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Who Really Represents You in a Commercial Lease Negotiation?

Posted on January 24, 2018 by Mike Kushner in Blog, Tenant Representative/Buyer Agent No Comments

Who Really Represents You in a Commercial Lease Negotiation?

When it comes to leasing commercial workspace, too many tenants mistakenly believe that the landlord’s leasing agent/broker will somehow represent them in negotiations. Unfortunately, this is never the case.

The important question that this article answers is, “Who really represents who in a commercial lease negotiation?”

As a tenant, your wants and interests are usually different than the landlord’s, at times even diametrically opposed. It’s impossible for one broker to represent both sides of your deal faithfully and fairly. There will always be conflicts of interest and the broker most often favors your landlord, not you as the tenant.

Too often, a commercial tenant begins the process of leasing office space without hiring a tenant representative to 100% exclusively represent them. Usually they do not realize that a tenant rep is not at the cost of the tenant, since the tenant rep will normally co-broke a commission with the listing agent.

At some point, tenants then find themselves too far down the road to fully benefit from the expertise, advocacy and unbiased representation of a true tenant rep. This can result in a number of troubling issues and frustrations for the tenant. These include losing the upper hand in negotiations, being subject to unfair pricing and unsatisfactory terms and too late realizing that things could have gone far better if they had a professional dedicated solely to representing their best interests.

It’s important for every commercial tenant to understand the vast difference between a tenant representative and a traditional commercial real estate broker.

Helping us answer this critical question and more is William Gary, Principal at MacLaurin Williams, LLC and founder of The Tenant Rep Channel. Gary’s firm is committed to exclusively representing commercial tenants and owner-occupants and creating valuable resources that help to educate the public on the value of exclusive, 100% tenant representation.

Differences Between Tenant Representatives and Traditional Real Estate Brokers

A real 100% tenant rep should be able to meet all the criteria needed to take the exclusive tenant rep pledge. A landlord’s agent or traditional broker simply cannot make this pledge to tenants and owner-occupants. A real tenant rep never puts him or herself in position to double-end an occupier’s transaction and double-dip on fees/commissions. That’s what traditional CRE brokers frequently attempt to do. It’s their highest goal.

Furthermore, a 100% tenant rep acts as a true fiduciary, advocate and loyal, obedient agent for an occupier. On the other side of the table, the opposing landlord’s agent does this for the landlord. A true 100% tenant rep also conscientiously avoids and turns away from conflicts of interest. Traditional brokers create and run towards them to try and double their fees in your transaction.

Vision and Mission of the Tenant Rep Channel

After resigning from the ITRA Global Organization, MacLaurin Williams, LLC still wanted to have a 100% tenant rep network to serve multi-market clients. Gary explains, “We wanted to compete harder and more effectively against large tenant rep chains and traditional brokerage houses that all perform tenant representation.”

Initially, The Tenant Rep Channel was intended to be an informal 100% tenant rep network just for MacLaurin Williams’ own use. But it escalated when Gary asked two other 100% tenant reps, Chris Carmen (Indianapolis) and Craig Melby (West Palm Beach/Asheville) if they might find a use for it, too. They were immediately interested – and so it grew from there!

Unlike traditional CRE broker networks, The Tenant Rep Channel is an informal, virtual model that doesn’t have any initiation fees, dues, required conferences, travel expenses for airfares and hotels, by-laws or contracts. The mission: Just keep it simple and base it around a shared Google map + list of major markets that every participating 100% tenant rep firm must prominently display on its own website.

Amazingly, the bigger independent, 100% tenant rep firms were just as interested in The Tenant Rep Channel’s marketing tool as the smaller firms. They still felt like they needed a big coverage footprint to compete head-to-head more successfully against the big brokerage houses, such as CBRE, JLL, C&W, Colliers, Newmark, etc., as well as Savills Studley and Cresa as tenant rep chains.

The Tenant Rep Channel’s growing success comes from its ability to provide a big coverage footprint for independent, 100% tenant rep firms. It’s an instant and very real 100% tenant rep network, with most TRC principals having 20 and 30 years of CRE experience. It’s a super heavyweight group in terms of experience, talent and skills.

Omni Realty Group is proud to be a part of The Tenant Rep Channel’s growing network.

How Awareness of the Traditional Broker Conflict Will Reshape Commercial Real Estate

With more education and awareness of the inherent conflicts of interest in the traditional CRE broker model, combined with new resources like The Tenant Rep Channel, you might anticipate that a major shift would take place in the Commercial Real Estate Industry where tenants and buyers would flock to and favor 100% tenant reps over traditional brokers.

However, Gary notes, “Too many occupiers still believe that CRE brokers are pretty much all the same, other than some work for big firms and some for smaller shops.” He goes on to add, “Occupiers often know some CRE brokers as friends or family and they’re comfortable hiring them without understanding the complexity of local agency laws.”

As 100% Tenant Reps, we’ve not done a good enough job of making it clear that the CRE Industry is terribly plagued by conflicts of interest and that these conflicts of interest frequently do serious damage to the best interests of occupiers. Most people can grasp that their attorneys should not have any conflicts of interest in their legal matters; it’s more of a Win vs. Lose situation. But occupiers don’t make the same leap when it comes to hiring CRE Brokers to handle their CRE transactions.

