WeWork’s New Tenant Rep Service Offering Will Hurt their Business

Shared Office Space

When coworking companies came onto the scene, they quickly became a tool for commercial real estate brokers to help young and small business owners find a temporary space. However, this symbiotic relationship may be in jeopardy with the announcement of WeWork’s tenant representation services as brokers will be far less likely to bring their clients to a competitor. The coworking business’ move to diversify their service offerings may cause harm to their referral partners’ business and therefore, maybe also their own.

It is a common practice for tenant representative brokers to bring small business owners to coworking spaces while these entrepreneurs grow their company, as a coworking lease is a great short-term solution. Once the business grows to a certain level, the owner will want to find a permanent spot with their own branding and more privacy. However, instead of contacting the broker who brought them to WeWork, this entrepreneur may now decide to use a WeWork tenant representative.

Because of this conflict of interest, brokers will no longer be inclined to bring tenants to WeWork, as they will be consistently working against their industry referral partners to grab the business of these growing entrepreneurs. Unfortunately for WeWork, this could also contribute to a loss in business — one that would only add to the $900 million loss already reported in 2017.

Recently, Moody’s dropped its rating of WeWork from the lowest possible credit rating to six grades below its junk credit rating. The reason for its harsh assessment is due to WeWork’s $702 million of unsecured debt and negative free-cash flow, despite its growth from raising capital. According to Tenant Advisory Group founder and CEO Bill Himmelstein, the strategy to open up a new line of service is likely in response to its disadvantageous earnings and credit rating that hurt the company’s chance at securing a new round of funding.

WeWork’s idea for a new service line may make sense as a short-term strategy, but it overlooks long-term consequences that could have a catastrophic impact.

Appropriate Pricing Moves Properties

Glass and brick commercial building

Listing a property for the highest possible price may seem like the best course of action, but more often than not it will deter buyers and negatively affect the final sale price. Establishing the price in line with comparable properties in the area, or slightly lower, will help move the property faster with less cost to the seller.

Silent Expenses

Rather than focusing on the final sale price, keep in mind the cost of NOT selling the property. When a listing sits on the market for months, it accrues ongoing caring costs like maintenance, property taxes, rent, etc. Holding out for a higher sale price can actually net a lower gain in the end. There can be a heavy cost to owning a property.

Timing is Everything

Identifying the right buyer is more than finding who wants to pay the most. It’s also about moving the property in a timely manner. When presented with a purchaser who wants to buy now but at a lower price than someone who wants to wait six months but at a higher price, it can be more beneficial to sell sooner than to hold out for more money. If you wait for the buyer with the longer timeline, you’re accruing costs the entire time. Additionally, it’s important to remember there’s no guarantee the potential sale won’t fall through.

Best Way to Maximize Value

Selling a property can become quite complicated, and most business owners don’t have enough time to dedicate to the process. To get the most value out of the deal, it’s recommended to enlist the services of an experienced commercial real estate broker. These professionals possess market knowledge and experience to help sell a property for the best price in the shortest amount of time.

Pricing the property correctly saves time, which saves money in the long run. Remember to stay informed on every aspect of the deal, from pricing to concession, as this will ensure you’re comfortable with your sale.

2018 Will See Higher Vacancies and New Neighborhoods

All eyes are on vacancies as we head into the new year, as these rates are predicted to continue their increase through 2018. There are a number of factors contributing to this trend, including the emergence of several new properties downtown as well as a few new neighborhoods being developed. Here is a look at some of the trendy topics to pay attention to in the next year.

Rising Interest Rates

The commercial real estate industry will continue to experience an uptick in interest rates, which will make property purchases more expensive. As a result of the higher interest rates, combined with a high volume of buildings trading hands in 2016 & 2017, we can expect to see a decrease of building investment sales and purchases. The rush of corporations moving to downtown Chicago has driven vacancy rates down in recent years. However, we are starting to see the trend towards increased vacancy due to several large new developments coming online.

Trending Areas

Chicago’s reputation as a place to relocate to is growing with the impressive list of large corporations that have already moved downtown and the many more that are in the process of relocating to the city. We are expecting River North and River West to remain in the spotlight. Since there are so many big name businesses located there, many companies want to be in the same area, despite the inflated prices in the hot areas. In 2018, more and more businesses will turn their attention to the budding neighborhoods along the Chicago River, such as Goose Island and the Clybourn Corridor, thanks to several large developments planned by R2 Companies, Riverside Investment & Development and Sterling Bay.

