIM, SIOR, Principal | Phil Simonet, Principal | John Young, CCIM, Vice President | Joseph Schultz, Associate | Jack Buttenhoff, Associate

RELATIONSHIPS BUILT TO LAST

Relationships Built to Last

RELATIONSHIPS BUILT TO LAST

Paramount recently represented the Owner of 1000 West 94th Street in Bloomington.  The building is approximately 5,000 square feet, with about one-third of an acre of fenced and paved outdoor storage. The client has worked with the Paramount Team for 20+ years.  The relationship began with one transaction in the late 1980s, and has grown substantially since that first transaction.  A mutual trust was developed during the first lease negotiation through open communication, honesty, and truly working in the client’s best interests.  Over the last 20+ years, many more transactions have reinforced the trust that is the foundation of the relationship.
Too often commercial real estate services are commoditized.  Excellent customer service is a lost art that few providers genuinely offer.  Business owners generally have multiple projects underway at once.  The ability to retain a trusted advisor to handle all real estate related tasks can free up an immense amount of time for busy decision makers.  This allows them to focus on running the business.  That is not to say that the business owner is uninvolved, on the contrary; constant communication between the client and the advisor is the most efficient way to build trust and create a successful conclusion to a project.
Paramount prides itself on its customer service.  The team of Paramount professionals  have built a brand with a reputation that Paramount has the knowledge, integrity, expertise, and communication skills to not only satisfy their clients, but go beyond to deliver extraordinary results.  Paramount works hard for our clients, large and small, and seeks to obtain relationships built to last.
Written by: Joseph Schultz, East Team Associate

SUBLEASING IN TODAY’S MARKETPLACE

Subleasing in Today's Marketplace

SUBLEASING IN TODAY’S MARKETPLACE
Subleasing in today’s market is commonplace.  There are a variety of reasons why firms sublease their excess space.  However, for those who intend to sublease, some caution is appropriate.

Make sure to check on the credit and payment history of the firm subleasing the space, particularly if they will pay any part of the gross rent due and payable to the Prime Landlord.
Carefully read and understand the tenant obligations under the Prime Lease.  This is often an attached exhibit to the sublease document.  The Subtenant’s obligation is to comply with the terms of the Prime Lease.
Make sure to receive the Prime Landlord’s formal approval, in writing.  Sometimes this is as simple as a signed consent note on the signature page of the sublease document.  On the other hand, the consent form can be several pages.  If the Prime Landlord’s consent in the Prime Lease is something other than “reasonable,” make sure to understand what the “other” stipulations are.
If modifications are made to the space, understand the obligations in respect to the lease.  Removing modifications may be a requirement upon termination of the sublease.
Make sure the life safety and exiting requirements meet local codes.  Often times, a space carved from a larger space does not meet the proper exiting requirements, which may mean extra costs.https://paramountre.com/agent/phil-simonet/

For more information on subleasing space, reach out to our experts:
Phil Simonet, Principal | John Young, CCIM, Vice President | Nancy Powell, Vice President | Jeffrey Swanson, Associate | Joseph Schultz, Associate | Jack Buttenhoff, Associate

INVENTORY STORAGE? Proceed with caution.

INVENTORY STORAGE? Proceed with caution.
Since 2017, days of inventory have increased for manufacturing firms nationwide, which means inventory storage has also increased.  Days of Inventory in 2019 hit 59, up from 53 in 2018, and 51 in 2017.  Mathematically, a decrease in the cost of sales could be causing this.  COGS have actually increased slightly from 75.80% of revenue in 2017 to 75.98% in 2019.  This indicates that firms have an increasing amount of inventory.  Assuming this is not an over-production issue, firms are not selling as much as years prior.
This could be interpreted as a sign of economic slowdown, even before the Covid-19 storm made landfall.  The increase in inventory may lead some businesses to think that they need additional space, which they may have a legitimate need for, but if the underlying reason is because of a weaker economic environment, the right course of action for the business to take might not be committing to a new long-term lease.  Companies that absolutely need to move product offsite may want to explore third-party warehousing as an option.  It is not as cost-effective as leasing traditional warehouse space on a per square foot basis, but allows the end-user the flexibility to change on a month-to-month time horizon.
The global health crisis has further complicated the situation.  Some manufacturers now cannot keep enough stock to satisfy their customer’s needs.  This may temporarily reduce the need for additional storage, even though it would be financially feasible.  As with most circumstances, each should be evaluated on a case-by-case basis.
Source: Bizminer.com
Written by: Joseph Schultz, East Team Associate

WHAT IS YOUR RENT TO REVENUE RATIO?

What is your Rent to Revenue Ratio Image

WHAT IS YOUR RENT TO REVENUE RATIO?
One financial metric that many business owners are unfamiliar with is the industry rent-to-revenue ratio (I-RRR).  The math is simple; rent paid divided by total revenue from operations.  Naturally, some industries will pay a higher percentage of their revenue in rent; a retail shop will surely pay a different percentage of revenue to rent compared to a small law firm.
So what is your I-RRR?  With data collected across the entire nation, manufacturers, on average, paid 1.78% of their total revenue from operations toward rent.  In 2017, they paid 1.87%; 2018 they paid 1.77%; and in 2019, they paid 1.69%
The amount of rent a business must pay involves many factors.  Location, site access, building quality, and, most importantly, market conditions are all factors.  A business in New York City will certainly pay more in rent while a business in rural Minnesota may pay less.  The formula is simple, but the underlying factors can be quite complicated.  Many companies believe their I-RRR should be much lower during this economic slowdown.  However, the dramatic drop in rents that occurred in 2008-2009 has not happened…yet.  It is possible that large-scale business closures create urgency on behalf of landlords to make low cost deals, but it is not happening now.  Stay tuned for more market information as we near the end of 2021.
Source of Data: Bizminer.com