The bottom line is that in order to reshape the Commercial Real Estate Industry, it’s incumbent upon 100% tenant reps to better explain “why” conflicts of interest are so damaging for occupiers. We need to educate tenants and buyers on what can go wrong. Simply saying, “We don’t have conflicts of interest,“ doesn’t resonate with occupiers. It’s not nearly enough.

Occupiers need to learn why conflicts are harmful for them; how they can waste tons of valuable time and spend significantly more money; money that is their valuable net profits.

Gary concludes with these final thoughts, “One thing that we initially hoped would occur on The Tenant Rep Channel is happening. By being connected through this network, creative ideas are getting shared worldwide and some really innovative things are blossoming organically.

The 42Floors Elite Site Widget, which is a full market, commercial property search module for our own websites, is one example. I urge every 100% tenant rep to check it out and really assess the value it could have for your business. We all need to get serious about educating occupiers on the stark differences between 100% tenant representatives and traditional CRE brokers!”

Do you have another question related to the differences between tenant representatives and real estate agents? We welcome you to join in the discussion by leaving a comment below!

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Central Pennsylvania’s Retail Real Estate Market Experiences Record-Setting Quarter

Posted on September 15, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

This quarter has posted some of the highest and lowest numbers we have seen since 2012. In Central Pennsylvania’s local retail real estate market, vacancy rate is low, rental rate is high and both net absorption and total RBA have increased. But overall, what does this tell us about the state of our economy and what we can expect in future quarters?

Let’s take a closer look at some of the record-setting numbers we experienced in Central Pennsylvania’s retail real estate market in 2016’s second quarter and what they mean to the health of the economy.

Select Year-to-Date Deliveries:

Coming in at number three on the list of select year-to-date deliveries is the retail property located at I-81 and Walker Road in Chambersburg. Phase I and II, delivered in Q1 2016, total 109,237 square-feet of space that is 92% leased (44,000 square-feet with 4,400 square-feet vacant). Some of the major tenants include Kohl’s, Target, Giant, Red Robin, Staples, PetSmart, Michael’s, Olive Garden, VisionWorks, ATT&T and many more. Palisades Development, LLC are currently processing LOIs for the remaining space. Phase III is planned and construction will proceed when leasing warrants.

At number 15 on CoStar’s list, is another Palisades Development, LCC retail property located at 968 Norland Avenue in Chambersburg. This 10,800 square-foot building is 100% occupied and was also delivered in Q1 2016.

Select Top Retail Leases:

On the list of Select Top Retail Leases, Harrisburg area east claimed the top spot. Listed at number one is the Harrisburg East Shopping Center with 69,954 square-feet of space. Although not listed by CoStar’s as a “Select Top Retail Lease” for this quarter, plans are in place for the Giant currently in Colonial Commons, to make a move 0.2 miles down Jonestown Road to the Harrisburg East Shopping Center into the retail space formerly occupied by Gander Mountain. This will provide more space for Giant and is already attracting additional retail businesses nearby including a CVS Pharmacy and potentially a fast-casual restaurant, reports KIMCO, owner of the shopping center.

Select Top Sales:

Only one of the nine Select Top Sales from April 2015-June 2016 is from the Central Pennsylvania submarket. The Shoppes at Susquehanna Marketplace sold for $44,000,000 to Clarion Partners. With an RBA of 110,365 square-feet, this came at a cost of $398.68 per square foot.

Additionally, the West Porte Center, listed by CoStar as a Select Top Retail Lease, is more accurately represented as a sale. PennDOT purchased 67,126 square-feet of land for a new Amtrak station in Middletown that is expected to be finished in 2018. This is estimated to be a $32 million project which will include features like a covered pedestrian bridge to provide direct access to Penn State Harrisburg’s campus.

Absorption and Demand:

Net absorption increased this quarter from 64,467 square-feet (in Q1) to 110,449 square-feet, currently. Total RBA also increased, though just slightly, from 88,822,714 square-feet (in Q1) to 88,854,312 square-feet, currently. Six buildings were delivered with a total RBA of 31,598 square-feet. Additionally, five buildings are under construction.

Vacancy:

This quarter, the vacancy rate decreased by 0.1% to 4.7%. This once again matches the vacancy rate of Q4 2015, which is the lowest rate the Central PA submarket has experienced since prior to Q3 2012.

Rental Rate:

The quoted rental rate increased this quarter by $0.11 to $12.00. This is the highest price per square-foot the local retail real estate market has experienced since prior to Q3 2012.

Our Summary/Analysis:

Q2 2016 provided to be an exciting and record-setting quarter for Central Pennsylvania’s retail real estate market. We experienced a recent record low for vacancy rate at 4.7% and a recent record high for quoted rental rate at $12.00 per square-foot. These two trends go hand in hand, so it’s no surprise they would correlate together.

Another positive indicator for the health of the retail real estate market is the increase in net absorption and total RBA. Though neither were record-setting per se, net absorption nearly doubled in a single quarter which is impressive in its own right. It’s safe to say that the market is growing in demand, increasing in price and is able to absorb the new buildings that have been delivered.

