Which is Worth More?

 

Like most of you, I generally start my day checking my email. I see what I need to do to push my deals forward and check for any new properties that can meet a client’s requirement. I was excited to see an email alert for a warehouse in Dania Beach. It is a clean, modern facility in a great location and looked perfect for one of my clients. But I nearly knocked over my coffee when I saw the $9.2 million price tag which was $369 per square foot.

This type of property was selling for under $100 per foot a couple of years ago. I sold one at the end of 2021 for $156 per foot and we are now seeing warehouse properties trade in the low $200s. But $369 per square foot was the highest I’d ever seen. At least until I scrolled to another one in Boynton Beach at $426. 

Are they worth it? It wouldn’t surprise me if someone pays it, and I assume there is data to support those numbers. Would I recommend these deals to a client? No, not unless they had some unusual compelling need to purchase.

I have no problem with sellers trying to push the envelope, but with over 30 years in the business and the first 15 of those as a market analyst, I think I know when they are pushing too far.  I wondered what else you could buy for $369 per square foot. I quickly pulled up the largest recent office sales in South Florida on CoStar and came up with 2 sales in Miami from June 2021 that support my point.

Warehouse on Market for $369 per sf

Picture 1 of 12

The 692.000 square foot One Biscayne Tower sold for $225 million which is $325 per square foot while the 822,000 sf Citigroup Center, sold for $270 million or $368 per square foot. These are two iconic South Florida properties. One Biscayne was Miami’s tallest building when it was completed in 1972. It features spectacular views of Biscayne Bay and has been continuously renovated and updated to maintain its Class-A status. Citigroup Center with its distinctive marble exterior and adjacent Intercontinental Hotel is another of Miami’s premier addresses. I remember seeing Ronald Reagan speak there back in 1986. With one notable recent exception, a venue for a presidential address tends to be a prestigious property.

So why spend more on a warehouse than a trophy Class-A office tower? First, we are talking about a $9.2 million warehouse rather than a $200 million office building. There is certainly more demand at $9.2 million then there is at $200 million. And it costs more and requires more labor to operate a Class-A office tower than it does a warehouse.  In addition, the South Florida industrial market is significantly stronger with vacancies in the 3 percent range while office is in the mid-teens. And while industrial demand is soaring, office demand is still suffering from a post-COVID hangover.  

My opinion is that the industrial market is peaking, while office is just beginning to recover. While there is much concern about recent economic news, it hasn’t impacted the flow of new residents into our market and demand for space remains strong.  That being said, I can’t justify paying $369 per square foot for a warehouse. I would rather take my chances on  an office building. But there has been a noticeable shift in the market. It seems the world has turned upside down and it’s no longer unusual for a big concrete box to be more valuable than a gleaming marble tower.

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What’s Rising Faster Than The Price of Gas? Ind-flation

Whether it’s a gallon of gas, a quart of milk or a dozen eggs. we are seeing prices rise all around us. But what is rising even faster?  The cost of leasing industrial space, and more specifically, small bay warehouse in South Florida – what I call ”ind-flation”.

Click to enlarge – Source CoStar

Commercial Edge recently reported a 4.4 percent annual increase on in-place industrial rents while CoStar reported a 10.6 percent year over year increase nationally as of April 2022. This outpaced inflation which hit a 40-year high of 8.5 percent.   

Amazon’s 800,000 SF Miami fulfillment center in Opa-Locka

Endangered species? A rare vacant 2,000 sf warehouse bay in South Florida.

But that doesn’t tell the whole story. South Florida industrial vacancies are running about 3% with the e-commerce giants dominating the market.  But for the smaller tenants from 5,000 to 20,000 square feet that are the backbone of the local economy, vacancy is even lower.  I believe it is significantly overstated by CoStar due to the “virtual property sign,” a trend I identified last year.

I have been working with these smaller entrepreneurial tenants for many years and I have never seen the market tighter. The rent increases I am seeing are unprecedented. In my early years as a market analyst, I reported on macro trends looking down from 30,000 feet. Today, as a tenant representation specialist, I see the market from the ground up.

While I am not always pleased with the accuracy of the information provided by CoStar, the leading provider of commercial real estate data, they do provide an excellent historical record of asking rental rates. And that data is supported by proposals I have negotiated with some of the top industrial landlords in the US.

At the top of the page is a listing for one of the largest industrial parks in Miami. A 5,000 square foot space that leased for $11.95 per sf in February 2021 is now at $18.95. That’s a 59 percent increase on the gross rent which includes operating expense. On a net basis, which determines the return to investors and the overall value of the property, the increase was closer to 75 percent.  Can they really achieve those rates?  According to my calculations, the 3 million square feet in that park is 99.7 percent leased, so they shouldn’t have a problem.

Just wanted to add that the date 4/20 marks the second anniversary of my most popular blog post ever.  Just in case you missed it.

Moving to Pompano Beach in Broward County, a space in a similar industrial park that rented for $11.40 net in February 2021 is up to $17, up 49 percent in one year. Below that is one in Palm Beach County which leased for $8.75 plus expenses less than 2 years ago. It is now shown at $12 and I was just quoted $14 on that space. Rents are rising so quickly that online listings can’t keep up. These are not isolated cases; this is what we are seeing across the market.

