MAP Real Estate’s focus is “through the lens” of Investing In Communities®. We want people to be clear about what MAP is, and what IIC is, and what each is not. In a nutshell, MAP is a brokerage and IIC is a platform. MAP is a Chicago-based commercial real estate brokerage; Investing In Communities is a separate entity that can be used anywhere in the U.S.  by both commercial and residential real estate consumers to generate funding for any cause they care about- regardless of who they choose to be their agent or broker.  If you want a deeper dive, please read on. 

What is MAP Real Estate, Inc.

MAP is the commercial real estate brokerage firm that I opened in 1986 and have run for the last 34 years with my wife and business partner, Sharon Porter. MAP specializes  in office space brokerage and exclusively represents office tenants, never landlords. Our clients are generally small to mid-size enterprises, both taxable and tax-exempt, in the Chicago metropolitan area. We have saved our clients’ time and money in over 900 transactions. And this is still what MAP does. We are office tenant reps, negotiating Chicago office leases. 

We love to represent charities and companies with a social purpose, because we have one. MAP continues its nearly 25-year tradition of incorporating philanthropy into its daily business life, by pledging to remit 10% of each commission to IIC, for further distribution to the charity or school chosen by its client. MAP is also the proud parent and sole underwriter of Investing In Communities. 

But MAP and IIC are separate legal entities that exist for different reasons.

What is Investing In Communities

Investing In Communities is the name of a philanthropic program that we began in 1995, when we chose to be in business in a different way. We wanted to  serve our clients and simultaneously do good for the larger world. We’ve always wanted to do good. But, like almost everyone, we need to make money before we can give it away. The breakthrough idea for us was that we might make more money by giving it away. And that could be a positive feedback loop, enabling us to do more of both. Doing business, doing good^sm was the way we began to describe our business philosophy. 

We were tentative at first, because we were not quite comfortable that mixing charity with profit was “polite”. After a while, we made the pretty bold decision that our philanthropy would mean giving 10% of our gross income. We wanted there to be no mistake about our sincerity. And we wanted each check to be meaningful to its recipient charity.

In our industry, the norm is for landlords to pay commissions, even to the tenant rep. Our idea was to invite a client to choose the charity to which we would give part of the commission that we earned as a result of having negotiated their lease.

Most people, when they hear “Investing In Communities,” think of community development, as in real estate development. But the name has always been completely figurative. We chose that name because we wanted our program to be a central part of our business activity. And because we are in a licensed profession, our experiment of giving away money to make money to give away had to be “License act compliant”. 

We wanted to discuss our idea with the state regulator that oversaw the business activities of Illinois real estate licensees.  In a call with one of the staff attorneys, we learned that we would be in violation of the License Act were we to give part of our commission to a charity. However, we could give part of our commission to our client and ask them to give it to a charity. That was permissible, we later learned, in 40 states. Perhaps in that way, we had created client-directed/broker-funded philanthropy. 

We learned that we could give the money to our client, but we could not dictate what they would do with it. We had to give the funds to our client unconditionally. 

We learned much more, as we progressed. This has been a mind-expanding journey for us. We learned, for example, that in three likely instances, for-profit clients kept the money. The other roughly 65 times that we made the IIC pledge to for-profit clients, they gave our money to their favorite charities. We made the same pledge each time that we represented a nonprofit client. And, in those cases, we were able to write those checks directly to those nonprofits, because they were our clients.  

Because we were giving without ever knowing to which charity, the name Investing In Communities made a lot of sense to us. You’ll read why, over time, it has come to make even more sense.

We had identified the first challenge to our model, that the money might get stuck in someone’s pocket. Another challenge was that our small company had to be chosen for the brokerage assignment, in order for the good to happen. 

Yet another challenge was that, even if we got every office tenant rep assignment in Chicago, that would not have any charitable effect on home purchases or sales in Chicago or on any brokered transaction of any sort outside of Chicago. 

And an observation: while we liked the idea of doing business doing good, it seemed that not many of our competitors liked it, unless they had no choice. When our competitors learned how we had pitched a deal, trying to win a charity as our client, if they thought they might win the brokerage opportunity for themselves, they said “Oh, we’ll give you 10% of our commission, too!” MAP was committed to this practice for every transaction, for every client. That was the next spark of insight, which made us start to think about how much more we might be able to accomplish.

By 2007, we had formed an IL nonprofit corporation called Investing In Communities. We thought it was time to separate IIC from MAP,  in order for it to scale. We began to conceptualize how we could transform our simple experiment into something that could scale. And, more than once, we found that the way to resolve a conundrum was by thinking bigger, thinking on a larger scale.

In 2010, we launched the first website for Investing In Communities, by then a free resource that could be used by any individual or company, regardless of the brokers and agents they choose for their respective assignments, benefiting virtually any charity or school. And it didn’t matter where in the country the transaction and the recipient charity might each be located. 

We expected consumers to learn about IIC from the charities that they supported by volunteering time and/or donating money. 

But we expected that our agent and broker members, who were real estate agents, would be the main avenue by which the world would learn of IIC as a new and better way to be a real estate client. We expected them to use IIC as a business development tool, realizing that we had created a License Act compliant way for them to use generosity to gain a competitive advantage when trying to win a new brokerage client. We thought that they would at least occasionally use IIC to add philanthropy to their marketing repertoire in order to perhaps become known for doing business in a generous way, to engender more referrals. That expectation turned out to be mistaken. 

Of our 65 or so member licensees, only 4 even bothered to use IIC as we had hoped they might. They did so by “volunteering into the system”  transactions they already had, in order to bring a new dimension to their client’s brokerage experience, one that involved some of their commission being used to support a charity of their client’s choice. At that time the minimum pledge that we required in such instances was 10% of their commission, of which we retained only 8.75 cents from each dollar that we sent to their client’s charity of choice. 

Jeanette Brownson is the only agent, owner of Brownson Properties in Holland, MI, who has taken IIC and really run with it. 169 times, she has sent IIC a check for 10% of her commission from a residential purchase or sale, so that IIC could send that part of each of her commision to a charity of her client’s choice.