What trend do you think will have the greatest impact on the Central Pennsylvania retail market? Share your insight by commenting below!

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5 Signs You Need New Office Space

Posted on August 7, 2016 by Mike Kushner in Blog, Office Leasing, Tenant Representative/Buyer Agent No Comments

It can be difficult to see the signs that you need new office space for your business. Maybe it’s the fear of change or the discomfort of moving all of your files, equipment and employees to a new office. Whatever the hesitation, the consequences of not moving to a better functioning space can be far worse than the temporary inconvenience of relocating.

Take a look at these five signs that you might need new office space and think about how they relate to your own work environment.

You’re struggling to retain/attract talent

Is your turnover rate increasing? Are potential hires turning down your job offers? While many other factors contribute to these issues, don’t underestimate how your office space may be playing into the struggle to find and retain talent. People want to work in an energizing, fun and inspiring environment. If your office space is crowded, disorganized and in desperate need of repairs, it’s time to look for an upgrade or risk having talent walk right out your door.

There’s a lack of privacy

While it may seem fun and hip to have your employees work in one big open space together, keep in mind that people need privacy, just as much as they need community, to get work done. If your office space lacks a private area for holding meetings or making phone calls – or even just a space where employees can go to work in silence for a few hours, it’s time to look for an office that provides a little more privacy.

It doesn’t reflect your brand or company culture

Are you an innovative tech startup, but you’re working in an office space that looks like it belongs to a law firm from the 1950’s? When your work environment contrasts with your brand and company culture, it can have a negative impact on your employees. It’s important to work in a space that complements the brand you’re working to create. This is a subconscious reminder to employees of the business’s core values you want them to represent in everything they do.

There’s no room for growth

If you’re a business that has plans to grow your operations and add to your number of employees, yet you don’t have room for one more desk, let alone a filing cabinet, it’s time to start looking for new office space! Don’t wait until you are desperate to move, or you may make a desperate decision that isn’t in your best interest. Start looking for more space preemptively and work with a qualified commercial real estate broker who can help you negotiate the best deal possible.

You’re paying too much

Finally, if you’re dumping too much of your profits into your office lease, it’s time to look for a more financially responsible work space. Sure, a pricy loft with views of the Harrisburg Capitol is great for your ego, but it’s terrible for the sustainability of your business. This is a red flag that it’s time to work with a tenant representative who can show you a wide variety of attractive options while staying within your budget.

Can you relate to one or more of these signs? Ask us your office space related questions and we will personally respond with our expert advice!

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6 Lessons Learned from a Tenant Rep

Posted on July 18, 2016 by Mike Kushner in About Us, Blog, Tenant Representative/Buyer Agent No Comments

As the owner of Omni Realty Group, Mike Kushner has been exclusively practicing Tenant Rep/Buyer Agency since 1998, when he first established the company. Now, with almost 20 years of experience under his belt, Mike shares his top six most valuable lessons learned from his career as a tenant representative/buyer agent.

Everyone Deserves to be Treated with Respect

This lesson is so simple, yet so often overlooked. Any successful business owner, regardless of industry or size, should treat everyone they encounter with respect. The bottom line is that you never know how they may impact your business in the future. Employees, vendors, customers and anyone else can all serve as walking testimonials for your business – and you. Give them every reason to talk about how great you are to work with. Don’t risk having someone out there badmouthing their experience with you because of something that could have been prevented by treating them with a little more respect.

Never Take Your Reputation for Granted

Businesses balance on their reputation of service and the ethics and integrity of how they provide that service. I have always operated my business with an important rule in mind: We are the reputation we create. There’s really no way around it; you are the only one who can make or break your own reputation. Make every effort to protect it!

Do What You Say You Are Going to Do

Few things can destroy the integrity of the relationship that exists between service provider and customer as quickly as non-performance. Fail to deliver, and the customer will lose trust and become justifiably skeptical of future commitments. Furthermore, they will quickly move on to someone who will deliver

We Are Always Learning

Every day brings new experiences that broaden my understanding of this wonderful industry that is my livelihood. Keep your eyes and mind open to opportunities to learn. These can come in unconventional ways and at unexpected moments – don’t overlook them!

It’s Often Difficult for Tenants and Buyers to Spot “Double Dipping”

This lesson is very frustrating for an exclusive tenant representative and that is that tenants and buyers don’t easily see that a broker is taking advantage of them with a “double end” deal (i.e. collecting commission checks on both sides of their transactions). Also known as “double dipping” in commercial real estate circles, this practice is far more common that it should be.

Not only is it greedy and unfair, it’s insulting to the tenant or buyer to think that they aren’t smart enough to eventually realize what’s going on. The bottom line is that listing or selling brokers are salesmen. They get paid more if you lease in their listed building and are therefore incentivized to get you to do so. If you work with anyone who is not an exclusive tenant rep, you are not likely to see all the options truly available to you.

Business Should Review Their Lease Far More Often Than They Do

Most businesses only look at their leases every five years (or right before renewal). The truth of the matter is that real estate occupancy cost is a major expense for any business and should be reviewed on a regular basis, at least annually. Furthermore, the terms of your lease should provide for a lease audit to allow you to ensure that expenses being passed through to you, the tenant, are fair and accurate.