So where do we go from here? It’s a great time to own industrial property in South Florida.  It’s a scary time to be a tenant. Space is leasing faster than we can build it and we are very quickly running out of land to build it on. Our population continues to surge which means more products to be consumed and more demand for warehousing. While I don’t foresee rent increases like we have in the past year, demand continues to exceed supply, particularly in the small bay space.  Rents will continue to rise as long as businesses are able pay them. As real estate only accounts for 5-10 percent of a company’s expenses, tenants will have to pass some of this cost to consumers, but higher rents should be sustainable for most companies. There has been some sticker shock at renewal time, but we have seen no reduction in demand as prices have risen.  

Boynton – Rates rising faster than they can be posted online

While many are waiting for the bubble to burst, I don’t see it happening any time soon. Growth will eventually slow, but strong demand and limited supply indicate continued growth in industrial rents and property values. As a tenant representative it is getting increasingly more difficult to find the right space for my clients.  But with the market changing faster than online listings can keep up, it is important to have someone on your side who tracks the market from the ground up every day.   I will continue to stay on top of the market on a daily basis, not just to help my clients find space, but also to identify the increasingly elusive concept of value.

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Setting The Trends – Doubling Down on South Florida Industiral Market

In KensTrends, I generally try to identify the trends that I see shaping the South Florida commercial real estate market. But it’s even better to be the one setting the trend. This recent 2-part transaction clearly indicates the state of South Florida’s industrial market. We saw the value of this property increase by over 20 percent in the six months we had it under contact.  I was also able to lease the property at a gross rent approximately 60 percent higher than a compatible lease I had completed 15 months earlier. My advice to tenants and buyers: act now – rental rates and sale prices are rising at an unprecedented pace.

It’s always great to put a deal together, but Ken Silberling of Levy Realty Advisors doubled down by not only selling the property, but also negotiating a long-term lease. Silberling represented the buyer SPMG Holdings, LLC in the $4.08 million acquisition of the 27,000 square foot former Craig Electronics headquarters at 1160 NW 163rd Drive in Miami Gardens. He then represented the new owner in leasing the building to The Taverna Collection. The building features approximately 8,000 square feet of office and 19,000 square feet of warehouse space on 1.3 acres. It is located in Sunshine State Industrial Park at the Golden Glades Interchange.

“We agreed on the contract over the summer, but the seller wanted to hold on through the expiration of the Craig Electronics lease at the end of 2021,” said Silberling. “We then marketed the property for lease, which we completed in January. At $151 per square foot, it was high for Miami Gardens, but below prices for comparable Broward properties.” 

Silberling spoke to many owners and brokers in the market but found that no one could explain why Miami-Dade properties sold and leased for less than those in Broward. “That gap is now closing” he said. 

“We had offers to flip the contract at a significant profit, but with diminishing supply, a steady flow of relocations from the northeast and minimal new construction targeting smaller users, we believe the value will continue to grow.”

Ken Silberling is Vice President of Brokerage and Tenant Representation for Levy Realty Advisors. He works with tenants and buyers to uncover opportunities throughout Miami-Dade, Broward and Palm Beach Counties. He is also the author of kenstrends.com a monthly blog on commercial real estate in South Florida and is Regional Partner for TenantBase, an online tenant representation platform. Levy Realty Advisors, established in 1977, guides private equity investors in acquisition, asset management and leasing, overseeing a portfolio of over 3.5 million square feet of commercial property in South Florida.

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2021 in Review from the Ground Up – Amazon, COVID and South Florida on Fire

2021 was a year of challenges, but it turned out to be highly rewarding for the South Florida commercial real estate market and for me personally. I specialize in tenant and buyer representation in the office and industrial sector throughout the tri-county South Florida market. I work the front lines scouring the market on a daily basis to find the best space for my clients.

Ken finishes 2021 with a bang – more to come!

In my early career in market research, my perspective was based on statistical analysis. Today, the most valuable insight I can provide is a current read on what I see from a tenant perspective. Sometimes it’s useful to get a view from 30,000 feet. But it is equally important to see it from the ground up.

The two biggest factors I see influencing the current market are COVID and Amazon. COVID has accelerated technological change and fundamentally altered the way we work. Like a lot of you, I used to spend a majority of my time in an office or meeting clients. Then, circumstances suddenly demanded that we work from home. While I enjoy working from home, there are less distractions and more sharing of ideas in the office. In my opinion, and for many of my clients, a hybrid model is the optimal way to get the most accomplished.

The office market has rebounded. After peaking in mid-2020, tri-county vacancies declined from 10.7 to 10.3 percent over the past 12 months (according to CoStar, the leading source of market data). Contrary to popular opinion, the office is not going away. It is changing, however. A side effect of work from home is that companies are reconsidering where they want to be geographically. South Florida is on fire as CEOs and their families continue to relocate to escape icy winters, state income tax and in some cases, restrictive shutdown policies. Meanwhile, the industrial market is booming and Amazon has added rocket fuel to that fire. My unofficial calculations show Amazon absorbing 3.5 million square feet of South Florida industrial space (including 373,000 next to a building I leased) since the onset of COVID with an additional 2 million in the pipeline. And that doesn’t account for the space occupied by Amazon resellers and its e-commerce competition.

Not surprisingly, the institutional developers are building massive warehouses to capitalize on the e-commerce boom. But this is being done at the expense of the smaller tenants in the 5,000 to 20,000 square foot range. That happens to be the market segment in which I generally operate. No one is building for small business and with limited supply, buildings that leased in the $11 to $13 (including operating expenses) pre-COVID are now in the $15 to $20 range.