As a realization dawned on us about how referrals and referral fees work in the residential real estate brokerage profession, we entered the next phase of our evolution. It turns out that virtually all brokers, all but one of the hundreds we have spoken to, when asked “do you want a referral”, will say “yes”. And when asked, “what do you pay brokers in referral fees”, the most common answer we hear is, “25% of the commission”. We realized that we could rotate our model from being broker-facing and broker-driven, to being consumer-facing and consumer-driven. All we had to do was let consumers know that we could transform their everyday home purchase or sale into a deal that makes a difference, not only for their family, but also for a charity or school of their choice.

Paying a referral fee in return for getting a new client is not an act of generosity. It’s business as usual. Accordingly, the next advancement in IIC’s evolution was to remove generosity from the equation. That might sound sadder than it is. I say that because of the realization that competition among real estate agents for the next client is a more powerful motivator than generosity.

In the broader context of the modern world of consumerism, something interesting is happening. And I don’t see this as at all cynical. It’s simply reality in a world of internet-enabled social media. Generosity is replaced by rational pragmatism. When it comes to driving business, talking about your company’s big heart is a lot less important than discharging your company’s social purpose by doing actual good in the world.

So with IIC, now it’s unnecessary for any agent or broker to be charitable, in order for IIC to operate. That’s an improvement with powerful potential. 

The only requisite conditions for IIC to operate are:

1. Contact IIC before you choose an agent. We will refer you to real estate agents, whether it’s one you already know or ones that we will match to you, based on their professional expertise, not on their generosity or lack thereof.
2. Choose a participating charity or invite your favorite charity or school to join IIC. IIC membership is free for them.

IIC is 100% nonprofit,  but it’s the opposite of a charity. We have given nearly $700,000 to charities. We do not accept donations from the public.

What IIC is not

IIC is not a marketing platform for real estate professionals. That’s because IIC does not promote real estate agents or brokerage companies, not even its proud parents at MAP Real Estate.

What IIC is

It is a free consumer-facing platform that vastly improves the way in which individuals and companies can utilize the services of any real estate agent or broker, including ones they already know. IIC works across the country and empowers the consumer to transform their real estate transaction, for example a home purchase or sale, into a “deal that makes a difference”. And they do so at no personal expense. While they satisfy their family’s real estate needs, at the same time, they are  providing significant funding for a charity or school of their choice.

It doesn’t matter where in the country either the transaction or the recipient nonprofit are located. It doesn’t even matter if the consumer already knows the agent they want to use. Simply because a real estate agent knows a person, doesn’t obligate that person to choose that agent for an upcoming brokerage opportunity.

Each year, there are roughly 6,000,000 homes sales in the US. Usually, when there is a seller, there is also a buyer. Though admittedly, sellers and even some buyers go about the process without the benefit of being represented by an agent as their fiduciary.  So maybe at least 10,000,000 times each year, just in the US, families could be doing so much more when they buy or sell a home. They could, at no expense to themselves, provide meaningful support to their favorite charity or school. For free.

IIC can also be used by companies, when they buy and sell real estate and when they lease all kinds of commercial space. For example, when the law firm Eckhart Kolak renewed its office lease at 55 W. Monroe, the Kennebec Estuary Land Trust in Maine received $6,905. When the law firm Miner Barnhill & Galland leased new space at 325 N. LaSalle, Near North Health Service Corp received $5,000 and Voice of the People Uptown Inc. received $4,000. When HMS Industrial Networks leased new space at 35 E. Wacker, Children’s Memorial Foundation received $3,654. When HMS renewed its office lease, Society of Women Engineers received $2,429. And when Metropolitan Group leased space at 35 E. Wacker, Circle of Parents received $2,313.

Those are among the many office leases in Chicago that MAP has negotiated, which have resulted now in nearly $600,000 of funding for our clients’ charities of choice.

Doing business doing good is a very fulfilling way to be in business.

The post The Difference Between MAP Real Estate and Investing In Communities appeared first on MAP Real Estate.

Why run your own project to lease office space? By working with an experienced commercial lease negotiator, you can avoid the risk of a bad result and achieve your optimal office lease.

I feel so strongly about this because of what I’ve learned over 35 years in the business and over 900 client projects. The idea of “do-it-yourself” for your office lease is a huge lost opportunity for the tenant. I can only imagine someone making that decision because, on the less negative  side, they just don’t know what might be accomplished. And, on the more negative side, they don’t know the many ways they could come out a loser, instead of a winner.  So I want to share some thoughts on the undertaking that might save you a lot of time and a lot of money. 

Negotiating your own office lease is  like what Donald Crowhurst did, as told in the book The Strange Last Voyage of Donald Crowhurst. He embarked on a circumnavigation sailing race in a boat that wasn’t yet finished. A bold idea? As it turned out, a very bad idea. 

Imagine setting sail with your cabin full of boxes containing the component parts for your navigation & communications system, yet to be built. Only one of his problems was having left some of the parts back on shore. His trimaran was found adrift in the Sargasso Sea. Donald was never found.

Obviously, running your own office lease project is much less dangerous. But it might be just as strange a decision as Donald’s. Here are some reasons why I say that.

A Little Known Specialty

Within real estate brokerage, there’s a specialty called office tenant-rep. The services that tenant-reps provide are generally free of charge to their office-tenant clients. That’s because the industry norm is for building owners to pay a commission to their own broker and to the tenant’s broker. Similar to how it works in a residential purchase, in which the seller pays the commission even to the broker representing the buyer, the office tenant-rep’s commission is paid by the building owner. That’s right, a tenant pays nothing for all of the services their tenant-rep provides as their fiduciary.

In my experience, there is nearly always a broker representing the landlord. Even if a landlord is not represented by a third-party brokerage company, that landlord does this for a living, you do not! They have a natural advantage over an unrepresented tenant. And, if the landlord does have a broker as their fiduciary, a tenant without a broker-fiduciary will be at an even bigger  disadvantage. That’s because the landlord’s broker also knows the market and what tenants might accomplish at competing buildings. That tenant will be “brokered”, in the pejorative sense, by the landlord’s broker. Your broker is your fiduciary and will advocate for your interest. The building’s broker is the opposite and will do the opposite to you. Note that I specifically refer here to a broker-fiduciary, as distinct from one’s law-fiduciary, one’s attorney. Your attorney and your real estate broker do very different things. 

