The Chicago “Google Effect”


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Chicago’ Fulton Market has become the “hot-spot,” for start ups, yet there’s a hefty price tag to go with.

Last June, Google announced their new location in Chicago’ Fulton Market. Google signed a lease at 1000 W Fulton for a 200,000 square foot space built to hold 500 employees. The announcement has since caused a migration frenzy among tech companies, startups and entrepreneurs following the path of the technology giant.

Fulton Market is attracting many that want to be in on the buzz of the Midwest’s version of Silicon Valley. However, setting up camp in the shadow of such a mogul inevitably comes at a hefty price tag. Due to the rapidly changing neighborhood, there has been a concerted effort to accommodate all of the new found foot traffic.

“Given all the businesses and people moving to the area, the rental prices are skyrocketing, jumping by as much as $3-$5 (price per square foot) in just a year,” states William D. Himmelstein, Founder and CEO of Tenant Advisory Group. “As this area starts to price out the tech startups and entrepreneurs, they will look for the next hot “up-and-coming” location. An educated guess would lend toward the South Loop and surrounding areas filling that void.”

Despite the big move being scheduled for 2015, there have already been major adjustments to the size with an increase of 157,000 square footage of the space. As the ever-expanding company continues to rapidly increase its workforce, it seems to be only a matter of time before Google outgrows the new space and will eventually have to relocate again.

For Google’ size, their continuous relocation and expansion is inevitable. However, smaller startups and tech companies have to think long and hard before packing up and following the latest trend. Being in on the “buzz,” comes with a price. The necessary allocation of resources required to move locations would be much more wisely spent on finding an area that has not reached the height of its price hike.

Chicago Business Image of what’s cooking on the near west side.

By William Himmelstein

5 Things to Examine In your Lease Agreement


 

So you finally found the space you were dreaming of. Now it is time to work out the details beyond the first year’s rent. Each particular aspect of the lease has its own importance and to ensure the security of the great new spot you are locking down, do not just skim over all the nuances.

Tenant Advisory Group is your advocate when a landlord may be out of bounds with your lease agreement. Bill Himmelstein, founder and CEO of Tenant Advisory Group offers these five topics as ways to protect yourself before you sign on the dotted line.

1) Free Rent
The amount of months that the space is occupied and no rent is paid. Rent is the most obvious factor of the lease and a broker who understands the market is able to maneuver several months of free rent for you. The market standard for long term leases is to receive one month free per each year of the lease. So, if you sign a 6 year lease, then you should be expecting to get 6 free months.

2) Tenant Improvement Allowance
For the tenant who is looking to build out the available space, ensuring that the lease allows you to make those improvements and have them paid for by the landlord is critical. There can be a cash allowance which will go toward hiring a contractor. The amount that is allocated will depend on your financial stability as well as the terms and duration of the lease.

3) Escalation
As landlords are in a constant effort to get the most bang for their buck, you need to be sure that there are clauses protecting you from unreasonable rent increases. Having a yearly increase over the course of the lease or a specific percentage by which rent can rise keeps you from losing control of your budget.

4) Securitization (security deposit)
All landlords will seek some sort of securitization on their leases. When a landlord knows the tenant well or believes that the tenant does not carry much risk, the security deposit becomes reduced. However, if you hold greater risk to your leased space, then it will be important to the landlord to securitize a portion of their out of pocket expenses to ensure that the landlord is protected and comfortable if there are any major issues. This deposit will allow for money to be refunded back or credited towards your rent as long as the tenant is not in default.

5) Termination Option:
The termination option is an extremely valuable piece of the negotiation. Your landlord will not offer this unsolicited. For leases that are longer than five years, it is critical to have termination rights. By negotiating this into the lease, if the rates dip below market value, then you will be able to exercise the right to terminate and move or use it as leverage to reduce your rate. Likewise, if rates have risen above your current levels, a right to terminate can be used to ensure you maintain below market rates.

 

By William Himmelstein


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