And those spaces are getting harder and harder to find. My latest run on CoStar shows a 3.3 percent industrial vacancy rate in the tri-county market. But I recently ran a survey of 5,000 to 10,000 square foot availabilities in Miami’s Doral market. Of the 30 properties that came up online, only six were actually available. I see more and more brokers showing occupied spaces as available in order to generate outside activity. I identified this phenomenon on KensTrends as the “virtual property sign”. But owners, who don’t rely on outside deals, tend to be more accurate. Two of the market’s largest owner operated small-bay properties, Doral’s 3.5 million sf Miami International Commerce Center, and South Broward’s 860,000 Kelsey Business Center are showing approximately 1.5 percent available. I believe that more accurately reflects the market for 20,000 square feet of less.

So what do I see for 2022? First, if you are looking for warehouse space in South Florida, you are going to come up empty on around 80 percent of your calls. Finding warehouse space in South Florida is a needle-in-a haystack. It is very helpful to contact a tenant representation specialist who is in the market every day, knows the players and knows what is truly available. Yes, that is a plug for my own tenant representation practice.

With increasing demand for space and limited supply, industrial rental rates and property values will continue to increase. It was recently estimated that Miami will run out of industrial land in about 5 years. It will take creative solutions to continue to meet demand in South Florida and those solutions will certainly come at increased cost. Redevelopment of existing sites, adaptive re-use, higher ceilings and even multilevel warehouses are on the table. The question is whether businesses are sustainable as real estate costs continue to rise.

Miami’s 640,000 sf 830 Brickell is set for 2022 delievery at asking rates of up to $100 per sf. Microsoft has leased 50,000 sf.

On the office side, needs are changing and many companies can operate with a portion of their workforce operating remotely. We may see some downsizing but that will occur over a three to five year cycle as leases roll over. With new office construction limited and an influx of companies relocating to South Florida, the office market is back. I don’t foresee the rapid increase in rates like we did for industrial, but nobody is giving it away. There are still pockets in the market that provide value for tenants – again it is a good idea to work with a tenant representative who is in the market every day to find the best value.

Ken with Broward Vice Mayor Udine, June 2021. He was sworn-in as Mayor in November.

Finally, and to wrap up KensTrends for the year. I want to go back to a presentation that I sponsored back in June. While Miami has the sizzle and gets the headlines as an emerging technology hub, the entire tri-county metropolitan area of over 6 million people is benefitting. As our new Broward County Mayor Michael Udine said earlier this year “Broward (Fort Lauderdale) is getting ours”. The same holds true for Boca Raton and Palm Beach. All of South Florida is on a roll and I don’t see anything stopping it.

I’ve been active in this market for over 30 years in research, acquisitions, and leasing. I specialize in finding opportunities where others can’t. That is the result of market knowledge, experience, persistence and most importantly, communication. Please contact me if you are looking to buy, sell, lease or invest in the South Florida market.

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Ghostbusters – Please Join Us!

As Halloween approaches, one annoying aspect of my tenant representation practice continues to haunt me.  The term “Ghosting” has only recently entered my vocabulary. The urban dictionary defines it as cutting off all communication to someone, with zero warning or notice beforehand. It is used primarily in dating, but I am seeing it more and more in business.

Ghosting seems more popular among the generation that has grown up with email and cellphones. It has gotten easier to screen calls and ignore emails than it is to make the difficult call to say no. What am I asking for? Tell me yes, I want the deal – or just say no, thank you for your interest. Just please, don’t ignore my calls, texts or emails  I welcome you to join me. The world needs less ghosting and more Ghostbusters.

From the Urban Dictionary

I work hard at my craft. As a tenant representative, I help companies to find the best value on the best commercial space for their business. I have an encyclopedic knowledge of thousands of office and industrial properties in South Florida that comes from over 30 years of experience, initially as a research professional, then as a leasing and acquisitions specialist and broker.

I save my clients time, money and aggravation; and my fees are paid by property owners so they receive professional representation at zero cost. My personal mantra in the industry is ABC. You may think that means always be closing, but to me it is always be communicating.

I’m not perfect by any stretch of the imagination, but if someone has made a diligent effort to earn my business and I decide to move in a different direction, I believe in ABC – always be communicating. Tell them no, tell them why and walk away with respect. You may do business with that person again some day and you don’t want to burn bridges. By saying no, you save me time by not having to keep following up. It saves you time by not having to delete my voicemails and emails and saves you from feeling guilty for not responding. I have even developed the ABC email, but people often won’t even respond to that. And these aren’t random cold calls, these are usually people who initially reached out to me to ask for help.

Ghosting is killing productivity, causing stress and it has become the single most annoying aspect of my business. So make the call. If you can’t say yes, just say no and put it to bed. Sometimes it’s easier to rip off that band-aid! Business ghosting must stop! Thanks for letting me vent, I feel better already.

Ken Silberling, Ghostbuster

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The Top Two Reasons To Use A Tenant Representation Specialist

As a tenant representation broker, I am out promoting my services every day. There are dozens of reasons for you to work with me. I save my clients time, money and stress. I also help them avoid costly mistakes they may never have considered. I thought a top ten list would be a good idea. But sometimes the simplest reasons are the most powerful. So today, I want to focus on only two.

Many people think they can simply go online, find a space and negotiate a lease. Here is why they usually cannot. These are my top 2 reasons to hire a tenant rep broker:

1. Everything you see on the internet is not necessarily available
2. Everything available is not necessarily on the internet.

My former company had a great tagline “right space, right place.” While there is a whole lot more to the tenant representation process, that is still the most important aspect of my job. By the right space, we mean the right size, right configuration, right image, right price and the right landlord. Of course right place means location, location and location. Your place of business has to be convenient to employees, customers and of course the CEO. Employee safety is another key concern as is access to shipping routes.