Fiduciary Duty

The landlord’s agent is not the tenant’s fiduciary. In fact, it’s illegal for the building’s broker to represent the tenant if they are representing the building. Even if you, the tenant, agree to a disclosed dual agency, the most you can expect, or legally receive, from your dual agent is simple courtesy and information that the landlord wants you to have. But don’t worry, because it will never happen. The landlord will not agree to allow their own broker to act as a dual agent. The building owner wants their broker to advise them. And that owner hopes you will allow their broker to, well, broker you. As we are reminded every two years in the continuing-ed courses for license renewal, dual agents can, legally, only act as a messenger between the two sides. A dual agent is prohibited from providing advice or advocacy to either side.  And that is not a recipe for a good outcome for you. 

Tenants are well served to consider this before relying on the “great relationship I have with my building manager.” There seems to be a tendency, especially with a possible lease renewal negotiation, as opposed to getting a new lease at a different address, to let down your guard, to confuse courtesy and professionalism with fiduciary duty.

If you know as much about negotiating an office lease as building owners do, and if you know as much about the market as they do, then the only thing you have to lose by representing yourself is a lot of your time. Even if you wouldn’t rather use that time tending to your actual business, you will come out on the short end by running your own office lease project. Tenant-reps know the market and each new deal they handle delivers up-to-date market intel. That’s critical, because things change.

This market intel results from identifying multiple competing alternatives that satisfy your specific agenda. True, a tenant can visit multiple buildings and solicit a proposal from each one. But a landlord’s proposal should not be confused with what they might accept. Of course you won’t accept the initial proposal. You’ll  negotiate to improve it. But, it’s a fallacy to equate an improvement of the proposed terms with achieving optimal results. Did you get a deal that was better? Or did you get the best possible deal and not leave money on the table?

I’ll think very few, if any, users of large space, if they lack an in-house real estate department, even know what they might accomplish in the market, much less how to go about achieving it. I don’t have statistics on this, but would bet that large organizations with a dedicated facilities department usually use a commercial real estate broker. That’s because it takes a lot of time to conduct this kind of project the correct way. By correct, I mean being in the strongest negotiating position, being fully informed, having a strong offensive position and, maybe even more importantly, having a strong defensive position. By defensive position, I mean having more than one good alternative so that, if your first choice becomes unavailable, your 2nd choice automatically moves into first place. Note that I said good alternatives, to distinguish from what might be simply a “stalking horse” used purely for negotiating psychology. Ideally, you want to be able to reject proposed terms if warranted. The alternative: having no good choice but to accept terms that are not optimal for you.

Knowing It When You Find It

Anyone can try to negotiate anything. It doesn’t require a license. Looking for Chicago office space to rent is as easy as walking into any office building and going to the Office of the Building. Less easy is finding the best spaces that will satisfy your layout needs. And even less easy is achieving the optimal office lease. But why not take advantage of free access to all available Chicago office space, without even leaving your office? 

But what will you negotiate? In the social sector or the commercial sector, the experience you’ve had over the years negotiating in your own arena has given you insight into negotiating, yes. But it tells you little of use when it comes to negotiating for office space. 

Knowing what you might accomplish in the marketplace, whether a renewal is your preference or you want to evaluate relocating, is half of what you need to know when leasing or buying office space. How to organize your project is the other half because that’s how you increase the odds of achieving the best lease terms. Organizing your project to most effectively gather market intel and to maximize your negotiating position is critical., But doing it most efficiently is critical because timing is so often a factor. Usually, you will be prompted by the approaching expiration of your current lease. Or timing might be driven by your business plan. 

Timing

A familiar saying in real estate is “location, location, location.” l want to add, “timing, timing, timing” – the time it takes to conduct your project for optimal results, the right amount of lead-time. Lead-time varies with the size of the project. If your space needs are smaller, you need less lead-time. For best results, you want enough time for the leasing process to unfold without drama and anxiety.

Lead-time is a factor because timing matters a lot to landlords. To illustrate, a psychiatrist needing a small space will not find landlords interested in holding a vacant space for very long. They’ll say, “call me when it’s closer to when you want to move in!”  No great loss for the psychiatrist. That vacant space will likely be filled by someone else and the psychiatrist will likely have other spaces to consider at that same address, when the timing is right.

There’s a decidedly negative effect from having too little time. What is too little time? That’s what tenant-reps know well and office users don’t. How will you know if you’ve achieved the “deal” that you should get, given overall market conditions and the market at a specific address, whether it’s a lease for the same space you already occupy or different space? The best way is by having multiple proposals for spaces that actually give you what you need and want. 

Unlike poor Donald Crowhurst, your life won’t be at stake. Your money will be.

Your Time & Money

Having less time than would be ideal almost always means you will have fewer alternatives. And running out of time might mean that you become a holdover tenant. Your lease probably specifies a holdover penalty that includes, among other odious things, a penalty rent of 150% to 200% of the monthly rent if you holdover for even a single day. 

Running out of time if you are negotiating a relocation that involves a build-out might mean you’ll need to agree to pay for construction drawings to be prepared, at the same time that you are negotiating the lease document. While that can be a useful mechanism to save some weeks, when you have no choice, it should be avoided because it has the potential of reducing your negotiating leverage. If you haven’t agreed to a security deposit, often the last financial item to deal with, but you are on the hook for thousands of dollars in fees if you fail to consummate the lease, you might be stuck with a higher security deposit than you otherwise could have negotiated. 

You could be led by an experienced guide who is your fiduciary and whose services are free to you.

I’m a commercial real estate broker, an office tenant representative. And 900+ times I have guided our tax-exempt and taxable clients to their optimal lease for the office space of their choice. They tell us the experience is relaxing. They love their experience, the controlled process, the results. Some of them have even thanked us for the fun! Since 1985, I’ve specialized as a commercial lease negotiator, representing always and only the office tenant, exclusively. At the risk of tooting my own horn, I’m really good at putting all of that knowledge to work to get the best results for you.

Our services are not only free to our clients. We also save them a load of time, money, and anxiety. And after we’re paid the commission by your landlord, MAP will remit 10% of the total to Investing In Communities® for distribution to a charity or school of your choice. We’ve given over $550,00 of our commissions to charities chosen by our clients.We call it doing business doing good^sm.

I’m convinced it’s the best way to do the most of both. We love doing business this way and we would love to be of assistance to your organization!

The post DIY Lease Renewal without Representation?! appeared first on MAP Real Estate.