In short, working with a commercial real estate broker should be a pleasant and stress-free experience. If it’s not, you’re likely working with the wrong broker who isn’t putting your interests first. If nearly 20 years of experience has taught me anything, it’s that the people – not the property – are the priority.

Which of these lessons do you feel is the most important for running a successful and respected business? Share your opinion by commenting below!

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Central PA Retail Market Reacts to 7 New Buildings Delivered in First Quarter 2016

Posted on June 27, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

2016 has already proven to be an interesting year for Central Pennsylvania’s retail real estate market. A total of seven new buildings were delivered this quarter alone with a combined RBA of nearly 150,000 square-feet of space – only some of which is occupied. As a result, this new space has impacted vacancy and rental rates as well as net absorption. Here is a more detailed look at some of the highlights from Q1 2016 for Central Pennsylvania retail.

Select Year-to-Date Deliveries:

Seven new buildings were delivered to the Central Pennsylvania retail market in Q1 2016. Six of these properties made it to CoStar’s list of the Philadelphia Market’s Top 15 Select Year-to-Date Deliveries. They are as follows:

Number 2 on CoStar’s list is the building at I-81 and Walker Road with an RBA of 109,237 square-feet that is 12% occupied.
Number 7 on CoStar’s list is the building at 968 Norland Avenue with an RBA of 10,500 square-feet that is 71% occupied.
Number 10 on CoStar’s list is the building at Cedar Crest Crossing with an RBA of 7,310 square-feet that is 100% occupied.
Number 11 on CoStar’s list is the building at 2101 Strickler Road with an RBA of 7,043 square-feet that is 0% occupied.
Number 13 on CoStar’s list is the building at Donegal Square with an RBA of 6,108 square-feet that is 0% occupied.
Number 15 on CoStar’s list is the Chik-Fil-A located at Chambersburg Square with an RBA of 5,000 square-feet that is 100% occupied.

Absorption and Demand:

After hitting a low of negative 152,049 square-feet in first quarter 2015, net absorption has been on a steady climb. However, this trend came to an end this quarter with a significant decrease in net absorption, dropping from 281,270 square-feet (Q4 2015) to 105,984 square-feet (Q1 2016). The seven new buildings, with a combined RBA of 149,898 square-feet, most certainly had an impact on the market’s ability to absorb the new space. It’s also worth noting that Central Pennsylvania comes in second, only behind suburban Philadelphia, in year-to-date net absorption and deliveries.

Vacancy:

This quarter the vacancy rate barely budged, increasing from 4.8% to 4.9%. What’s worth noting is that this is one of the very few times we have seen the rate increase during a nearly four-year-long trend of decreasing rates. After hitting a high of 6.0% in the latter part of 2012, rates hit their lowest number last quarter at 4.8%. Could this quarter’s increase be the start of an ongoing trend of increasing rates? The seven new buildings delivered to the market this quarter would indicate yes, which brings us to our next area of focus.

Rental Rates:

Lastly, the quoted rental rates have increased by $0.05, from $11.83 last quarter to $11.88 this quarter, returning them nearly to where they were in Q3 2015. Over the past four years, Central Pennsylvania’s rental rates for retail space have increased and decreased without much consistency. It will be interesting to watch these numbers throughout the rest of the year.

Our Summary/Analysis:

With nearly 150,000 square-feet of new retail space dumped into the market this quarter, Central Pennsylvania has responded to these changes well – all things considered. The vacancy rate moved just ever so slightly and rental rates actually increased, proving the market has a demand for this new space. Further proof is that Central Pennsylvania ranks second to suburban Philadelphia in year-to-date net absorption and deliveries. We should keep a keen eye on how the new construction will continue to impact our local businesses and economy as there is sure to be additional movement and emerging trends!

What trend this quarter do you find most noteworthy? Share your thoughts by commenting below!

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ABC’s of Commercial Real Estate: What you need to know about each classification of office space

Posted on June 8, 2016 by Mike Kushner in Blog, Commercial Real Estate, CPBJ Articles, Office Leasing No Comments

Note: This article was originally published by the Central Penn Business Journal. Click here to read the original version.

You are likely aware that there are different classifications of office space, specifically Class A, B and C. But what qualities determine the letter associated with any given commercial property? Is it the location, the layout, the finishes or the amenities?

The answer is it has to do with all of these things! The classification of office space is very important to keep in mind both as a real estate investor and as a business tenant. Your budget and use of the space will help determine the class best suited for your needs. When looking to rent or buy commercial real estate, you can save a lot of time and frustration by teaming up with an experienced tenant representative or buyer agent who can advise you on the most appropriate class.

Here’s an overview of the pros and cons of each of the three classifications of office real estate!

Class A

Overview: As you might expect by the name, Class A office space is considered extremely desirable investment-grade properties and command the highest rents or sale prices compared to other buildings in the same market. These buildings are in prime locations with efficient tenant layouts that function as well as they look. Some Class A office space is an architectural or historical landmark designed by prominent architects. Simply put, Class A office space is for the renter or investor who wants the highest level of quality and convenience and is willing to pay a premium for it.