So all you have to do is get on Loopnet, CREXI, TenantBase or one of the other online commercial real estate marketplaces and instantly find the right space in the right place. Right? No wrong – please refer to rules 1 and 2.

Finding the right space is more than knowing how to use Google, Loopnet or any of the other online services. It takes market knowledge, experience and relationships to uncover opportunities for my clients. From there we get into reasons 3 through 10 and beyond. The ideal solution is to combine the convenience on online search with the expertise on an experienced broker. That is what I am providing through my association with TenantBase I have a series of articles on other tenant representation topics at kenstrends.com/tenant-representation/ and plan to add more. But the most important reason to use a tenant representation broker is to find the right space in the right place, so please remember reasons 1 and 2. And as I’ve explained in an earlier post, my services are available at zero cost to my clients.

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Vice Mayor: Miami May Have the Sizzle But Broward is “Getting Ours”

I was honored to host the June 10, 2021 meeting of the South Florida Office Brokers Association (SFOBA) for only our second live event in the past 18 months. My clients, Prisma at Cypress Creek sponsored the event. Prisma is a newly renovated boutique office building in uptown Fort Lauderdale. We have 1,327 to 5,678 square feet of office with floor to ceiling glass and superior service ready for immediate occupancy. 

Below are  two videos from the event: the first is a two-minute “highlight reel” with the Vice Mayor’s most important points and I also have the full nine-minute presentation.

Highlights

It was great to get back together with a group of the top commercial real estate brokers in South Florida. We have a mailing list of over 380 brokers who represent a large majority of the leasing  activity in Broward County (Greater Fort Lauderdale) and also extending onto Miami-Dade and Palm Beach Counties.

I had met Broward County Vice Mayor Michael Udine virtually over Twitter. I had retweeted an article where he discussed South Florida’s success in recruiting tech and venture capital companies. I also found out he was a real estate attorney by trade and he helped put together one of South Florida’s largest recent land transactions. As mayor of Parkland, he was able to annex 1,000 acres from unincorporated Palm Beach County. He also recently spent some time with Elon Musk’s The Boring Company to discuss tunnel construction in East Fort Lauderdale. 

Full 9-Minute Presentation

I have become a big fan of Vice Mayor Udine for his enthusiastic and proactive support of business throughout South Florida. I’m hoping he becomes a big fan of kenstrends.com!

Michael explains the sizzle as Ken listens on.

 

 

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“Virtual Property Signs,” Tenant Representation and Why Online Property Listings are Always Wrong

We’ve all heard how Commercial Real Estate is slow to adapt to emerging technology. But I’ve noticed a new tech trend that has very  quietly surfaced on the internet. It is something I call the “virtual property sign.”

For as long as people have sold or leased real estate, brokers have installed signs on their properties to attract buyers and tenants to the property. They also help us to promote their brand. But the signs also provide a secondary benefit. They help to generate customers that we brokers can represent on other properties.

I’ve been involved in this industry for over 30 years. I’ve seen landlord markets, tenant markets, buyer’s markets and seller’s markets. Back then, even when things were the tightest, prospects would tell me “there’s tons of space out there – look at all the signs on the street.” But brokers always kept their signs up in the hope that they could direct prospects to different properties and make deals – regardless of whether they had space available.

Fast forward to 2021 and thanks to CoStar/Loopnet and newcomers like CREXI and Commercial Café, everything is now out there on the internet – or at least it seems to be. Physical signs are still highly important, but most property searches start online and CoStar claims to capture 83 percent of online commercial property searches. So online presence, and specifically Costar/Loopnet  is now the most important vehicle for marketing our properties and services.

Over the past few years as my focus has shifted to representing tenants, I have become increasingly frustrated with the inaccuracy of the online availabilities. I became convinced that CoStar and Loopnet were always wrong.

But here is a dirty little secret – and my sincere apologies to my friends at and CoStar. It’s not their fault that the online listings are wrong; they are only publishing what the brokers give them.

CoStar has a brilliant business model that seen their market value increase to over 30 billion. We voluntarily provide our information to CoStar for free and then they sell it back to us… You’re welcome, Costar.  Is it wrong for brokers to present information online in a way that best benefits themselves and their clients?

Through discussions with brokers and my performing hundreds of market surveys, I have come to an important realization. Just as brokers keep their physical signs up on fully leased buildings, many brokers are now also keeping their “virtual for lease signs” installed on major website listings regardless of whether the properties are still available.

So you can’t necessarily believe all the availabilities you find on the internet. And you can forget about online pricing – I cover that in another post. Some day, someone may come up with an online listing service with real-time availabilities and full price transparency that will truly disrupt the commercial real estate market. I wrote about that 10 years ago when CoStar was worth only a billion but not much has really changed.

Here is the reality. Availabilities are changing constantly and there is incentive to keep virtual signs for occupied spaces posted online. Internet search is helpful, but it still takes old-school market knowledge and relationships to uncover opportunities in the market. So for now and for the foreseeable future, online availabilities will continue to be incomplete, if not totally inaccurate.

Thankfully, for my colleagues in tenant representation and myself, this is a major reason why you need our services more than ever. It is also why the industry has been so resistant to change. But tenant representation is more than uncovering the best space at the best rate. A tenant representative helps clients avoid key pitfalls and hidden costs that can come back to hurt them in the long run. We also help clients to use their space more efficiently and to create great workspaces in prime locations to attract top talent. And – as I also covered in prior post, a tenant representative is available at zero cost to the client.