It might seem like all the space in the world. But appearances can be deceiving.

A recent article in the Chicago Tribune illustrated the HUGE amount of vacant space downtown with the vivid comparison to 5 empty Willis Towers! And the article states that more of that than ever is sublease space. 

What this means is different to different organizations that lease office space. What that means is also different to different real estate professionals, depending on whether you represent building owners or office tenants. MAP Real Estate is an office tenant-rep. So to us, the glut is the opposite of a headache. To brokers that represent building owners, it’s a headache. 

From the perspective of office tenants, it’s like a sale on caviar or Cadillac. A great buying opportunity if you are in the market for either one. But “in the market” means you have a need and you have the money to make the bargain purchase. If you just bought a lot of caviar or a Cadillac, the timing might be bad for you. And a bargain might still be out-of-reach-expensive. As it goes with caviar and cars, so it seems to go with office space for charities and businesses.

Is your timing right? Is their credit strong enough?

Subleasing

So the glut of space might be an opportunity that you can take advantage of. But it might not be. The adage “timing is everything” applies. For starters, I’m talking about the timing of when your current lease expires, if you have one. And, there are other timing considerations. 

With subleases, before, during and after the pandemic ends, there three issues to consider: 

1. Length of lease. Their length is whatever remains of the “underlying lease” that the sublandlord entered into with the building. Typically, that makes them shorter than a direct lease. By direct lease, I mean a lease with the building owner, rather than with a sublandlord that stands between you and the building owner; 
2. Sub-tenant credit. The right of a subtenant to enjoy the beneficial below-market rental rate exists only as long as the sublandlord does not default on the underlying lease. So you might agree that it’s important for the credit of the sublandlord to be stronger than the credit of the prospective subtenant. If the sublandlord defaults on its lease obligations, the subtenant should expect to pay the going market rate for the space or move out.
3. As-is layout. The layout of the space is another. Typically, the layout of sublease space will not be changed at the expense of the sublandlord. Usually, subleases are offered in “as-is” condition. 

Direct Leasing

And, even with direct leases, the pandemic seems to have made this point more broadly applicable. Building owners now desire, more than usually, to sign leases that have a low “transaction cost”. That’s accomplished most effectively if a prospective tenant can use the existing layout that’s been left behind from a previous lease. Because the landlord’s transaction cost will be so much lower as the result of not having to build the layout needed by the prospective tenant, the rental rate the landlord will agree to is likely to be less than it would otherwise be. 

I want to point out it’s always been the case that, if a tenant can use space without a completely new build-out, the lease economics can be more favorable for both landlord and tenant. Lower transaction costs for the landlord should translate into lower rent cost for the tenant. 

On the question of whether your organization can take advantage of the huge amount of space now on the market, here is a little more detail to consider about the available “direct-lease” and “sublease” space.

Size does matter, in office leasing.

The size of your needed space compared to the size of a particular available space is almost always an important issue. Dividing a large space is sometimes just not desirable to the landlord. Or sometimes it’s simply not possible because of building-code mandates for ingress/egress. Or it’s prohibitively expensive. On this point, typically, direct leasing presents a greater opportunity to cut a space to the exact size that your organization might need. 

“What’s in your wallet?”

Are you in the market for caviar or lentils? In other words, will your organization benefit from discounted high end space? Or do you really need good utilitarian space that’s more economical? Just because space in A-class buildings is being discounted, doesn’t mean it’s a good buy for you. 

Now for the buzz question of the moment… just ….what is your “new normal”? As always, the amount of space you need is based on staffing levels. And, hopefully for not much longer, the amount of space you need will not also be conditioned by covid-physical-distancing. Maybe companies will be able to use alternate-day scheduling, so that the same or less space can work for your organization. How far into your crystal ball can you see?

Without question, the glut of available space suggests advantage for tenants. How long will that last. How long will it be before rental rates resume their upward climb. In other words, how long should your next lease be? The glut and our developing understanding of the desirability of remote-working make it rational to think that the most economical lease, whether for sublease or direct lease space, is going to be short-term and makes use of existing conditions. 

Will the world, and work, return to mostly the old normal? I think it will. If it does, how quickly will that happen?  Why this matters for our discussion is because the amount of available space will, in time, return to a more normal balance. Pandemic-induced downward pressure on rental rates will lessen. Rental rates will increase. At least that’s what the experts are forecasting.

Where is this glut located?

Then there is the issue of where all of this available space is located – at what addresses? All office buildings are not equally affected by the pandemic. 

As is always the case, negotiating dynamics are conditioned by the overall market conditions (lots of direct & sublease space now being offered) and also by the specifics at each building with regard to it’s leased-up percentage. Just because organizations have not been using their office space does not mean that they are not paying the rent.

Some buildings are much more fully leased, and with strong-credit tenants, than are others. So, while there may be the equivalent of 5 Willis Towers worth of available space, that news still needs to be understood with a grain of salt.

The statistics, below, are taken from CoStar, the industry gold-standard for information on commercial properties. They provide further insight into which organizations might go bargain hunting and where bargains might be found, showing the available space by caliber – Class A, Class B, and Class C, and pricing. 

Available Space For All Greater Downtown SubMarkets 

M=1,000,000 

K=1,000 

+ or –  indicates if the number is trending up or down.

Notes about the Table: For the purposes of this discussion, it doesn’t matter that the numbers don’t balance in each column. The reason they don’t is because you can have a direct available space for lease that is not vacant. The tenant can still be occupying the space and the Landlord has already started marketing it. Thus it is available but NOT vacant. You can also have the situation where a space has been leased and the move in date is in the future. In that case it is Vacant but NOT Available.

Costar projects that rental rates for the three caliber-categories will return to their 2020Q1 levels by 2023Q2 for Class A, by 2024Q1 for Class B, and by 2023Q3 for Class C.

While these projected “return” dates are not guaranteed, if you are going to be in business after 2023 and if in the next few quarters you can be in the market for a new lease, it might be more conservative to negotiate a longer lease, than just a year or two. When the next pandemic happens, we all hope our country will do a much better job of controlling it than we did this time. I think it’s probable that we will do a much better job, regardless of the political party in power.

I would like to end this post by sharing a real-time example, which may give you food for thought. This example is an assignment that we just completed for an established 501(c)3 that had signed a 12 year lease for 5,345 square feet in 2012.  This example is a version of a “blend & extend” negotiation. But one that’s on steroids and with a twist.

