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 Cost vs. Necessity How These and Other Factors Affect the Decision Making Process By George Grace

Cost vs. Necessity: How These and Other Factors Affect the Decision Making Process

Helping clients make difficult real estate decisions is an important aspect of a broker’s job. Whether they are starting a new business or relocating an existing one, there are many factors to consider.

A client in midtown Manhattan is looking to relocate their business.

They have the option to: (a) stay where they are, (b) move to a new space in the same neighborhood, or (c) move to another location (such as lower Manhattan which is a popular option). For this client, together we looked at 30 different buildings.

All the spaces were in their size range and the type of space they liked–high ceilings, bright, tech space, etc. They were able to eliminate 25 buildings because of various reasons–not bright enough, too expensive, not quite the right location and similar factors.

This left 5 good options. We can now negotiate based on cost. Because any one of the 5 choices achieves their physical goals, we have created leverage to negotiate with each building and make an aggressive deal for our client.

When all the choices are satisfactory, the differentiating factor becomes cost. In this scenario, the spaces could be graded from the most expensive to the least and then we can analyze and discuss the other, less tangible factors.

Another client was renting space with a long-term lease obligation.

The client wanted to move to another space in their building and give up the space they had. They asked for help renegotiating their lease and moving to the other space. After a question and answer session, we were able to understand the client’s primary motivations. In this case, they simply wanted a nicer office environment, but, the nicer space would cost them an additional $50,000 a year.

We went through the analysis and they realized that the nicer space was only nicer– there was no new source of revenue to be gained and they could not fit any more people in the new space.

If the new space has the same capacity at a greater cost, the question is: What value do you get from being in a nicer space? There is an intangible value, but is it worth $50,000 a year?

The client said, “No. We’ll stay where we are.”

If the price difference was limited to $15,000 – $20,000 a year, then it may be worthwhile. In a case like this, a broker may be able to negotiate a deal that appeals to both the tenant and the landlord. However, when the client is contractually bound to a long term lease, negotiations can be especially tricky.

Searching for the right office space can be challenging. Exploring options, understanding costs and considering every factor will provide clients the opportunity to make the best possible decision.

Moving or Staying:

The most common issue for clients that we deal with as brokers is the question: “should we stay or should we go?” One of the factors that tenants may consider is that moving to a new space can have a very positive effect on morale.

If the company is investing in new space, it is a very positive signal to managers, employees, clients and vendors. In spite of this, there is a certain inertia that keeps tenants in their current space because it is expensive to move and disruptive.

Owners and their brokers know this and tend not to work too hard in keeping a tenant. It is our job as a tenant’s advocate to keep your present owner’s feet to the fire. We accomplish this in the same way we would if you decide to move. We review all options, negotiate lease terms in other buildings, and just before (sometimes after) drawing a lease, we go back to the present landlord and see if they will match or better the other deal.

This value should not be underestimated! By this process, you, as the tenant, can make an informed decision.

Our Objective

At Mohr Partners we have a passion for finding the best deals for our clients. With word of mouth as our primary means of advertising, we literally live by the deals we make – and unless we make good deals for our clients, we won’t get their repeat business. That is how we earned our reputation, and that is why we are growing. To find out more, call (646) 312-6800 or email george.grace@mohrpartners.com

 George E. Grace
 Mohr Partners, Inc.
232 Madison Avenue
New York, NY 10016