What You Need to Know About the FASB Updates


WHAT YOU NEED TO KNOW ABOUT THE FASB UPDATES - Tenant Advisory Group

Recently, the Financial Accounting Standards Board (FASB) updated their standards effectively changing the way companies must list their lease on their balance sheet. This will undoubtedly have rippling effects on businesses, and the leasing process as a whole. The update has the potential to alter the landscape of the commercial real estate lease.

What’s New?

The FASB updates aim to maintain consistency among accounting practices. The update will make businesses account for the entire value of a lease in year one. While it is purely an effect on paper, bankers, lenders and investors will need to understand the changes that will show up on a company’s ledger. The impact will be felt the most by large businesses, however small- to mid-sized businesses will still be affected. The updates will be implemented as of December, 15 2019 for publicly held companies, and Dec. 15 2020 for privately held companies. While this may seem far down the road, preparations to compensate for the potential change in your business’ ledger should start now.

The Impact

Commercial real estate leases need to be negotiated with the new changes in mind, as the new standard will inflate the debts of a company during the first year of the lease. This could impact compliance with current loans, affect future loan approvals and potentially mislead investors. The mandatory listing of a full lease as a liability will be a challenge for accounting teams of larger corporations who strive to maintain consistent earnings. The new standards may throw a company’s books out of balance, and this will be a major factor to consider when negotiating a lease.

The Advantage of a Professional

A professional broker who is trained in understanding the new FASB regulations will be most effective at negotiating optimal lease terms to minimize the impact on your balance sheet. This will include new ways to structure the base rental rate, timing of rent increases, separating out operating expenses and focusing on expansion rights rather than lease renewals that would leave a larger mark on your financial ledger. The ever-changing policies and guidelines are an important reminder to seek the assistance of a professional broker, such as the ones at Tenant Advisory Group. We work closely with our clients to advise them of the best way to proceed in signing a lease while keeping in mind the various impacts of the new FASB guidelines.

Do you Qualify for Rent Abatement?


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Commercial leasing agreements commonly extend up to 10 years – or  longer – making negotiations key to long-term savings for your business. One of the greatest opportunities to reduce your monthly cost is rent abatement, or free rent. As you begin the discussion with a Lessor, it is important to understand what rent abatement is and how it can be used to your advantage.

Do You Qualify for Rent Abatement?

Unless there are extenuating circumstances at play, rent abatement is a provision best considered during new or renewal lease negotiations. This is when the Lessee has the most leverage, especially if a business has already shown itself to be an ideal tenant at the current or a previous property.

Why Would a Landlord Provide Free Rent?

If you are a new business needing time to get up and running, or even an established business faced with moving costs and possibly contributing funds to a buildout of your space, the Landlord should understand that you will need some time to build cash reserves back up before the payment of rent commences. If the Tenant is providing the Landlord a large cash security deposit, this is great leverage to negotiate more months of abatement. Furthermore, the cost of acquiring valuable tenants – tenants that take care of the space and pay rent on time – is not insignificant to the Landlord. Leasing commissions, background checks and potential lost rent due to time the space would sit on the market are just a few factors they need to take into consideration when faced with negotiating leasing terms. Potential or current tenants can position rent abatement as a concession that benefits both parties.

How Can You Have this Added to My Lease?

Many business owners don’t realize rent abatement is an option, so simply knowing about and presenting this as an option during negotiations is half the battle. When entering into a discussion with a landlord, present this incentive as one of several the Lessor can provide to reach a mutually beneficial outcome. All negotiations are a give-and-take, and ultimately the Landlord needs to know they will not be losing money in the process. Rent abatement is one of the key terms that can be negotiated, along with tenant improvement dollars and rental rate, in order for both the Tenant and the Landlord to feel they’ve achieved a mutually beneficial deal.

For more of Tenant Advisory Group’s expert tips for negotiating your commercial lease, click here.