Our client, probably like you, had not been using its space for this past COVID-year. And probably also like you, its leaders had learned more about remote working than they had ever hoped to. Their space had become too large and it would remain too large because of the work-from-home lesson. The problem was that they still had 3.75 years remaining on that lease. And while this is a great time to be shopping for sublease space, it is not a good time to be selling sublease space. 

The solution, which will save our client just over $5,000/month starting late this spring, was a new 15 year lease for 3,573 square feet. Blend & extend is the expression, more common since the pandemic, for renegotiating an existing lease to obtain a value for both landlord and tenant, which neither enjoyed under the old lease. Typically the tenant receives short and near-term cash-flow relief, in return for the landlord receiving a greater value because of a significant extension of the original expiration date. The remarkable thing about this example is its relatively small size, coupled with its relatively long lease term.

Our client had concluded that its “new normal” includes staff working remotely, not as many as over the past year, but enough to permanently warrant reducing its office space by 1/3. And our client concluded that the world will return to “normal” once the pandemic has ended. In other words, it concluded that rental rates will most likely resume their upward climb. So there was no time like the present, because pandemonium-induced anxiety is also felt by building owners, to lock in very favorable lease economics for a very long time, something that short-term sub- and direct-leases definitely do not do. 

To top off the good, because of MAP’s commitment to the community, this pretty small office lease will result in a $6K+ unrestricted contribution, via Investing In Communities®. This will bring to over $575,000 the funds that MAP has given to our nonprofit clients and to charities that our for-profit clients support. 

The post What the Glut of Chicago Office Space Means for Tenants appeared first on MAP Real Estate.

1. The process usually takes longer than expected;
2. Having more time is better than having less;
3. With more time, you can maximize your negotiating leverage;
4. With too little time, you always give up negotiating leverage. While there are strategies for dealing with having too little time, the point is you are better off not being in that position in the first place;
5. Timing guidelines based on the amount of space you think you might need, will be discussed later in the article. 

More Options = More Negotiating Leverage

It’s all about timing because it’s all about having multiple alternatives – being able to just say no. The alternative is having to say yes, even if you would rather say no. It may seem painfully obvious that usually negotiating leverage increases when you have more alternatives at your disposal. Conversely, usually your negotiating leverage decreases when you have fewer of them. And it takes time to develop alternatives. So the amount of time between when you start the process and when you need or want it to be completed is obviously at the heart of the matter. This post is about helping you to avoid the pain of ending up with a deal that is not as favorable for you as it might have been.  

It is difficult to give cut and dried rules for how much time is the right amount, because the circumstances surrounding each transaction can be so varied. But it is possible to discuss the reasons behind the timing issue, in order to gain a useful understanding of what is likely to be too little, too much, and just the right amount of time.

Lease Renewal vs. New Lease

First, let’s discuss the difference between a renewal and a new lease, because the former can present a singular advantage. Chief among the reasons for which you might want to consider a lease renewal is if your space and your building continue to work well for you and you don’t want to go through the hassle of a move if you can avoid it. The timing issue of lease renewals, though, really comes into play if you want to change your current lease while it has a relatively long time remaining before it expires. A lease renewal affords you an opportunity that’s unique in the marketplace, because only your landlord can tear up your current lease, as part of a new lease, whether it’s for the space you already occupy or different space in the same building.

You might not want to tear up your current lease as part of a renewal. (If your current lease is below market, you’ll want to enjoy its low cost until it expires, starting your renewal lease only at the end of your current lease term.) But you should know that’s possible because it presents an opportunity to open negotiations with your landlord long before other landlords will think it makes sense for them to negotiate with you. BTW,  in theory, when you negotiate a renewal lease and when that lease actually begins can be separated by years.

Timing of Negotiating a New Office Lease

Now let’s focus on the timing of negotiating a new office lease.  It’s important to keep in mind that these ideas can also be useful when negotiating a renewal. Because even if you want to renew your lease, the ideal amount of time to allocate for your project should be enough to comfortably accommodate moving to a different building. This includes: 

• space-search & evaluation; 
• negotiation of economic terms; 
• negotiation of the lease document; and 
• the “build-out”, or construction, of your space. 

I say ideal, because, even if you think that renewing your lease is the best solution, in order to achieve optimal renewal terms, you will be well served to “go to market” so you can increase your negotiating leverage.

Your landlord might think that your preference is not to move unless absolutely necessary. You do not want that presumption to translate into your landlord negotiating with a dull pencil. If you wait so long that there is not enough time to do everything needed to negotiate an optimal lease for space at another building, your landlord will rightly understand that you have abdicated much of your negotiating leverage. That is another way in which the services of an office tenant-rep can be valuable. Just having a tenant rep signals to your landlord that you are in the market and do have alternatives to renewing. But we have found that holding a strong hand is better than bluffing.  

Generally, there’s a relationship between space size and a reasonable lead time to negotiate a lease for that space. Larger spaces have longer lead times. Smaller spaces have shorter lead times. That timing is typically informed by three factors: 

1. when you need to move in; 
2. how long a building owner is prepared to wait for the lease to begin after the space has been made ready for you to move in; and 
3. the time it takes to successfully accomplish the project.  

Timing and Size of Space

Let me try to illustrate the relationship between timing and size of space through an exaggerated example.

Real estate developers like leases for very large spaces because they are often a good reason to build a new building. That takes years. 

Consequently, users of very large spaces need to start the process of negotiating for their new space years in advance of when they will want to move into it, because their ideal range of alternatives probably should include a new building, whether or not there are existing alternatives available.

Just about the smallest possible office space is what a sole practitioner psychotherapist needs – a single office with a waiting room. If the space a psychotherapist wants to lease is already built-out for that specialty use, referring primarily to soundproofing, it is possible to find space and sign a lease for it within a matter of weeks. This is not recommended, because having so little time does nothing to increase one’s negotiating leverage.

Everyone else is between those polar extremes. This post is about leases that do not involve construction of a new building or the renovation of an existing building, because both are  extreme scenarios. We are concerned here with the world of existing buildings, whether or not the space in them is raw or second-generation. 

Working Backward to Develop a Timeline

Let’s work backward to arrive at a reasonable time frame for negotiating your lease, which is not even the end of the entire process you should be prepared to navigate.