Office Trends

The famously popular trend of an open office with bench-style seating will continue to grow in 2018. However, companies already using this layout have begun to realize its shortcomings. While this office design does increase collaboration, it fails to offer workers a space to concentrate or enjoy privacy which lowers productivity and workplace satisfaction. Employees need offices to concentrate and breakout rooms for privacy to focus on their work.

More and more companies are offering an option to work remotely or with flex hours, as this lowers the number of staff in the office. When fewer employees work in a physical office, the business can reduce square footage and positively impact their bottom line. However, similar to the open-office design, employers are discovering that this rising trend of remote workers and flex hours reduces productivity, lowers collaboration and erodes company culture. Eventually, corporations are reaching the conclusion that having their employees present in a well-designed office space is the most ideal option.

There are a few predictions we can expect to see in 2018: as interest rates rise, the number of  investment purchases will fall; a more tenant-friendly market will emerge due to rising vacancy rates; and office trends will continue to change and adapt as companies find the formula with the best results. At a glance, 2018 has a healthy outlook for Chicago’s commercial real estate market, and as always, it should have its fair share of surprises.

Subtle Differences Between a Residential and Commercial Real Estate Broker

Real estate is a complex industry with many different disciplines. The innate structure of the industry demonstrates just how quickly it can become complicated. Even within the commercial space there is a tremendous difference between industrial, retail, and office specialties. The types of properties, client use and lease terms will vary greatly depending on the commercial domain. Between commercial and residential real estate, the disparity is massive, which makes finding the right broker for the job crucial to efficiently and smoothly closing a deal on the right space.

Running the Certification Gauntlet

While residential and commercial real estate may overlap in some areas and begin with the same initial licensing, they are vastly different. An exceptional broker who specializes in one area will often receive additional training via courses and professional development workshops. Certified brokers can choose to become accredited in different areas such as the Accredited Buyer’s Representative (ABR), or earn additional designations such as Certified Commercial Investment Member (CCIM), Certified Negotiation Expert (CNE), Certified Residential Specialist (CRS) or Certified Short Sale Negotiator (CSSN). Becoming a successful broker requires time and dedication, but the most invaluable asset is on-the-job experience.

Discerning Between the Similarities

There are many differences between commercial and residential real estate, but upon closer inspection, they can also be quite similar. Commercial revolves around the purchase, sale or leasing of a property for business objectives. This is typically thought to rely on investment-centric numbers, whereas residential, focusing on the needs of a family, will involve more intangible qualities such as emotion about the property. Of course, anyone who has grown a business from the ground up will understand how much emotion can be involved. In turn, someone making a residential sale or purchase for the sake of an investment will be able to make decisions with a lot less sentiment. Therefore, it’s always important for a broker to understand each client’s innate set of circumstances in order to best guide them through the transaction process.

Staying Current with Trends and Establishing Relevant Connections

Throughout the course of a real estate agent’s career, they will obtain a deep understanding of the current trends within their market sector. For example, knowledge of the commercial market allows a commercial real estate broker to leverage more business terms during a lease negotiation. Another key factor that sets the different disciplines apart are the types of connections built over a career. Relationships that are made in the residential real estate world will be different than those established in the commercial realm. For example, the process of a family moving into a new home will involve outside assistance from appraisers, inspectors, mortgage lenders, residential attorneys and an array of subcontractors. This differs vastly from a company moving into a new office space who will need to be connected with architects, commercial attorneys and contractors, furniture vendors, IT consultants and phone & data brokers. Working with an experienced real estate broker who has built relevant connections in that field can make a big difference in the quality of each process.

Regardless of the classification of the property you’re interested in pursuing, it is important to find a quality broker that knows how to negotiate terms depending on the type of contract that is being written. Real estate is a complex industry and a specialized broker will best suit your needs.

How a Commercial Real Estate Broker Will Save You Time

There are never enough hours in the day when you’re a small business owner. Try adding relocating your business to your list, and you’ll really have your head spinning. While important, finding a new office is a daunting task and can soak up drastic amounts of time. Thankfully, there are Chicago Commercial Real Estate professionals who want to help you.