So feel free to start your search online and get an idea of what type of buildings and locations are of interest. Then, hire a tenant representative who can uncover both online and offline opportunities, protect you from hidden costs, and help enhance your efficiency – all at no cost to you. And don’t believe everything you read on the internet.

 

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Tenant vs. Landlord Representation – Is There A Conflict?

One of the most controversial issues in tenant representation is conflict of interest. It is ok to represent both landlords and tenants in the same market and even on the same transaction? I have faced that question and I believe you can. Still, many brokers exclusively represent landlords while others work only with tenants. There are brokerages like CRESA, Savills and Mohr Partners that are tenant-only or “occupier-centric” houses and they promote themselves on the premise of no conflicts.

Occupier-Centric Brokerages

I spent 13 years of my career as an in-house leasing and acquisitions agent for a regional investor/developer. I later spent two years with an online commercial marketplace exclusively representing tenants. In my current position, I am doing about 2/3 tenant and 1/3 landlord representation. I am comfortable working either side of a transaction and by understanding the needs of both sides, I believe I am more effective in whichever role I play.

I don’t deny that a conflict exists, but as long as it is disclosed to landlord and the tenant, it will generally not stand in the way of a fair transaction. It is a matter of transparency and it is also a matter of integrity. Whether you are the landlord or the tenant, it is a question of whether you trust your broker. In my 30+ years in the market, I have worked with hundreds of brokers. Most of us who have been in the industry for a long time are here for a reason. We are professionals, we generally value our long-term relationships with both landlords and tenants and we will not take any shortcuts for short term gain that can damage our reputation over the long haul.

One additional key point – whether your broker represents the tenant or landlord side of a transaction, it is industry practice for brokers on both sides to be paid by the landlord. So even when you hire a tenant-only broker, there is an inherent conflict of interest. Even though they represent the tenant, their check is coming from the landlord.

Win-Win negotiation – create a larger pie

I am not recommending against hiring a tenant-only broker. There are many excellent brokers exclusively representing occupiers and the same is true on the landlord side. In my case, I have worked both sides and I understand the needs of both landlords and tenants. I work to represent the interest of my client while developing win-win solutions that benefit both sides. It is often not a matter of splitting up the pie, it’s a matter of creating a larger pie.

So when selecting a tenant representation broker, my advice is to be less concerned with whether my broker is “tenant only” and more on the broker’s overall reputation and experience. It’s not necessarily a matter of who your broker represents, it’s a matter of integrity, market knowledge, and the ability to identify and resolve problems. I understand there are strong opinions on both sides of this issue and I welcome your comments.

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Tenant Representation – The Best Deal in Commercial Real Estate?

As a tenant representative, my job is to help my clients to find the best deal on the ideal location for their business. One of my key points in selling tenant representation is that it costs the tenant absolutely nothing. Not bad when you compare your tenant rep broker with your attorney, your accountant, your financial advisor and your doctor.  But is tenant representation really free? The short answer is yes. If you are comfortable with that answer you can stop here, but if you’d like an explanation, let’s continue.

Sure you can find space on your own. Thanks to services like Loopnet and more recently CREXI and their residential counterparts Zillow and Trulia, there is more real estate information online than ever before. But in a recent search for a tenant requirement, I came up with over 100 possibilities. Do you have the time, the patience and the expertise to reduce this to a manageable number, to be sure you haven’t missed something, to understand the differences in pricing structure, and to make the calls to verify availability? And is the agent even going to return your calls or emails? Then, do you fully understand the intricacies and potential hidden costs in leases than go on for over 30 pages and seem to be getting longer every year?

Personally, I am a notorious do-it yourselfer. I am constantly working on projects around the house and take a lot of pride in my accomplishments. But years ago I realized I was better  handing my 401K to an advisor who lives, eats and breathes the stock market, having my taxes done by a professional and I certainly wouldn’t have attempted my own knee surgery.

Tenant representation involves gaining a thorough knowledge of the tenant needs including budget, layout and image in addition to location, location and location. Your tenant rep has an intimate knowledge of the market, the properties and the players. Your tenant rep will create competition between landlords and skillfully negotiate the best possible deal on your behalf. I provide a professional service that saves my clients time, money and aggravation. Tenant reps are highly paid for providing a valuable service.

So what is the true cost of my services? The market fee right now for a tenant rep is 3 to 4 percent of the lease value. Most of the major landlords in the market are paying 4 percent.  But that fee is paid by the landlord not by the tenant. So there is no direct out of pocket cost for the tenant.

But my fee has to be added indirectly into your lease payment, right? Not really. The market fee for a landlord broker is 6 percent. If the tenant is represented, that 6 percent is split between the landlord’s broker and the tenant’s broker. So the landlord pays the same 6 percent whether the tenant is represented or not.  So if you don’t have representation, you are essentially cheating yourself and paying the entire fee to the landlord’s rep. By not hiring a tenant rep, you are basically throwing 3 percent of your rent out the window.

Yes, the landlord will often add one more point for the tenant rep broker so they will pay 7 rather than 6 percent. You may also see a landlord rep taking a little less on a direct deal without a tenant rep. So in some cases, my services may cost the landlord one extra point. But landlords have already budgeted for commissions for tenant brokers and it generally has no effect on your rate.

Landlords often tell me they love paying commissions because it means they are getting good tenants who will provide steady income over the long term. And most prefer negotiating with brokers who understand the process rather than tenants who may not.