Build-out

If you want to maximize your negotiating leverage by having the greatest range of alternatives, from renewing the lease for your current space to leasing other space either in your building or a different building, you have to allow enough time for the space to be built.  Let’s call that 3-4 months, barring lead-time for special-order items.

Permitting and Bidding

Except in unusual circumstances, the construction process will not start until a lease is fully executed, signed by both tenant and landlord. Before construction can start, there typically needs to be a building permit. That can’t be applied for until construction drawings have been generated by a licensed architect. Add to the mix the time it takes for your architect to self-certify your project or for the city to issue a building permit, and for the competitive bidding process. These things will take weeks and can take a couple of months.

Building Owner’s Agenda

We’ve just reviewed how the length of the construction process establishes the starting point for adding up the amount of time needed for your leasing process. However, the timing issue of office leasing is strongly conditioned by the agenda of building owners, separate from how long your build-out will take. So let’s look into their minds.

Generally they like having the shortest amount of time between when they sign a lease and when it will commence. And, as above, they are usually interested in that time being shorter if the size of the space is smaller. When you are targeting space that is already vacant, once again, size is a factor that affects timing.  If you need hundreds of square feet, some owners will say they don’t want to wait longer than a few months. If your need is in the thousands of square feet, most owners will be happy to wait 6 months and longer. 

The timing changes if the space in which you are interested is already under a lease that will be expiring. In that case, the owner will not incur a cost by signing your lease now, then waiting to start your build-out until the current tenant moves out. This dynamic is common, because all building owners hope to sign a lease with the next tenant before the old tenant has moved out. Keep this in mind because often, when that period is unusually short, it presents you with an opportunity to benefit from a form of free rent that’s sometimes referred to as beneficial occupancy. That’s the name for a rent-free period occuring after you have moved into your space, but before the commencement of your actual lease term. The other kind of free rent occurs after the lease term has commenced and it’s simply called free rent.

How Long it Takes to Build-Out Office Space From a Raw Condition

As suggested above, six months is a reasonable placeholder for how long it takes to build-out office space from a raw condition. It can be done faster. If the scope of construction is less than building from raw because some of the existing layout, called the existing conditions, can be reused, then the construction period can be shorter. The smallest amount of construction is paint & carpet, which might be done in a month or less. (Yes, sometimes it’s possible to identify optimal spaces that require only paint & carpet or may not even need that. But this post is about taking the conservative approach to timing and maximizing your negotiating leverage.)

Because your landlord can agree to tear up your current lease as part of a renewal negotiation, in theory you can begin negotiations for a  renewal at any time during your lease term. Generally the motivator for landlords is either that they want you to rent more space or they want you to extend your lease. Either one generates additional value for the building owner. In return for that value, the tenant is entitled to receive value. A third landlord motivator would be for you to agree to increase the cost of your current lease, in return for a corresponding value that you might want to receive. I will return to that a little further below, when we discuss the impact of COVID-19, because it may not be as crazy as it sounds. 

Ordinarily, it’s a lost opportunity for both fact-finding and for maximizing your negotiating leverage not to negotiate simultaneously with several of your best alternatives. Simultaneous negotiation is not only above board, it is the state of the art and it is expected by landlords. They are very likely fielding negotiations with multiple prospective tenants for the space in which you are interested. Or at least they would like to be doing that! 

Office Leasing and COVID-19

The reason that many office tenants are negotiating renewal leases now is because of the special opportunity that negotiating a renewal presents to both the incumbent landlord & tenant. Only they can mutually agree to modify the terms of an existing lease. Nowadays, that is often called a blend & extend negotiation. During the pandemic, most tenants are not interested in leasing more space. But many are comfortable extending an existing lease, which is the other way that an incumbent tenant can provide a new value to their incumbent landlord. In return for that value to the landlord, the tenant is entitled to a value it seeks – near and mid-term cash-flow relief. 

If your lease is now below market, your landlord wishes it were not. In return for you agreeing to end your below market rental rate and then agreeing to extend the length of your current lease, that’s the recipe for cooking up potentially a lot of rent relief in the near and mid-term. That part of the math equation is simple. You want to make sure that you receive the amount of free rent relief to which you should be entitled, in return for agreeing to an increase to market-rate rent. What is opaque to both landlord and tenants is what the new rent should be, to which they will both have to agree, for the years that are beyond the mid-term. Here again, the counsel of your office tenant-rep will be useful to establish a basis for those negotiations.

Be Proactive and Start Negotiating Early

As far as lease negotiations are concerned, it’s not just best to be proactive rather than reactive, it is critical! It’s ALL about negotiating leverage. 

To that end, I feel obliged to share these guidelines about how much time you should allow, based only on a very wide range of square footage. But, please keep in mind that the best way to determine your ideal timeline is by speaking with your office tenant rep.  And please remember that it’s better to have more time than you think you might need, than to have less than you discover you do need.  

• If the space you want is in the hundreds to the couple thousand of square feet, allow 8-10 months. 
• For spaces in the thousands of square feet, allow 18-24 months.
• Or, if it’s in the tens-of-thousands of square feet, allow at least 36 months.

But, remember that you can open negotiations with your own landlord at any time. And I urge all office tenants to begin to consider what they will do after their current lease expires, even earlier than the time periods, above. Doing so can only be productive. It can not possibly be detrimental.

The Award You Don’t Want to Brag About

This writer was presented toward the beginning of his career with an award. Tishman Speyer, which was arguably the largest office landlord in Chicago in those days, used to throw a lavish annual party at the Four Seasons Hotel for office tenant-reps. They told us that office tenant-reps were involved in the leases for 97% of their millions of square feet of office space. I received the award for the fastest deal of the year, simply because our client came to us shortly before their lease expired and staying in their current space was not an option. You do not want your broker to have to be in that competition! 

The only outcome for having less time than you ideally need is to limit your range of alternatives. And we as discussed above, more alternatives usually means more negotiating leverage and better lease terms.

Hire an Expert as Your Fiduciary 

Most office tenants are neither interested nor well-equipped to monitor the market for dynamics that might change the balance of negotiating power between landlords and tenants. Fortunately, your friendly neighborhood office tenant-rep can be relied upon to do that. And tenant-rep services are free to tenants. 

