How CTRR does more to cut occupancy costs for law firms, even firms with many good real estate lawyers
Why are major law firms as vulnerable as any other office tenant to signing leases with terrible, anti-tenant terms?
One national law firm has over 30 real estate lawyers, and its Manhattan lease exceeds 200,000 square feet of space, yet this law firm signed a lease with these terms:
- The landlord’s capital expenditures are NOT excluded from operating expenses billable to tenants.
The landlord is obligated to provide only about half as much electricity as was considered necessary for the law firm’s computers and other office equipment.
- The law firm can be displaced, losing its investment in the premises and other valuable rights if its landlord defaults under its mortgage.
- The tenant’s right to sublease space is substantially nullified by restrictions.
- The tenant must continue paying rent even if the offices become unusable. Only the landlord has termination rights!
In another case, a major Manhattan law firm negotiated a lease that fails to provide effective audit rights. There will be millions and millions of dollars in escalation charges, but the tenant has no right to know what they are being billed for. Landlord monthly statements never provide underlying documentation, yet the lease failed to assure the tenant’s right to have an independent auditor inspect the landlord’s general ledger, invoice files and vendor contracts, so it could be determined that billings were consistent with lease terms.
Yet another major Manhattan law firm found it was severely limited in its ability to cut costs because of a single lease term. While some partners had expertise in real estate law, they didn’t understand how this lease term worked against them in changing real estate market conditions.
Clearly, legal expertise isn’t enough to protect a law firm – or any tenant – from signing a problem lease. It isn’t a lawyer’s business to know whether a landlord is offering fewer base building services than what other tenants are getting now. Nor is it a lawyer’s business to analyze the economics of a building’s HVAC system, to determine whether it’s likely to mean excessive HVAC costs during the next lease term. Lawyers don’t examine a landlord’s general ledger, invoice files or vendor contracts to see how the accounting system might do an end run around “standard” lease terms – and what additional protections must be negotiated for a tenant.
When law firms have been represented by landlord brokerage firms, the stake these firms in retaining tens or hundreds of millions of square feet of landlord building agencies and property management contracts has constrained them from protecting law firms where they are vulnerable. Since every landlord is a client or potential client of landlord brokerage firms, they are constrained from aggressively helping tenants to cut occupancy costs (landlord revenues) even if they don’t try to steer you into buildings they currently represent.
On most assignments, we are paid by the landlord just as your traditional broker is paid. However, the services CTRR provides are much more comprehensive than a traditional brokerage firm. This means that you get more value for the same price. It also assures you of a better transaction because each phase from start to finish is integrated with every other, and each is linked to your objectives. There are fewer opportunities for important issues to fall through the cracks.
1. Space programming. After we understand your strategic objectives, we prepare a preliminary space program. We quantify office areas, workstations, conference rooms, special use areas and circulation needs. We discuss electrical, HVAC and other infrastructure needs. During this phase, we help you plan for growth and contraction. The time we invest, even before we start looking for space, means that when we go to the marketplace, we understand what will really serve your needs. This assures that your search for space is focused. Our groundwork reduces the time you and other partners spend looking at sites and significantly reduces architectural fees. This is included in CTRR’s basic fees without additional charge.
2. Analytical Site searches. Because we do not represent landlords, our site searches are unbiased. We are in a position to show you everything in the market, and to tell you about flaws as well as to highlight advantages. Beyond this, our searches are unusually comprehensive. For a typical assignment, on a first pass, we may assess over 100 sites and physically inspect 40 or more – assessing how well individual units as well as building infrastructure and common areas meet your needs. From these surveys and previews, we may select a short list of 6 spaces to show you. Consequently, the space you visit will be well-qualified. This way of qualifying the spaces you visit is very different from merely preparing a computer search of space that might meet your needs and taking you around town.
3. Financial analysis/financial negotiations. We prepare “full-disclosure” financial analyses based on landlord counteroffers, which are individually modelled for each building under consideration. We analyze total life-cycle lease costs based on actual historical costs at the building in question, as well as costs particular to our client, such as above-standard utilities, security costs or similar needs. This gives you the basis for effectively comparing transactions with very different economic terms, and provides the basis for informed negotiations to achieve best value. Many brokers used canned programs for analysis which tend to simplify and even omit important costs, and they fail to look objectively at non-rent costs. Beyond life-cycle cost analyses, CTRR provides you with additional analyses which focus on cash-flow needs for budget purposes CTRR’s comprehensive financial analysis and comparisons are included in our basic services at no additional cost to you.
4. Lease negotiations. We assist you in line-by-line lease negotiations to assure that the business terms negotiated are effectively translated into the document you will live with. Certainly, your in-house real estate team has substantial expertise in the legal points of lease negotiations, but most lawyers do not spend their days on construction sites, in HVAC machine rooms, managing architects and general contractors, inspecting landlords’ general ledgers, invoice files and vendor contracts, as we do. In every substantial lease, there are usually 18 to 20 key non-rent financial and operational variables, which over time, can cost you far more than rent, and make or break a transaction. We negotiate these business points to integrate them with the legal points of a lease and to maximize value for you. As appropriate, we integrate the expertise of architects, engineers and contractors into lease negotiations. For firms that use outside counsel, we significantly reduce the amount spent on legal fees. For firms that rely on inside expertise, we limit the amount of time attorneys must spend on the lease, allowing them to maintain billable hours. CTRR’s lease negotiation services are included in our basic services at no additional cost to you.
5. RFP to obtain architectural services. Building out space requires the services of a knowledgeable architect/mechanical engineering team -- a team that works effectively together, and is as skilled at managing the construction site as they are at designing the look which captivates you.
CTRR will identify qualified architects (and associated MEP firms), prepare a written request for proposals, conduct a pre-interview strategy session with you, host a structured interview session with up to five architectural/MEP teams, negotiate an architectural services’ agreement to assure an appropriate scope of work, and maximum accountability, and to minimize the architectural and engineering fees you pay. CTRR receives no additional fee for this service, and we receive no referral or other fees from the architects invited to participate in the RFP process. Not only does this process assure you of lower fees and greater accountability, because of CTRR’s position in the marketplace, firms have told us that they are eager to be included on our bid lists and stretch to provide extra services. This directly benefits you during the life of the construction process. – CTRR’s services in this area often generate savings of 30% or more on architectural fees. We provide this as part of our basic services with no additional out-of-pocket cost to you.
6. RFP to obtain general contractors’ services. Just as judicious selection of an architect is critical to controlling build-out costs and achieving a desirable result, so is the intelligent selection of a general contractor. CTRR will identify qualified general contractors, prepare a written request for proposals, conduct a pre-interview strategy session with you, host a structured interview session with up to five general contractors, negotiate a construction services agreement to help assure an appropriate scope of work, aand maximum accountability and to minimize both so-called “extras” and the GC fees you pay. In addition, we frequently recommend a process that enables us to minimize the traditionally adversarial role between the contractor and project owner, and to involve the general contractor in a process which is collaborative and gains for you valuable consulting and value-engineering services which reduce total job costs and often reduce the project schedule. This process can result in substantial additional savings for you. CTRR’s services in this area often result in savings of 30% or more on GC/CM fees. We provide this as part of our basic services with no additional out-of-pocket cost to you.
7. Consultation after lease execution. Brokers generally earn their fee when a lease is signed, and most brokers stop their active involvement well before a lease is signed. CTRR keeps on working after lease execution to help assure that you receive maximum value. During the build-out phase, we will assist you in managing the architect and general contractor you have selected. We will assist you in reviewing changes orders, resolving fee disputes, and in resolving similar issues with ownership which may arise.