Find a Space

With a sea of options available, how do you narrow it down to the handful of spaces that are perfect for your business? A large part of a broker’s job is to understand the market and what’s available for potential tenants. A commercial real estate professional will be able to identify what your business needs, and find the right space much more efficiently than you could, saving you time and frustration.

Schedule Walkthroughs and Meetings

Scheduling meetings with landlords and space walkthroughs take much more time than you’d think, taking away from the day-to-day of running your business. Commercial brokers will simplify the process by prescreening the space to ensure it’s worth your time to visit. From there, they will work with your schedule to find the best time to tour the space. The added benefit of having a broker on your side during a meeting is their knowledge of the market and fair lease terms, which can provide additional negotiating leverage

Negotiation and Paperwork

Negotiating a commercial real estate lease requires skill and knowledge of what can and can’t be conceded. While an attorney’s role in the lease negotiation process serves to minimize risk, a commercial broker’s role is to minimize cost. Only a season professional, who is keenly aware of the market, will know what to ask for with regard to items such as tenant improvement dollars and rent abatement. Your broker’s intimate knowledge of commercial leases will help ensure you are getting the best possible terms.

Chicago real estate is all about local market knowledge. Working with a professional who is an expert in their discipline can save you an immense amount of time, money and frustration.

Infographic: Chicago’s Downtown Residential Market Remains Strong in 2017

Chicago’s Downtown Residential Market Remains Strong in 2017

Glamorous downtown Chicago is bustling with the impressive influx of top corporations moving into downtown. However, apartment buildings are beginning to feel the effects of over-saturation and landlords are having a tough time renting their downtown spaces. With more buildings coming online in 2017, the increase in supply should cause rents to deflate as vacancy rates rise.

The Dance of Supply and Demand

There is an inverse correlation between rent prices and vacancy rates — as vacancy rates increase, rents decrease. This relationship remains consistent as a higher supply means more options for potential renters. When the market is saturated with choices, then landlords cannot leverage a limited supply for higher rents. The simple economics of supply and demand will continuously cause a rise and fall of rent as new apartment buildings are brought online.

New Apartment Buildings in 2017

Rent in Logan Square is jumping up to nearly $2.50 per square foot. Unfortunately for renters, that is low compared to some downtown apartments that reach $3.03 per square foot. Thankfully, capitalism is working for the renter, and developers will complete roughly 12,600 apartments spanning across 2016 and through 2018, according to Crain’s Chicago. The new rush of available spaces coming online will pump the brakes on the rapidly inflating rent prices. The grip landlords currently have over rent prices may soon loosen in order to fill units when the inevitable flood of open spaces hits the market in the near future.

Enter the Tenant-Friendly Era

As time marches forward, so do rent prices. For nearly seven years straight tenants have experienced rent hikes. New corporations moving to Chicago means many of their employees will relocate closer to their jobs, further increasing competition for open spots. However, the timing works out well with the large amount of apartments opening up over the next few years, which means rent prices are unlikely to see a significant rise for a while.

Chicago’s real estate market is moving along at a healthy rate. While prices are inflating faster than renters would like, new apartment buildings are coming to the rescue and will relieve the rapidly rising rent. With the market potentially flipping to a tenant-friendly one, the upcoming years will be an excellent time to seek a place to live in historic downtown Chicago.

Regardless of whether rent continues to rise, owning for long term is always a better financial option. If you or someone you know are looking to sell or purchase a residence we encourage you to speak with Lisa Kalous.

This Week’s Recommended Reading

Here’s this week’s recommended reading:

From Thanks To Action To Impact: Why, Why Not? Guest Post: Gavin Mogan.

Uplifting messages light up the blogosphere during Thanksgiving week. I hope my contribution is uplifting, but my purpose is to challenge. Challenge sort of fuels you, the CRE Tech Maverick.

Be thankful, +52. Gratitude as a platform.

But is thanks enough? An attitude of gratitude is only a platitude to many less blessed than you. If thanks is the idea, then giving is the finished product… Via Duke Long.

Real estate investors snap up medical office buildings as boomers age

As aging baby boomers fuel growing demand for health-care services, investors are increasingly turning their attention to medical office buildings — a niche within the real estate market that some argue is recession proof… Via TheStar.

Shrinking U.S. Shopping Malls Get Makeovers

Visitors used to flock to the Highland Mall in Austin, Texas, around the holidays to stroll through the city’s first enclosed shopping complex and admire the giant Christmas tree crafted from poinsettia plants…. Via WSJ.