5 Reasons a Good Commercial Real Estate Broker Adds Tremendous Value


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Choosing the right office space is one of the most important steps a small business owner can take, which is why it’s crucial to have an expert commercial real estate (CRE) broker with local ties to guide you through the process. Not only will a CRE professional handle every detail of the transaction, they also provide invaluable insights, connections and business support that will ultimately benefit both your top and bottom line.

Access to a Bigger, Better Market

In a city as big as Chicago, there are literally tens of thousands of places your business could call home. Active brokers make it part of their job to be in constant communication with local owners, developers and investors providing them with knowledge of both on- and off-market opportunities. They are your guide to locating the right space for you opening up infinitely more possibilities for your business.

Realistic Views of the Space

Commercial brokers work hand-in-hand with the best real estate service providers – architects, contractors, interior designers, etc. – to provide a complete picture of space capabilities and potential costs. Can a 100-year-old converted warehouse handle a gut renovation? What are the sign requirements in a specific ward? Is it worth it to put in new windows? An experienced broker will be able to get the answers.

More Affordable Monthly Payment

Everything is negotiable (from tenant improvements to rent credits and even access to first-class amenities) if you know the right way to ask. A CRE professional tuned into the local market will know the moves to ensure you are getting the most out of your monthly payments.

A Better Understanding of Your Contract

As a business owner, it’s imperative that you have a thorough understanding of a document before you sign it — how can you be expected to comprehend the industry specific terms and legalese that fill a commercial lease? Chicago CRE brokers live and breathe this language every day, creating much-needed guides in these complicated transactions. In fact, Tenant Advisory Group negotiates 25 transactions per year, working with approximately four to six different properties for each deal!

Support Beyond the Lease

CRE brokers work with dozens of professionals across a variety of industries on a daily basis, carefully curating a network of trusted individuals. A close relationship with your broker can provide you access to the top attorneys, accountants, bankers, insurance brokers, financial advisors, web designers and IT companies in Chicago.

For more information about how Tenant Advisory Group can be your partner in all of your commercial real estate needs, click here.

3 Tips to Negotiate Your Co-Working Lease


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Co-working workspaces are becoming the new norm for up-and-coming businesses, offering the creature comforts of a big corporation – high-tech workstations, coffee supplies, conference rooms – at a price startups can afford. However, just because a co-working space seems to have it all doesn’t mean there isn’t room for negotiations or amendments to your lease.

Bill Himmelstein, founder and CEO of Tenant Advisory Group, has put together a few crucial components to consider before signing on the dotted line:

Amenities

Exercise ball chairs and trendy lighting are fantastic touches, but remember to factor in all aspects of your business into the monthly cost. Does it include internet access? Phone plans? Access to communal coffee and food? These amenities can be used as bargaining chips in negotiating with the landlord. Understanding what’s included in your leasing package and what’s additional is key to being budget savvy.

Flexible Terms

One key advantage to renting a co-working space is the option of a short-term lease — three- and six-month terms and even month-to-month payments can be negotiated. (Free Range in Wicker Park offers flexible 10-day passes.) This can be especially appealing to freelancers who want a stable work environment without being tied down to a long lease.

Unused Spaces

Co-working options can be found anywhere, not just with large companies like WeWork. Chicago’s many converted warehouses and vintage office buildings are full of carved out communal spaces with a plethora of opportunity. Since leases in these leasing packages aren’t usually as structured, having an expert on-hand can save some of your company’s valuable funds.

For more information about how Tenant Advisory Group can help you negotiate your co-working space lease, contact us today.

A Start-Up’s Guide to Real Estate


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From founding a company to raising money to launching a new product. Each stage of an entrepreneur’s journey is crucial – and certainly at every stage of growth. It’s not always talked about but short of what you pay your employees, office space is often a startup’s largest fixed expense. Finding the right office space can even dramatically affect the business’ bottom line.

 

A startup’s office space is more than drywall and hardwood floors. For any startup, the physical office space embodies the company’s beliefs and ideas. It stands for what the business represents, and in many cases it serves as a second home for its employees.