Pros: With Class A office space, you know you’re getting the best – the best location, layout, finishes and amenities. You are likely to have other desirable businesses as your “neighbors” in the same building which can increase the value of your space. You can also rest assured knowing the space will be well maintained for the premium price, meaning less headaches or inconveniences for you in the long run.

Cons: This class of space comes with the highest rent or sale prices. You may also have less negotiation power since the space you’re getting is usually in top condition with every advantage to drive the price high – including many businesses who are eager to jump on the space if you don’t.

How It Relates to the Local Market: The Central Pennsylvania submarket has 93 existing buildings that are classified as Class A. Combined, that’s a total RBA of 8,820,990 square-feet. After submarkets Philadelphia CBD/Non-CBD and Southern New Jersey, Central PA is the submarket with the lowest vacancy rate in CoStar’s Philadelphia Office Market Area, coming in at 9.9% in first quarter 2016. The average asking rental rate for this the first quarter is $19.78 which is the third lowest rate in the market area.

Additionally, it’s worth noting that just because two buildings are both considered Class A, does not mean they are equal. This is all the more reason to work with an experienced tenant representative who can help you find the best space at the best price to meet your needs. Just take a look at the example of these two buildings in the Central PA submarket below. Both are Class A, but for which property would you be willing to pay the premium price?

Class A Office Space located at 100 Sterling Parkway, Mechanicsburg, PA

Class A Office Space located at 3 Crossgate Drive, Mechanicsburg, PA

Class B

Overview: Class B office space is a step down from Class A space in its location, design, quality and amenities. As such, this space carries a lower price tag. Class B buildings offer utilitarian space without special attractions and have “ordinary” design, compared to Class A. These buildings typically have average to good maintenance, management and tenants. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to attract tenants and investors.

Pros: Since Class B office space is “middle of the road” for the classes, you have the advantage of getting a better work environment than Class C for a price that’s less expensive than Class A. As an owner or investors of Class B space, you’re likely to find many tenants whose budget and expectations align best with Class B space.

Cons: On the flip side, Class B space has several drawbacks to consider for the cost savings. It’s not likely to be in as prime of a location as Class A nor have the same amenities and quality of finishes. You may find the layout to be less convenient and the building and its other tenants to be “less prestigious” than Class A.

How It Relates to the Local Market: The Central Pennsylvania submarket has 1,303 existing buildings that are classified as Class B. Combined, that’s a total RBA of 28,378,254 square-feet. With a vacancy rate of 7.7% in first quarter 2016, it is the lowest of any submarket in CoStar’s Philadelphia Office Market Area though it’s average asking rental rate is only the third least expensive at $17.36, coming in higher than I-81 Corridor and Southern New Jersey. If you find it overwhelming to understand and interpret the local market trends, a tenant representative/buyer agent can guide you with knowledge and expertise. He or she knows how these trends impact demand and pricing and can use it as leverage to help you negotiate the best deal.

Here are two examples of Class B office space so you can see the variations within a single class.

Class B Office Space located at 200 N. Third St., Harrisburg, PA

Class B Office Space located at 204 S. 3rd St., Boiling Springs, PA

Class C

Overview: Class C office space describes buildings that generally qualify as no-frills, older buildings that offer basic space and command the lowest rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige. Things like inferior elevators, mechanical or electrical systems help reduce the cost, but also increase the possible headache for tenants. These buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors.

Pros: The biggest benefit of Class C office space is its low price in comparison to Class A and B. If you’re looking for a simple and understated work space with zero frills, Class C might be a great option to help you stick within your budget while still gaining the space you need to grow your business.

Cons: When looking at Class C space, you need to keep your expectations in check. This is the lowest of the classes and likely to be the least desirable work conditions as well. There may be things that need obvious repair, the building and its location may leave a lot to be desired and your neighboring tenants are not likely to be prestigious businesses. Having said that, sometimes you can get lucky and find a Class C space in an area that still has “good bones” and a lot to offer the right business. It’s always important to keep an open mind, especially when working with a limited budget!

How It Relates to the Local Market: The Central Pennsylvania submarket has 2,162 existing buildings that are classified as Class C. Combined, that’s a total RBA of 16,600,363 square-feet. With a vacancy rate of 5.1% in first quarter 2016, Central PA has the second to lowest vacancy rate in CoStar’s Philadelphia Office Market Area. It’s average asking rental rate for the first quarter is $14.99 which is the second lowest only to I-81 Corridor.

Again, here are two examples of Class C office space so you can see the variations within a single class. Depending upon your requirements, Class C office space might be just what you need, but make sure you work with a real estate broker who exclusively represents tenants and buyers to ensure you’re getting a fair and favorable deal!

Class C Office Space located at 4655 Linglestown Rd, Harrisburg, PA

Class C Office Space located at 1505 Market St., Camp Hill, PA

What other questions do you have about the different classifications of commercial office space? Ask by commenting below!

Note: This article was originally published by the Central Penn Business Journal. Click here to read the original version.