Can I help you to negotiate a deal that is one percent better than you can do yourself? And can I protect you from mistakes that can cost many more percent?  The short answer on this is absolutely yes.

Call, text or email me and I would be happy to represent you to negotiate the best deal on the ideal space for your company. I will save you time, money and aggravation, and best of all, (and I hope you now have a better understanding) it costs you nothing!

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Tenant Representation and Whatever Happened to Price Transparency?

This is the latest in my continuing series on tenant representation.  No time to read? Click here  or on the video above. This month’s article is about price transparency – or the lack thereof. What is price transparency? Let’s take a look at Dollar Tree. At Dollar Tree, everything’s a dollar. No questions,  no negotiation, no drama – and that is generally good for the consumer. What isn’t price transparency? Think about the auto industry. Who wouldn’t want a Lexus for $199 a month, but if you read the fine print, there is an additional $5,000 in up front fees.

While other issues are dominating the headlines, price transparency has been very much in the news. In October 2020, the U.S. Department of Health and Human Services enacted new rules on price transparency in the healthcare industry. Insurers will  be required to post prices for standard medical procedures starting in 2022. By bringing pricing into the open, regulators hope to enhance competition and reduce costs to the consumer.

 

That’s great for healthcare, but price transparency is sorely lacking in commercial real estate. In fact, leasing an office space is probably worse than leasing a car and the fine print takes the form of a 30 to 40 page lease. Business owners today face an increasingly complex leasing marketplace.

There are net leases, gross leases, full service or modified gross. These leases can vary widely is in the way tenants are billed for operating expenses, and there are with many potential hidden costs. Who gets the electric bill,  who pays when the air conditioner breaks? In some leases, tenants are responsible for insurance deductibles after a natural disaster. And what is the cost to build out the space, whs’s paying and how long will it take?  In Florida, we also have sales tax on rent. To make it even more confusing, as I covered in an earlier blog, a square foot in one building can be larger than a square foot in another.

Property owners make it difficult to compare rates on an apples-to-apples basis and that is often by design. With my former company, we developed databases that allowed tenants to search for spaces by price. Our plan was to disrupt the office leasing market using artificial intelligence and price transparency. But our company was acquired and price transparency, at least for now, dissolved with it. Even on CoStar and LoopNet, the industry’s primary data source, you still can’t effectively search by price.

While price transparency helps simplify the process, no two spaces are the same and no two leases are the same. There are qualitative issues that can be more important than price. Does the space allow your employees to be more productive, does it help you to attract top talent and does it encourage collaboration with other businesses?

So how can the average tenant get information on pricing and other factors in order to make the best decision regarding their office space? I hope I’ve made a strong case for why you need someone who can help navigate you through the process. That is the job of a tenant representation broker.

You may sign a lease every three to five years, but I’ve negotiated up to sixty leases in a year. As a tenant representative, I know the buildings, I know the numbers and I know the pitfalls to avoid. I’ll answer all your questions plus a few you didn’t even know you needed to ask. I’ll find you the best deal on the right space and my fee is paid by the landlord so you get professional representation at no cost to you.

And everything’s a dollar

I can walk into Dollar Tree, buy a few things and feel confident I’ve gotten a good deal. But  I won’t buy or lease a car without my auto broker. The less price transparency, the more you need professional representation.  Maybe someday there will be a major disruption in the way we lease commercial space. But considering the qualitative aspects as well as the potential for hidden costs, a tenant representation specialist can save you time and money and help you position your company for success. And best of all, it costs you nothing.

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Back to The Office

It’s been a year since the onset of the COVID lockdown in the U.S. and for millions of Americans, work from home has become the new norm. We still have a long way to go and some major logistical roadblocks to overcome. But there is a glimmer of light at the end of the tunnel and it won’t be long before we are all “Back to the Office.” I have learned to appreciate working from home occasionally, but there is no substitute for the interaction and collaboration that can only be attained through physical presence and the office experience. Special Preview – Tenant Representation and Whatever Happened to Price Transparency?

With that in mind, here are some great office space for lease in Fort Lauderdale and North Broward County:

Prisma at Cypress Creek is a three-story boutique office renovated in August 2020. We have space from 1,831 to 5,319 square feet. Below is a virtual tour of Suite 103/105 at 5,319 square feet. Flyer and Plans

6101 Professional Plaza is a renovated two-story office building for medical or professional use with immediate occupancy from 1,200 to 4,900 square feet. It is close to 3 hospitals and conveniently located between the Cypress Creek and Coral Springs markets. Flyer and Plans

Cypress Creek Medical Pavilion is Uptown Fort Lauderdale’s newest office building with surgical center a diagnostic facility and a cafe onsite. I have a great 2,680 square foot office sublease with 12 offices and flexible terms as short as 18 months. Flyer and Plans

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A Shot In the Arm – Thought I’d Share One of My Better Email Blasts

I generally tend to blog on items related to office space leasing and commercial real estate. If all I did was promote my properties, I probably wouldn’t get a lot of attention. But sometimes I come up with promotional pieces that I think are worthy of putting out on the blog. This is one. 


Every Business Can Use A Shot in The Arm


Every business can use a good shot in the arm. At Prisma, we have great office space from 1,831 to 5,319 square feet. We’ve recently renovated our common areas and we provide one of the best values in town to inject new life into South Florida businesses.