Remember that the potential benefits of a renewal office lease negotiation can be explored, often long before it will make sense to negotiate with other landlords. Your tenant-rep can advise you on when to consider broaching the topic with your current landlord. That might be productive well in advance of when it will make sense to negotiate with other landlords, because every other landlord needs to deal with the rent obligation of your remaining lease, as part of a new deal. Your incumbent landlord has only a small fraction of that value to fit into a renewal lease. That small fraction is called the unamortized transaction costs remaining from your current lease.  

The worst thing that can happen if you have more time than you need, is that a landlord will tell you they are happy to talk now, but they can’t guarantee that a currently vacant space will be available. Generally speaking, the larger the deal, the longer landlords are willing to hold an available space. 

In closing, my two pieces of advice are to start early and to engage an experienced office tenant rep. 

For 2021, I wish you good health and the most negotiating leverage!

Here are some more tips during your lease renewal process:

Office Build-Outs 

Professionalism and Negotiating Theory 

Sustainability at MAP Real Estate  

Subscribe to the MAP Real Estate blog for more office leasing tips!

The post When to Start Planning Your New Office Lease or Office Lease Renewal appeared first on MAP Real Estate.

Investing in Communities: Let’s Bend the Curve for Better Capitalism

How we live, work and play is rapidly changing in a world transformed by the pandemic, and now is the time to “vote” for better forms of capitalism.

The post Better.net: Let’s Bend the Curve for Better Capitalism appeared first on MAP Real Estate.

Evanston real estate firm develops way to share commissions with charities

Evanston real estate entrepreneurs Michael Pink and Sharon Porter have found a way over the years to give themselves a competitive edge and raise hundreds of thousands of dollars for charities across the country.The husband and wife team own MAP Real Estate, Inc. and operate Investing in Communities (IIC), which enables clients to designate a […]

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Michael Pink of MAP Real Estate: How We Plan To Rebuild In The Post COVID Economy

As part of my series about the “How Business Leaders Plan To Rebuild In The Post COVID Economy”, I had the pleasure of interviewing Michael Pink. Michael Pink is the founder and Managing Broker of…

The post Authority Magazine, Michael Pink of MAP Real Estate: How We Plan To Rebuild In The Post COVID Economy appeared first on MAP Real Estate.

As usual, there is no one-size-fits-all solution for office tenants. 

It’s important to understand your ideal rent-relief agenda in the relatively immediate & midterm, as well as your newly revised ideas on staffing for the much longer-term. I’ll try to make clear why. 

Speaking in terms of a spectrum is useful to crystalize this COVID time negotiating dynamic.

At one end of the spectrum is Tenant #1, whose lease has about six months left before it expires. At the other end is Tenant #2, whose lease has about 5 years remaining. Obviously, both taxable and tax-exempt tenants would like rent relief because they’ve been adversely impacted by the pandemic. 

Let’s assume that Tenants #1 and #2 have a fiscal year ending in 3 to 4 months.

Both tenants already have their PPP in the bank. So they’re able to pay the full monthly rent and actually need to do so through the end of the current fiscal year, in order to get the full benefit of the PPP funding loan forgiveness. This means immediate cash flow relief is not a concern, but near- and mid-term relief might be a big concern.

The tenant whose lease is about to expire is sitting pretty. Starting with likely ability to negotiate a short term lease extension giving more time to complete the negotiation of a new long-term lease. With a six month extension, it can more comfortably determine the new right amount of space and the new right layout, assuming that COVID has changed its in-office staffing needs. That new lease might be a lease renewal in the current building or a new lease in a different building. If the new lease is in the current building, the short-term extension usually becomes moot because Landlord and Tenant void the 6 month extension, as part of entering into a new one.

Leasing and Rent Relief

Landlord would probably love the idea of getting rent from #1 for 6 months longer than expected. That’s because in the alternative, Landlord gets the problem of refilling space that will become vacant if #1 moves out. Landlords like the idea of “treading water” right now.

Especially in COVID time, many landlords will want to conserve their cash and the prospect is very appealing of getting rent without having to spend money on construction, either to build out raw space or remodel an existing space, as part of a new lease.

After the current fiscal year ends Tenant #2 is not sitting pretty, having no choice but to negotiate with its current landlord. The question here is how #2 can maximize its negotiating leverage since it has a 5 year lease. 

It might approach its landlord and ask for rent forgiveness for the first few months of the new fiscal year. But that might be about as productive as rubbing a magic lantern.

Instead, those months of rent payment can be deferred and repaid at a later date, let’s say during the last four years of its current 5 year lease. Now the negotiations are about the amount of rent relief and its repayment, including the timetable of repayment and an interest rate to compensate Landlord for, in effect, extending a loan for the amount of deferred rent.

#2 should understand that the pre-COVID office lease negotiating perspectives of both tenants and landlords are not really that different than they are now during COVID time. I’m referring to the expectation that in return for putting in place a lease, which is a revenue stream that adds value to an office building, the landlord  provides a concession package. The concession package is the inducement for a prospective tenant, or an existing tenant, to sign that lease. The longer the lease term, the larger the concession package. In other ways, though, COVID has significantly changed the perspectives of landlords and tenants. More landlords will now have greater interest than usual in spending less cash to get that new lease in place and tenants are less able to predict their staffing levels, and therefore their space needs. We all want an answer to the question: What does the future hold and when?

It’s a quid quo pro dynamic in ordinary times. And that hasn’t changed. That’s why I snarked about rubbing a magic lantern being as useful as asking for rent forgiveness. 

#2 wants something it doesn’t have, in the form of rent relief of a specific value, in return for which it ought to be prepared to give the landlord a value the landlord doesn’t yet have. Through negotiation, both sides arrive at an exact understanding of those corresponding values.

In ordinary times, as now, existing tenants have two ways in which to provide added value to their landlord. One way is by leasing more space.The other way is by leasing their current space for a longer period than the remainder of their current lease. Odds are, most charities and companies don’t want to increase the size of their office space right now. But it might be possible to comfortably increase the length of their existing lease. 

Negotiating Office Leases

Most often, negotiating an office lease involves clarifying a significant degree of opacity. We’re already pretty far along in doing just that. There is a relatively clear-cut equation with the amount of the desired rent relief on one side and the repayment schedule on the other side. 