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Central PA Industrial Market Booms with New Construction

Posted on May 14, 2016 by Mike Kushner in Blog, Commercial Real Estate, Trends No Comments

Central Pennsylvania is in the midst of a new construction boom when it comes to industrial real estate. Last quarter, eight new buildings were delivered to the market and this quarter, we see another five new properties reach completion. Additionally, five more buildings are under construction and set to be delivered later this year. Combined, this is millions of square-feet of space, with much of it not yet occupied or preleased.

How is this new construction trend impacting the local market? Moreover, what can it tell us about the health of the local economy? Here is summary of the data from first quarter 2016 for the Central Pennsylvania industrial submarket that provides insight to help answer these questions.

Select Year-to-Date Deliveries:

Five of the top nine Select-Year-to-Date Deliveries for first quarter 2016 are located within the Central Pennsylvania submarket. Coming in at number two on the list is 575 Old Forge Road. This property has an RBA of 500,000 square-feet and is 0% occupied. Number four on the list is the Susquehanna Logistics Center with an RBA of 4323,300 square-feet and is also 0% occupied. The third of the five Select-Year-to-Date Deliveries in Central Pennsylvania comes in at number seven on the list. It is located at 1165 Strickler Road with an RBA of 40,000 square-feet and is 100% occupied. Next, at number eight on the list, is 551 Manchester Court with an RBA of 36,000 square-feet and is 100% occupied. Finally, at number nine is 211 Piper Circle with an RBA of 26,825 square-feet and 45% occupied.

Select Top Under Construction Properties:

The incredible amount of new space being pumped into the Central Pennsylvania industrial real estate market is only going to continue to increase as five more properties are under construction and expected to be delivered in 2016. These properties include: Lebanon Valley Distribution Center with an RBA of 874,126 square-feet; Eden Road Logistics Center with an RBA of 755,421 square-feet; Trade Center 44 with an RBA of 620,000 square-feet; 192 Kost Road with an RBA of 422,400 square-feet; and LogistiCenter 78-81 with an RBA of 405,000 square-feet. All five properties are 0% preleased.

Absorption and Demand:

Net absorption has dropped significantly since last quarter. Previously at 1,730,592 square-feet in fourth quarter 2015, it ended first quarter 2016 at 123,946 square-feet. Contributing to this trend is the delivered inventory of five buildings this quarter and eight buildings last quarter with a combined impact of 3,904,745 square-feet of new space in six short months!

Vacancy:

This quarter, the vacant square footage jumped from 13,451,560 to 14,353,739. The vacancy % jumped from 5.3% to 5.6%, which is the highest we have seen it since fourth quarter 2014. Compared to the vacancy % that was in the 6’s and 7’s prior to second quarter 2014, this is still moderate to low, but it is showing a trend of increasing over the last year.

Rental Rates:

The quoted rental rates have increased by $0.11, from $4.11 last quarter to $4.22 this quarter. This is the highest quoted rental rate the Central Pennsylvania industrial submarket has seen since prior to second quarter 2012.

Our Summary/Analysis:

Although net absorption dropped significantly and large amounts of space continues to be added to the market, I believe that the demand for space will continue to soar. The whole chain of moving goods, from producer to consumer, is being upended by consumer shifts toward e-commerce, to the advantage of wholesalers and warehouse space, generally. Other demand drivers are also firing strongly, in concert with the continuing economic recovery. As with other property sectors, demand for space naturally rises with GDP growth and especially job growth.

But industrial demand depends on two factors, in addition to retail demand: trade and housing construction. Warehouses benefit from housing construction as home builders need large spaces in which to store their materials. Housing stats are not at the level of the mid 2000’s. But volumes have recovered nicely since the recession, with the annual rate now up to 1.1 million units, twice the rate at the depth of the recession and finally approaching the levels of the mid 1900’s prior to the housing boom.

And trade is up, building on a long upward trend for both imports and exports dating back at least 50 years due to greater trade liberalization. Exports and imports combined have tripled their share of our nation’s Gross Domestic Product, from less than 10% in the 1960’s to almost 30% now. Our growing trade means that an increasing share of products that we buy and sell, end up in warehouses at some point in their journey from producer to consumer. Putting all these factors together – rising trade, increasing housing construction, and the shift to e-commerce, all in the context of at least moderate economic growth – provide fuel for strong tenant demand for warehouse space.

How do you anticipate the boom in new industrial real estate space will impact the local market and economy? Share your insights by commenting below!

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Top 10 Most Shared Commercial Real Estate Articles of 2015

Posted on May 1, 2016 by Mike Kushner in Blog, Commercial Real Estate No Comments

Commercial real estate is a hot topic, with authors from all across the globe sharing their expertise and insights in the form of online articles and blogs. Among the white noise of content being shared, there are a few articles that have risen to the top and earned their place on the list of “Top 10 Most Shared Commercial Real Estate Articles of 2015.

Among the thousands of most shared commercial real estate articles published in 2015 (according to www.buzzsumo.com), these are the topics that took social media by storm!

