Avoid Management by Lease
In an ideal world, commercial tenants would work with both internal and external stakeholders to determine how much space they need before looking at properties. Management would go through a strategic planning process to figure out where the company is going, how it’s going to get there, and who’s going to take it there. The company would consult with an architect to determine its exact space needs, and necessary board or upper management approvals would be obtained beforehand.
That’s all well and good, but the reality is that many tenants have only a vague idea of how much space they really need when they start looking at properties. This is extremely common, even though real estate is the second largest cost item (after personnel) that companies have. It’s so common, in fact, that real estate brokers have a name for this backward process of looking at space first, and determining a company’s actual needs and getting approvals later: management by lease.
One tenant we worked with wanted to lease space that was twice the size of its existing office space in New York. We helped them find space at a favorable rent, and all of the local decision-makers were on board. However, the company also had operations in California, and when it was time to get board approval for the lease, the board questioned why they were adding expensive space in New York instead of adding staff in California. Situations like this can result in wasted time and effort for everyone involved if key decision-makers aren’t on board from the beginning.
While Mohr Partners can help by giving you an idea of how much space your company needs based on our discussions with you, when you start to define your needs through space planning, many internal issues emerge involving such questions as company strategy, internal department size (somehow, each department wants a huge amount of space!), and where people should be located. The company must also take its future prospects into consideration. Are they rosy, so more space is needed? Is the market stable? If so, it might be wise to keep the same amount of space the company currently has. This is when the true management by lease occurs. The earlier in the process you ask the right questions internally, the more efficient your search for space—and the greater your chances of success—will be.
The process of entering into a lease is a complicated undertaking that requires consideration of a host of internal management issues. If you would like to learn more about how Mohr Partners can guide you through the process, feel free contact me!
George E. Grace
G.E. Grace & Company, Inc.
232 Madison Avenue
New York, NY 10016
646-312-6800