Questions Tenants often Ask Regarding Their Occupancy

Questions Tenants often Ask

Q & A
Questions Tenants often Ask Regarding Their Occupancy
Written by Bob Johnston | Vice President Sales & Leasing

QUESTION #1:  What if the Landlord isn’t finished building out my space by the time I want to move in?
ANSWER:  If the Landlord is actually responsible for the completed work, much depends on how the lease is written and the commencement date defined.  For example, a commencement date can tie to the substantial completion of the space, so the lease will not commence until the Landlord completes the work.  Sometimes, the date is even contingent upon occupancy and the commencement of business in the space.  On the other hand, the lease might define a specific commencement date.  If the Landlord is late, the lease language will generally state that there is no culpability on the Landlord’s part, but the commencement date becomes the date on which the space is completed and the initial term extended from that date.  In short, these issues are negotiable and dependent on each tenant’s situation.

QUESTION #2:  Toward the end of each calendar year, the Landlord sends us a note informing us of the new Common Area Maintenance (CAM) & Real Estate Tax estimate for the following year.  However, we never get a breakdown of the actual expenses.  Is that available?
ANSWER:  Most landlords will provide that information if requested.  It always helps to have language in the lease that allows for a tenant’s review of the costs; and with larger tenants, audit rights are always helpful.

QUESTION #3:  What do I need to do to get the tenant improvement allowance provided by the Landlord?
ANSWER:  Typically, smaller tenants with smaller budgets, the only requirement is a formal letter requesting Landlord reimbursement of the allowance and proof of completion accompanied by all subcontractor lien waivers.  Larger jobs can have a title company involved to administer “construction draws” and monitor the construction progress.

QUESTION #4:  Do I need to hire a disinterested third party architect to confirm the size of my space?
ANSWER:  Typically not, but each situation is different.  The buildings architect can pre-measure individual spaces or bays.  From the measurements, floor plans can be drawn.  Therefore, the space computation is generally accurate.  RU factors can vary by building, and are often much higher in smaller buildings.  It helps to check the accuracy of the actual useable space and clarify the respective RU factor to calculate the rentable area (the number that determines the annual rent).

Get answers to all your commercial real estate questions & questions tenants often ask.

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Successful Commercial Leasing = Understanding Your Rent

Successful Commercial Leasing=Understanding Your Rent

Successful Commercial Leasing = Understanding Your Rent
by Bob Johnston | Vice President Sales & Leasing

THE TERMINOLOGY OF RENT

Successful commercial leasing is all about understanding your rent.  Most commercial leasing today are “net leases.”  Meaning that the tenant pays a “base rent” which is “net rent”, or separate from, the operating costs and real estate taxes for the property.  The operating costs are then passed on to the tenant as a separate cost.  Equaling a total rent cost and what many then refer to as “gross rent.”
Even this varies, however, from property to property. For example, often times in retail and industrial properties, tenants pay for their use of electricity and gas as well as janitorial services.  In addition, sometimes the tenant, at its expense, must contract for local trash pick-up.  These separately contracted costs are not part of the ordinary operating expenses.  On the other hand, office leases typically are “full service” leases.  In other words, there are generally no extra charges.  Other than perhaps charges for extraordinary use of services such as air conditioning or cleaning, etc.
It is critical that a tenant understand the complete picture and know what the total rent will be. Also, it is critical that the tenant understand what expenses make up operating costs.  Then understand what costs are reasonable and legitimate.  It is obviously to the landlord’s advantage to get the tenant to pay as much of the total operating budget as possible.  This is even more critical in mixed-use projects.  Mixed use is where landlords tend to shift maintenance costs for the residences to the office component.  Thus, the office tenant contribution is actually more than what it should be.  I once audited the landlord of a very large mixed-use project in Chicago.  I found over $100,000 wrongfully allocated to the tenant even though the lease prohibited their doing so.

WHAT SHOULD NOT BE INCLUDED IN RENT?
Here are some suggestions as to what to eliminate from the landlord’s menu.  The list is obviously not exhaustive, but rather illustrative of some of the costs landlords attempt to pass on to tenants:

Leasing commissions, space planning expenses with architects/interior designers, or even attorney costs associated with a lease negotiation or existing tenant dispute.
Costs associated with the construction of tenant improvements, either with new tenant relocations or existing tenant renovations and remodeling.
Costs associated with the entity of landlord, particularly as it relates to partnership/ownership issues or the selling or refinancing the property.
Many large landlords have affiliates or interests in affiliate companies, so it is important to ensure that the contracted vendor costs are no more than what an unrelated third party vendor might charge.
Be careful about the expenses for salaries, benefits, etc. that go into “management fees.”  Executive salaries, or any allocation of those salaries, should not be part of the operating costs for the building.
Capital improvements are not, by accounting standards, expense items.  Although, landlords can routinely pass on the amortized cost of the improvement as an operating expense.
Make certain that in a retail environment, the tenant’s pro-rata share of operating expenses is calculated over the entire leasable area of the property.  Rather than only on the space currently leased and occupied.

Proper due diligence and understanding of the components of a building’s operating budget are critical to a tenant’s successful occupancy, financial stability and long-term enjoyment of the space.

For the best in commercial real estate
service and solutions.

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