1. 5 Words Developers Dread (National Real Estate Investor)

This article dives into why we should expect real estate development to become less profitable and real estate development loans to become more expensive. One of the main catalysts? Regulated institutions are now required to set aside increased capital for High Volatility Commercial Real Estate (HVCRE) loans and as a result of these new rules, lenders are reporting increased related costs in the range of 40 to 150 basis points, depending on their specific situation. Read the original article here.

2. Foreign Money is Pouring into US Real Estate, and It’s Not Just Houses (Bloomberg)

Commercial real estate transactions jumped 45 percent by dollar volume in the first quarter of 2015, an increase driven by sales of multiple buildings or entire companies! This article goes on to explain why Blockbuster real estate deals are back and breaking records as cash from around the globe pours into U.S. office buildings, apartment complexes and other investment properties. Read the original article here.

3. The Mother of All Mega Projects (Crain’s)

The story of Hudson Yards epitomizes the trials, tribulations and triumphs of development in New York City, where grandiose ideas are often blown off course by the shifting winds of politics or economics, but sometimes come together in spectacular fashion. Read the original article here.

4. Four Trends that are Reshaping the Commercial Real Estate Industry (Forbes)

While much of the world has embraced technology innovations like the cloud, mobility and big data, commercial real estate (CRE) is still managed out of Excel spreadsheets and 20-year-old technology platforms. This article examines how the commercial real estate industry will be reshaped and redefined by four key trends. Read the original article here.

5. A Marketing Guide for Filling Vacant Income Properties (Entrepreneur)

Vacancies mean that you’re on your own to pay the mortgage, utilities and other expenses until you can find a new tenant. This article shares some sound advice on filling your vacant rental properties as soon as possible through strategic marketing! Read the original article here.

6. 44 Commercial Real Estate Experts You Need in Your Life

From data transparency and client relationships to new sources of commercial funding and content delivery, this article highlights a few of the most influential and forward thinking commercial real estate experts that are blazing their own trail. Read the original article here.

7. 5 Commercial Real Estate Marketing Trends You Can Bank On (National Real Estate Investor)

This article cuts right to the chase and outlines the five biggest commercial real estate marketing trends we can look forward to seeing in 2016 and beyond! Read the original article here.

8. 5 Lessons From Commercial-Real-Estate Financing for Entrepreneurs Seeking Funding (Entrepreneur) Raising capital in the commercial real estate (CRE) world is a different game than early-stage fundraising for startup businesses. However, there are some valuable takeaways that startup businesses can learn from how CRE projects raise their funding. Read the original article here.

9. Soaring Commercial Real Estate Market is Now Bigger than it was in 2006 (Yahoo! Finance)

This article examines how a thriving commercial real estate market may be decelerating as we move into 2016 and beyond. Learn what major markets made the greatest strides and how they will be impacted in the years to come. Read the original article here.

10. A Millennial’s Perspective on Commercial Real Estate (National Real Estate Investor)

The not-so-new story is that Millennials are the next home buyers and we’ve all got to keep up with the technology in order to close those imminent sales. But how is Gen Y going to use technology to affect the industry’s brokerage side? Read the original article here.

Among these top 10 most shared commercial real estate articles, which one did you find to be most valuable? Share your thoughts by commenting below!

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The Truth About Real Estate Commissions

Posted on March 2, 2016 by Mike Kushner in Blog, Commercial Real Estate, Tenant Representative/Buyer Agent No Comments

When it comes to real estate transactions, everyone knows that commissions are involved; it’s how brokers get paid! But what’s not so common knowledge are the various details surrounding these commissions like who actually gets paid, who’s responsible for paying and how much is owed.

Whether you’re the tenant or landlord in the deal, you’ll want to have clear answers to all of these questions before working with a broker or proceeding with any real estate deal. Understanding the “fine print” will help alleviate the stress and potential pitfalls of being uninformed regarding commissions.

Let’s take a look at some of the most essential questions surrounding this important real estate topic…and their answers!

What parties earn a commission?

Typically, a commission is paid to both the listing agent/landlord representative and the tenant representative, if a real estate transaction has both of these parties involved and they are different from one another (here’s why they should be!).

It’s important to note that if you are a tenant looking for a property, you will want to have your tenant representative with you from the very first time you see a property. If another agent (whether you know them/asked them or not and regardless of whether they represent both buyers and sellers) bring you to a property, he/she is legally entitled to a portion of the leasing commission as the “procuring” agent.

You may never see this agent again or benefit from their advice/expertise, but since that agent showed you the property, that agent will be paid a commission. This complicates the situation if you should choose to then hire a tenant rep different from the initial agent who showed you the property – and a commission dispute may ensue. To avoid all this trouble, it is best to establish your tenant rep from the beginning and have only him or her show you properties!

Who is responsible for paying this commission?

After a lease is signed, it is typically the responsibility of the landlord (or property owner) to pay a commission to both the listing agent/landlord representative and the tenant representative. As the tenant, it is not usually assumed to be your responsibility to pay a commission to your broker. This is paid by the landlord at the time the lease is executed, unless otherwise negotiated.

How is the amount of commission determined?

The cost of commission varies and commission is most often calculated as a percentage of the lease value (also referred to as “total consideration”). When the signed lease has been executed and the tenant takes occupancy, generally one-half of the commission (paid by the landlord) is paid to the landlord rep and one-half of the commission is paid to the tenant rep.