If the tenant can extend its current lease, there’s a good opportunity to do something much better than just repaying, with interest, the value of deferred rent. 

Extending an existing lease adds value for the landlord. If the landlord can get that value without having to spend money on construction, it’s even more valuable, especially now. On one side of the equation is the rent relief, how many dollars of it and how fast will that savings benefit the tenant.  On the other side is how that value will be repaid. If the lease can be extended, it may be possible to not repay it. 

Instead, to balance the two sides of the equation, the value of the deferred rent could be “traded” for the value of the free rent concession that’s commensurate with the value of the extended term,. That’s where negotiation comes in. But at least there’s a rational framework for approaching and resolving what is desired by the tenant and the landlord. 

We’ll discuss other ideas about office leasing during COVID time in a later post. 

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Let’s call her Sally. She faces a situation that is more and more common in our country every single day.

Sally lost her job and her private insurance along with it. She needed to see her physician, but her doctor of four years would no longer treat her on a state-issued medical card. Complicating things, Sally is diabetic and needs both ongoing medical care and wellness counseling. Her situation is not at all unusual in at-risk communities where patients like Sally can find themselves vulnerable to infections and secondary conditions that worsen without proper care. What to do?

In Sally’s case, there was an answer. It came in the form of the Chicago-based PrimeCare Health,  a federally qualified health center (FQHC). She now takes advantage of their basic medical care, behavioral health, and nutritional counseling. Best of all, she is thriving and no longer fearful of being able to get medical care when she needs it.

Sally’s story is proof of a simple but profound reality — keeping people healthy is a collaborative effort. That’s not only true for individual patients, but for the caregivers themselves. Just like Sally, PrimeCare was in need of ongoing support. Like any not-for-profit, the organization could always use more funds to expand their reach and help the most people. The network of eight community-based clinics, which started 27 years ago, serves vulnerable communities, providing access to healthcare regardless of race, ethnicity, disability, immigration status, sexual orientation, or their ability to pay.

PrimeCare wanted to open a clinic in Chicago’s Belmont Cragin neighborhood. The community has over 80,000 residents, prevalent gang violence, and limited access to healthcare. According to Robin McGinnis, CEO of PrimeCare, “pregnant women without insurance had no place to get prenatal care, and dental care was not in the picture. We knew Belmont Cragin needed us and we needed a partner who could negotiate on our behalf to represent us throughout the entire process.”

Enter MAP Real Estate

A brokerage and consulting firm with a unique charitable mission, MAP Real Estate Inc., represented PrimeCare, which resulted PrimeCare’s sparkling new full-service medical center and served as the impetus behind MAP Real Estate’s launch of Investing In Communities (IIC) as an outreach. At the core of the program was a written pledge to their clients: that clients would receive 10 percent of the commission that MAP would be paid by the building in which PrimeCare signed a lease. MAP asked clients to give that money to their preferred charity.

Since starting IIC in 1995, co-founders (and spouses) Michael Pink and Sharon Porter have given over $500,000 of their commissions to a wide range of charities. Other organizations that have benefitted include The Sargent Shriver National Center on Poverty Law, PAWS, Waters Elementary School, The Young Center for Immigrant Children’s Rights, and Domestic Violence Legal Clinic, to name a few.

The inspiration behind IIC

MAP Real Estate, which began in 1986, provides real estate brokerage and consulting services to clients in the Chicago metropolitan area. MAP has exclusively represented hundreds of tax-exempt and taxable clients in nearly 900 office lease transactions. After nine years in business, Pink and Porter decided it was time to do things differently. “We wanted each action that we took to benefit ourselves to also generate good for the world. We think of it as ‘doing business doing good.’ So, we started IIC as an extension of MAP.“

Since 2010, IIC has been a separate nonprofit social enterprise enabling any consumer’s brokered real estate transaction to provide free funding to their favorite charity. The transaction and the charity can be located anywhere in the US, and consumers can choose virtually any broker, even one they already know. IIC is free for individuals and companies and the charities they support. Instead of relying on a few charitable brokers, IIC works because of fierce competition among all brokers.

A conversation with Michael Pink

What problem were you trying to solve?

“This project was a particularly challenging assignment for MAP,” says Pink. “As PrimeCare’s broker, we determined that no existing alternative in the Belmont Cragin community, the part of the city in which this project had to be located, would satisfy our client’s agenda. That’s when we advised our client that a developer could help us create alternatives. So, we invited the development company, Baum Revision, to join the project team.”

Together, they delivered the perfect solution. And, even before moving into its gleaming new family health clinic, PrimeCare was able to exercise its option to buy the whole building, as a result of New Markets Tax Credit funding.

“The building is two stories with 8,000 square feet on each floor and ample parking for patients right in front. The new facility has plenty of room for all the services that PrimeCare Health hoped to provide. The state-of-the-art facility offers everything from general family medicine, to prenatal and dental, behavioral health, and telepsychiatry. This is the only full-service health clinic in the community. For expectant mothers, the clinic has a relationship with Amita St. Mary/Elizabeth Centers where PrimeCare patients can give birth. This is as sophisticated as any best-in-class provider. It’s a marvelous new facility, and I am proud to have been involved.”

How does the $30,000 donation from IIC work?

“IIC distributions are unrestricted.” says Pink. “In the charity world, a nonprofit may have plenty of money in the bank restricted to a specific charitable use. In other words, if the charity provides blankets, the money has to go to blankets. Unrestricted money can pay the rent or electricity bill, or just fill in gaps where the charity needs it. For us, it’s about staying true to the IIC vision — to make every real estate transaction a deal that makes a difference.”

Brooke Lighton

A former copywriter and then group CD, first at Ogilvy & Mather and then at Foote Cone & Belding, Brooke Lighton has worked on marquee brands as well as start-ups in categories such as beverage brands, food service, technology, healthcare, higher education, consulting, and consumer packaged goods brands. Lighton works with intellect and my heart through a wide range of channels, creating brand essence, compelling creative execution and extending it through digital channels, websites, video marketing and thought leadership. She launched her first agency in the 90s and grew it from one person to 48, billing early $500 million. In 2015 Lighton drew together a talented group of independents under the Lighton And Friends umbrella. Winner of many industry awards such as the Clio, ADDY and others, she is a long-standing member of the Business Marketing Association and the United Figure Skating Association. Her work can be viewed at lightonandfriends.com.

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