Socially Distant Virtual Tours at:
www.PrismaCypress.com
1000 NW 65th Street, Fort Lauderdale, FL 33309

Virtual Tour Of Suite 103-105 at Prisma

Click Above for Virtual Tour Of Suite 103-105 at Prisma 2,385 to 5,319 SF

    • Contemporary Boutique Building
    • New Responsive Ownership
    • Floor to Ceiling Glass
    • Individually Metered Electric
    • I-95 Cypress/Powerline Location
    • Virtual Tours for all Availabilities
    • 1,831/2,384/2,835/3,661/5,319 SF
    • $16 NNN + $9 Operating + Elec.
    • Plans, 360 Tours & Interactive map Website

Download Flyer & Plans

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The South Florida Office Market Post-COVID – a Year-End Snapshot

I began my career as a commercial real estate market analyst and built a paid subscriber base of top investors and lenders. My reports were also featured in the local and national press. Today, I spend more time doing deals than reporting on them, but I try to share my insights via KensTrends as well as other sites across the web. What can I say that hasn’t already been said? As a market analyst and a stakeholder, I wanted to gauge the effects of the pandemic on the South Florida office market and search for a silver lining on what has been quite a cloudy 2020. So here is my holiday gift to you: “The South Florida Office Market post COVID – a  Year-End Snapshot.”

One of the great things about having my own platform is that I can focus on the market sectors that are of interest to me. I can also publish my reports on my own time frame, so I can beat the national brokers in releasing year-end numbers. 

Crunching the Numbers

I took a look at four submarkets to see how they have fared since the initial lockdown this March. Miami’s Brickell Avenue and Downtown Fort Lauderdale are both premium CBD (Central Business District – not that CBD) markets commanding the highest rental rates in South Florida. Are law firms and financial institutions looking for more economical space while fleeing to the suburbs? Boca Raton is more of a suburban market catering to upscale residents. But is that wealth resistant to the impact of a pandemic? Finally, Cypress Creek, just north of Downtown Fort Lauderdale, provides some of the best value for office space in the region and is very accessible for suburban residents. Will this attract new businesses looking to reduce costs while escaping city congestion?     

The advantage to doing a market analysis in 2020 is that the data is readily available thanks to CoStar. I have set up my own sets of buildings to analyze, and what used to take weeks of phone calls, faxes,  (what’s that?) data entry, and number crunching, can now be accomplished with a couple of keystrokes.  While I noticed a few issues and errors with the data,  as long as it is collected in a consistent manner, we can still spot market trends.

With the onset of the pandemic, the rise of “work from home” and the flight from congested cities, I expected to see increasing vacancy rates and declining rental rates. This would also be more pronounced in the CBD markets than in the suburbs. With that in mind, let’s take a look at the numbers: 

From the end of (Q4) 2019 though the end of the first quarter of 2020, the market continued to strengthen. The end of Q1 2020 is when the lockdowns started, so Q1 2020 represents the market’s crest. So we will focus on the market from Q1 through Q4 2020. My Q4 figures are accurate as of December 20, 2020, and shouldn’t change a whole lot over the next 2 weeks.   

How Has South Florida Fared?

Main on Las Olas Fort Lauderdale Office Space

Rendering- The Main on Las Olas

Kaplan University - Cypress Creek Office Space

Kaplan University – Cypress Creek

Downtown Fort Lauderdale saw the largest increase in vacancies from 15.2 to 18.0 percent. But with the completion of the Main on Las Olas – the first major building added to the market since 2002 – that rate is actually 23.0 percent. Meanwhile, Cypress Creek, with the lowest rental rates in the group, saw vacancies increase only marginally from 14.6 to 15.0 percent.  The Cypress Creek Class B market (where I am marketing Prisma at Cypress Creek) is the only segment in this survey where vacancies decreased. As expected, the highly affluent and largely suburban Boca Raton market saw less change than most of the other submarkets.  You would also expect an increase in sublease space, but that has not materialized to date. One notable exception is Kaplan University’s 97,000 square foot space in Cypress Creek, which has yet to be recognized by CoStar.

But the most surprising aspect of the current market is that rental rates continue to increase across the board. The Class A market on Brickell is the only segment that saw a decrease, but rates remain over $50 per square foot. A couple of observations here that I believe are important. First, we are only nine months into what has been called the “coronaconomy.” Office leases generally run on a three to five year cycle. A lot of office tenants have not yet had the opportunity to address their changing office needs, so we may not see the full effect of the pandemic on the office market f

Brickell Office Space

Brickell via Ken’s Iphone

or a couple of years. I was also told by another market analyst that it took eighteen months before rental rates began to decline after the 2008 stock market crash, so it could get worse before it gets better. While landlords have not begun to reduce rental rates, we are seeing an increase in promotions and concessions. 

Looking Toward a Better Year

So where are we and where are we going? I will preface this by saying that we might all be wrong. Who would have predicted a worldwide crisis 12 months ago? But as things begin to crystalize throughout 2021, we will have a much clearer picture. 

I remain highly optimistic about South Florida. I am personally seeing a lot of new activity coming out of the Northeast. Just as the pandemic has accelerated the acceptance of work from home,” it is also accelerating acceptance of “work from anywhere.” Technology and financial firms are eyeing Florida as an escape from both frigid winters and state income tax. The recent relocations of Oracle and Tesla from California to Texas are prime examples, while Goldman Sachs and JP Morgan are reportedly considering Florida. 