For example, a tenant signs a 3-year lease for a 2,000 square-foot space at $20 per SF per year. The total consideration = $120,000 (2,000 SF * $20/SF per year * 3 years). The property owner pays a 6% commission (one-half to landlord rep and one-half to tenant rep). The total commission = $7,200 ($120,000 * 0.06).

It’s also worth noting that an agent may “split” their total piece of the commission, sharing it in some proportion with their broker. Commission splits range anywhere from 50/50 (most common) to 90/10, in favor of the agent.

Real estate services are NOT free.

Real estate transactions typically include commissions that are shared by the agents or advisors representing each party. Even though the property owner writes the commission check, it’s ultimately the tenant that funds the commission – in the form of rent payments (for leases) or purchase proceeds (for sales). Make certain that you are receiving full value from your “side” of the commission by having an unbiased, experienced, licensed real estate advisor assist you with the research for suitable spaces and in the negotiation of acceptable terms and conditions.

Do you have another question about real estate commissions that wasn’t answered in this article? Ask us!

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New Sales, Construction and High Rental Rates Keep Industrial Market Active in Q3 2015

Posted on January 20, 2016 by Mike Kushner in Blog, Local Market, Trends No Comments

2015 continued to be a prosperous year for industrial real estate. Locally here in Central Pennsylvania, the market maintained the burst of growth it received in the second quarter and the quoted rental rates even increased yet again to a recent record high. New sales and construction projects have also kept the market quite busy, while indicating a healthy, growing economy.

Let’s take a look at all the activity that took place throughout the third quarter in the Central PA industrial real estate market!

Select Year-to-Date Deliveries:

Three of the top 10 Select-Year-to-Date Deliveries were delivered into the Central Pennsylvania submarket in third quarter 2015. The Nordstrom Distribution Center sits at the top of the list. This project began in first quarter 2014 by developer H & M Company, Inc. and contributed an RBA of 1,142,000 square-feet. It is 100% occupied. In spot number four, Prologis Carlisle – Building I delivered 1,029,600 square-feet of industrial space to the market and is not currently occupied. Finally, the project at 1 Ames Drive, Carlisle delivered 595,000 square-feet of space and is also not currently occupied.

Select Top Under Construction Properties:

Three new construction properties broke ground this quarter in the Central Pennsylvania area. In Union Township, Lebanon County, MRP Realty broke ground on their 500,000 square-foot project located at 575 Old Forge Road. It is expected to be delivered in first quarter 2016. The Susquehanna Logistics Center also broke ground this quarter and will deliver 423,300 square-feet to the market in first quarter 2016. Finally, a project at 196 Kost Road, Carlisle broke ground and will deliver 483,990 square-feet in fourth quarter 2015. None of these projects are currently pre-leased.

Select Top Sales:

Three of the select top sales from third quarter 2015 occurred in the Central Pennsylvania submarket. Ranking number two on the list, the Carlisle Pike Distribution Campus sold for $45,300,000 to STAG Industrial Management, LLC. Ranking number three, the Harrisport Business Center in Middletown sold to American Capital Corporation for $43,466,000. And ranking number four, SK Realty/HSRE PA Industrial Portfolio in Mechanicsburg sold to High Street Realty Company for $39,250,000.

Absorption and Demand:

Net absorption remains in the black, but has decreased since last quarter. The market absorbed 1,279,455 square-feet this past quarter, compared to second quarter’s 2,688,332 square-feet. Still, net absorption serves as an overall indication of a healthy economy considering we have not seen a negative net absorption since second quarter 2013

Vacancy:

Looking at the Central Pennsylvania submarket, vacancy rates have popped back up to 5.0% in third quarter 2015. This is a 0.5% increase from the previous quarter’s 4.5%. The industrial market’s vacancy rate is back to where it began the year in first quarter 2015, but it is still lower than previous years’ which have spiked as high as 8.4%, such as in fourth quarter 2011.

Rental Rates:

The quoted rental rate continued to increase this quarter by a total of three cents. Currently at $4.09, this is the highest quoted rental rate the Central Pennsylvania submarket has seen since prior to fourth quarter 2011. It is also only the second quarter that it has been in the $4 range during that time.

Our Summary/Analysis:

Third quarter 2015 was a critical moment for the industrial real estate market in Central Pennsylvania. After experiencing a burst of growth in second quarter 2015, specifically with its increase in net absorption and quoted rental rate, it could be anticipated that the market would flux a bit downward in the following quarter. Rather, third quarter 2015 did a good job maintaining this trend to a reasonable degree. Even with a lower net absorption rate, comparatively, the recent record high rental rate balanced the positive with the negative. Overall, the local industrial real estate market continues to be very favorable for businesses, landlords and developers.

Looking toward 2016, the data from third quarter 2015 further backs up our prediction that the local industrial real estate market will experience robust growth. As employment expands, manufacturing increases and oil prices remain favorable, we can look forward to a healthy and growing industrial economy here in Central Pennsylvania.

With all the activity going on in the Central PA industrial market, what factor do you find to be the most beneficial for business? Share your personal insights by commenting below!

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