 

Even if you’ve had experience with leasing or buying property, finding the right space to fit your business can be an overwhelming process. While time is always of the essence for most startups, you have to take a calculated quick approach when it comes to real estate – otherwise you may end up burning through critical funds.

Here are few things an entrepreneur should consider:

 

Location

The struggle for most startups is to find a space that is easy to access for employees and will help in retaining and attracting talent. If you’re in this position, don’t be seduced by low rents and spaces that are readily available outside of central business areas. Watch out for landlord-driven “move in ready” packages that have pre-installed Internet, phone and furnishings. These places often charge higher rents that traditional spaces. Instead, focus your search on finding spaces in close proximity to city-centers. The vibrant and dense population means you can attract young talent, be close to banks and financial institutions, less wasted time traveling between meetings and creates an environment that breeds partnerships and ideas.

 

Strategic Planning

Most startups make decisions based on incomplete information or lack of strategic planning. Know your people and the direction you want to take the business. Picture how the space will support that culture and vision. Then engage a design professional to work with you on putting those ideas into a firm plan.

 

Working with an Advisor

Especially if you’re inexperienced in this area, choosing a space on your own is risky. Without proper guidance, companies can easily overspend on their lease rates. Even more disappointing, they’ll end up with a space that doesn’t fit their needs. Always work with an experienced broker or agent in your area. You can see the difference we had in work with a client – telling the story about how we were not first in line but got our client into the driver’s seat.

Chicago’s South Loop is Red-Hot, Here’s Why


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Bowtruss Coffee, Portillo’s Hot Dogs, even Bernie Sanders. Between businesses and notable politicians, it seems as if everyone is flocking to Chicago’s South Loop neighborhood and setting up shop.

In the late “˜90’s, industrial speculation drove the South Loop’s real estate market. Today, it’s no doubt becoming one of Chicago’s hottest multi-family, commercial and retail markets. We’ll even say it’s on its way to become the next River West or Fulton Market hot-spot, and here’s why:

Students: Chicago is a bustling vibrant city, and it’s easy to overlook the impact of college students in the Loop area. Downtown, alone, is home to over 38,000 full-time college students, and there’s been a corresponding rise in student housing development and sales in recent years.

Surge in multi-family population: Zillow predicts the South Loop will be Chicago’s second “hottest” neighborhood in 2016. With downtown, lakefront, Museum Campus, Grant Park and Columbia College all within walking distance, the South Loop makes an ideal location for anyone looking be near it all. And, as professionals from the Loop look to work and play close to home, developers are rushing to fill this need for more housing. If you’re in the business of recruiting or hiring temporary talent, being located near colleges is perfect for your industry.

Transit and retail development: With the area’s growing residential population, there comes a surge in transit and retail development. Several bus lines run through the area that’ll easily connect you to all areas of the city. Not to mention, the number of El and Metra train stations nearby. With so many transit options, people living in the neighborhood will have an easy time commuting into downtown or any of the outlying neighborhoods like the West Loop, Lakeview, Fulton Market.

Neighborhood shopping and dining is also flourishing. The shops at the Roosevelt Collection seem to grow day by day. Take for example, when the Roosevelt Collection was sold to Prudential for $222M last August, it was already 93% leased with retailers such as Victoria’s Secret, Container Store, Banana Republic and a 16-screen Kerasotes multiplex. It probably goes without saying, but having access to so many restaurants in the area gives businesses and their employees plenty of options for networking lunches and business-related entertaining.

The South Loop market shows no signs of slowing as there’s just so much redevelopment and new developments heading to the area. And one of the best parts to this, is that in the meantime, there are still wonderful lease deals to be had at very affordable prices compared to the very tight markets of River North or River West! The key to finding them is to work with an experienced advisor in the area. Working with a broker or agent who knows the ins and outs of a city, will have access to many of the best hidden deals.