We still don’t know how behavioral changes will affect the office market. Will “work from home” reduce the need for space, or will social distancing increase the required square footage per employee? Office leasing has slowed, but

My Previous Nationally Syndicated Article on COVID and The Office Market

Click above for link to my earlier national article on COVID and the office market

it’s only a matter of time before things begin to pick up as we move out of our living rooms, put on our pants, and head back into the office. Our needs for office space are changing, but we still crave the collaboration, social interaction, and productivity that you can’t get on Zoom.

I expect a bit of a downturn as leases turn over in the next 18 to 24 months. For landlords in South Florida, there is no need to panic. It makes sense to aggressively pursue quality tenants in order to make the best of the next 18 to 24 months. But any downturn should be relatively short-lived. For tenants, it is a time to look for value and try to lock it in for the long term. We are in the midst of a fundamental change in the way we use office space and what we hope is a temporary economic downturn caused by unforeseen external factors. But there is a much stronger trend drawing business toward South Florida that should more than offset the decline. I have already seen cases of buyers waiting for prices to come down that now wish they had acted earlier. There may be some opportunities to wait and take advantage of a market downturn, but that window of opportunity is closing quickly as South Florida is well positioned to lead the nation’s economic recovery.  

In the meantime, happy holidays, stay safe, wear your mask (and your pants), and let’s look forward to a better year in 2021.

 

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Not All Square Feet Are Created Equal

I thought it would be a good idea to add a reference section with some leasing fundamentals to my website. And with KensTrends, I to try to do it in an entertaining way  – all while showing off my new backyard “studio.” So here is the first in a new series on office leasing concepts: “Not All Square Feet are Created Equal.”

You’re probably wondering what the picture below has to do with commercial real estate. Well, it has everything to do with commercial real estate. The tile is exactly one square foot. I’m in the business of leasing and selling square feet. But when you lease a square foot of office space, the red piece is what you generally get – about 15 to 20 percent less. 

Office Space Leasing Usable and Rentable

What does this have to do with  real  estate?  Click for the video.

When I first meet with a prospective tenant, will we discuss total square footage required and ideal layout. For instance, I recently worked with a health insurance agency looking for 3,000 square feet with 3 offices, a break room, a conference room and an open space  for 8-10 cubicles. That sounds reasonable, and I wound up leasing them 2,928 square feet. But in reality, their space was only 2,499 “usable” square feet. Was the Landlord cheating the tenant? No, this was a multi-tenant building with a lobby, common area restrooms, elevators and corridors. It is perfectly acceptable for the Landlord to apply an “add-on factor” to account for the tenant’s share of those common areas which comprise 17.2 percent of the building.

Most traditional office buildings apply add-on factors of 15 to 20 percent. There are strict guidelines established by BOMA, the building owners and managers association, and most owners will follow these guidelines. But tenants should know that when they lease 1,000 “rentable” square feet they are only getting from 830 to 870 “usable” square feet.

But in some cases, such as single-story offices or buildings with exterior corridors, there is no add-on factor. This type of building usually has its restrooms within the suite and they can account for 5 to 10 percent of the rentable square footage.

I know that price per square foot is how most people compare different spaces and there is nothing wrong with that. But there are add-on factors to consider and some layouts are more efficient than others with fewer corridors and dead ends.

As a tenant representative, my job is to find you the ideal space that best meets your needs regardless of the measurement.  I work with my clients to find the workspace that allows them operate to most efficiently while  also helping in recruiting top talent.

While Landlords generally quote price per “rentable” square foot, it is more useful to consider price per “usable” square foot, price per employee or simply total monthly cost of occupancy just like you’d compare a car payment or a mortgage payment.

Square footage and price per square foot are reliable guides but there is more to consider because “not all square feet are created equal.”

It’s best to have a tenant rep on your side who can navigate this and other important issues and best of all, it costs you nothing. Call text or email me for more information and stay tuned to kenstrensds.com.

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My Summer Staycation, A Flurry of Deals and Market Outlook

In the early days of the lockdown, I got pretty good at creating videos and podcasts while gearing up to do my own virtual tours. Then, my activity level began to take off. So how did I spend the lockdown and my summer staycation?

In April, I took on an assignment to lease Prisma at Cypress Creek, a boutique office in Fort Lauderdale. The owners completed a major renovation and I personally developed the website and virtual tours for the property. This team effort has resulted in our successfully leasing nearly 10,000 sq. ft. We are now 95 percent leased, but with upcoming rollovers, I can still accommodate tenants up to 5,319 Square Feet.

Also this month: – My top 10 articles in 10 years of blogging.

Prisma at Cypress Creek Office Space Fort Lauderdale

Prisma At Cypress Creek: Tour our upgraded lobby plus Suite 103/5 5,319 SF.


Virtual Tour – Prisma Suite 110 – Leased to QOL Investments

I’ve also been busy with a number of office and industrial tenant representation assignments, which included the sale of an office condo, which has been a favorite blog topic of mine.

The Exchange 3363 W. Commercial Boulevard, Fort Lauderdale, FL  – Represented Sharma & Associates Accounting as occupier and investor in purchase of 6,000 SF Office Condo.
 
Overall, the market has seen a temporary downturn tied to the pandemic, but office and industrial vacancy rates are up only up one percentage point in Broward County since the onset of the lockdown at the end of Q1 2020. Demand remains strong, particularly among owner/users as “work from home” seems to be accelerating the exodus from the northeast to sunny South Florida. I therefore remain highly optimistic about our market as we move into 2021.
Plantation Medicial Plaza Office Space

Plantation Medical Plaza – 2 for 1 – Relocated and downsized existing tenant to accommodate new lease for medical practice.

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