Maximize Your Commercial Real Estate Dollar in 3 Easy Steps

Maximize Your Commercial Real Estate Dollar in 3 Easy Steps - Tag - Blog Header

Signing a commercial lease is one of the biggest steps in a business owner’s journey. The lease agreement is filled with all aspects of rules, regulations and terms to understand during a rental relationship. And, as a business owner, your livelihood is at stake so you want to make sure you’re getting the most value for your dollar.

Fortunately (or unfortunately, however you see it), this starts with determining your rentable square footage. It’s one of the first and most crucial steps in the process. However, especially if you have a mixed-use building or a space with multiple tenants, understanding what you’re renting can be confusing.

Before you sign any lease agreement, here’s a quick and dirty lesson to know what you’re paying for and ultimately getting for your business.

Rentable v. Usable Square Footage – What’s the Difference and Why it Matters:

Simply put, Usable Square Footage (USF) is the actual space a tenant occupies. Keep in mind, this only accounts for the space a tenant is using for their business, and it excludes any common areas (for example, the building’s lobbies or restrooms.) If you’re a tenant that occupies multiple floors in a building, the USF calculation includes lobbies or restrooms that exclusively serve your floor(s).

Rentable Square Footage (RSF) is your usable square footage plus your proportionate share of the building’s shared space. So, this can be anything outside of your occupied space and that benefits you (for example, the lobbies and restrooms, mentioned above). As a tenant in a commercial space, you pay for a portion of the shared space and so your monthly rent is always calculated on RSF.

The “Loss Factor”:

When you take a look at the lease agreement, you’ll likely come across the phrase “loss factor,” “common area factor” or “add-on factor.” And – for tenants – this is arguably the single most important calculation to understand when evaluating commercial property.

The loss factor is essentially the increase in the rentable square footage above your usable square footage. You can easily break it down into three easy steps:

Step 1: Determine how much total floor area a building has.

Step 2: Subtract the shared square footage (from the total building floor area) to give you the USF. If you’re unsure of this number, just ask the building owner as they can easily provide you with the information.

Step 3: Divide the total floor space by the USF to give you the loss factor %.

What does this mean for a tenant?:

Higher loss factor percentages mean that more of a tenant’s monthly rent will be dedicated to common areas and less to the space they occupy. However, this also means that buildings with higher loss factors have many more amenities – in the form of indoor pools, spacious lobbies with conference rooms, on-site laundry facilities, chef-grade kitchens – all of which might be very appealing to some tenants. The most important takeaway here, is determining if the price per square foot matters to your business.

With any commercial real estate lease, you should always know exactly what you’re getting and what you’re paying for. As a potential tenant, pay attention to the fine print – it really matters to your business. Having the help of a trusted and experienced advisor or broker can help tremendously in these types of situations, so as a tenant, you can always be sure you’re getting a fair deal.

If you’re going into a lease or purchase, it’s important to know what you’re getting into. Check out my previous post “8 Tips and Tricks for Commercial Tenants” that can help you have a smoother transaction process.

[New Episode – S1:E6] “Commercial Real Estate: What I Know Now and Wish I Knew Then”

In a time where the commercial real estate industry is as fast-paced and as dynamic as ever, having helpful insight and advice about what’s important and what’s working (or not) can help anyone learn as they go. We’ve launched an all-new series with MeetAdvisors.com – “Commercial Real Estate: What I Know Now and Wish I Knew Then.”

This week Bill spoke with Darryl Cheeks, CEO of Black Rhino Financial Group. Black Rhino Financial Group is a finance company with the mission to provide professional excellence in executive, financial and operational support for all of their clients. They are able to achieve this goal through their holistic approach, experienced team, and utmost dedication to give their clients a unique, one of a kind plan. They offer services ranging from personal finance planning, budgeting, taxes, and retirement planning. Darryl explains what the most important parts of a lease document are, to make sure the lease and agreement terms are right.

Bill is leading this monthly series and explores the dos and don’ts for business owners when seeking commercial real estate. Coming from those who have been there and done that, this show seeks to inform those who will be seeking space for the first time or even those who already have gone through the process but could benefit from someone else’ successes and failures.

We’re aiming to bring you two new videos each month and will be sharing each episode with you as they appear. For more information and to see other great content, visit www.MeetAdvisors.com.

Want more tips and tricks? Check out episode 5 here.


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