Lastly, working with an advisor means you can be sure you’re getting the best and fair price, and terms for your business – most important when it comes to finding spaces in these “hotter” markets. Keep this in mind as you consider your next move in the Chicago market.

 

Infographic: 3 Steps to Boost Your Real Estate Dollars


Here’s a quick look at how you can boost your real estate dollars in just 3 easy steps. See the full post here.

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Infographic: How to Negotiate the Renewal Option in Your Lease


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13 Fears About Your Lease & A Better Way to Conquer Them


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Renting or buying commercial property is a major move. Like it or not, mini-panic attacks or sleepless nights are part of the process, and every potential tenant will have fears and doubts – especially early on.

The good news is that you can avoid many common worries in the first place, when you do a line-by-line review of the lease. Sure, reading a commercial lease can be difficult and time-consuming, but the consequences of not reading it can be infinitely more unpleasant.

If worry and fear are keeping you up all night, here are 13 common doubts and how you can resolve them during the lease negotiation process:

  1. Signing the wrong type of lease. If you hear the term “standard business lease” you should know there isn’t such a thing. Many landlords and even some inexperienced attorneys will tell you otherwise, but always know leases are negotiable clause by clause.
  2. Not getting feedback or input from your employees on your space. It’s not like you’re the only one working in your new space. Take surveys from your staff and learn what’s valuable to them as well as your business.
  3. You won’t get the perfect space. Being attached to any one property puts you at a major disadvantage. Don’t get stuck on the idea that one space will determine the success of your business. Bottom line: You want to be where your clients are – make sure the location is convenient over sexy.
  4. Not speaking your mind. Ultimately it’s your business. Don’t be afraid to speak up if you feel you aren’t being heard.
  5. Not having the right help for your business. Choose a real estate broker or advisor who’s very experienced in commercial lease negotiations. Also, check references with other business owners, for specific feedback around lease negotiations.
  6. Rejecting a good offer out of emotion. Lease negotiation is a two-way street. Hear something you don’t like? Stay calm, take a deep breath before reacting. You should never reject a deal out of anger.
  7. Relying on the landlord’s word on what is (or isn’t) permitted. Get permission from the city or township zoning officer before entering lease negotiations. Your landlord may really believe what he tells you, but he’s not the one who makes that decision.
  8. Negotiating in “panic mode.” It’s so important to keep a level head whenever you’re negotiating. You have to keep an open mind and know that there are always creative options for any circumstance you’re in.
  9. Failing to “get it in writing”. Always get everything discussed away from the negotiation table in writing. Find a way to document in-person conversations with the landlord. Never agree to anything unless it’s written down.
  10. Signing a long-term lease without reasonable upgrades. It’s no surprise that most landlords prefer that commercial tenants sign long-term (think 5 to 10 year long leases). It might be surprising, however, to know that you are able to ask for certain items in relation to the length of the lease, such as free rent for a period of time and/or an upgrade at the landlord’s expense.
  11. Not getting an “out” clause built into the lease. At the very least, you need an “option to sublease” and an “option to sell the business and assign.” Having a tenant rep by your side can help you determine what are reasonable requests.
  12. Not securing financial documents. Securing all bank statements and financial documents well ahead of time, before the lease negotiations, will help you out tremendously. You’ll know your budget and have that figure in your back pocket for any leverage, if it’s needed. Schedule time with your accountant, your loan officer, etc. to help get these documents in order.
  13. Trying to do everything on your own. Not getting professional help will put you at a major disadvantage. Seek the help of a trusted advisor in your area, who is experienced at lease negotiations, and who has the interests of your business at heart.

If any – or all – of these fears sound familiar, don’t fret. When you do your research and have the best support from a trusted advisor, you’ll be successful in getting the lease that’s right for you and your business. If you’re heading to the negotiation table soon, be sure to check out these 6 tips for getting a smooth real estate transaction.

Infographic: 5 Tips to Negotiate Better


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