CIP Blog

Some issues with leases can be solved pretty quickly so let’s clump a few lease issues together, shall we? 

Use:Easy isn’t it?  If you are taking about office space it is very easy.  Just insert language like this…

Class B Office Space

The Leased Premises shall be used by Tenant for general office purposes and for no other purpose whatsoever, without the prior written consent of Landlord.

Problem solved.  I have never gotten into a protracted lease negotiation that involved “Use” in an office lease.

Retail however, is another story.  Insurance companies don’t mind being next to each other in an office building but grocery stores don’t like it when you put there competitor next door.  Many anchors require “exclusivity clauses” that limit the shopping center’s ability to lease to a competitor.  An example is the Shops at Western Plaza.  The Fresh Market is the only grocery store allowed in the center. 

For that reason we have to write the “Use” section of the lease for new tenants carefully.  A tenant like Hard Knox Pizza will have the use listed as something like this:

The Premises will be used for operation of pizza restaurant, and associated food and beverages and for no other purpose whatsoever, without the prior written consent of Landlord. 

Without this language Hard Knox would have the ability, in theory, the change their store to a massage parlor, barber shop or grocery store (or anything else) and the landlord could do nothing about it; even if it did violate another tenant’s exclusivity.

Parking can be a big factor

Parking:

Things to watch for in lease language regarding parking:

• Is the number of parking spaces in the lot listed on the lease?  They don’t have to be but if you are tenant that has a lot of walk-in traffic you need some way to protect your employees and customers parking rights.
• Are their plenty of spots for visitor parking?  If not, ask for them.
• Do you have reserved parking?  What protections do you have from getting those taken away?
• Who has the right to tow cars?  The landlord and managing company must have the right to tow illegally parked cars.

Use of the Common Area:

This is one of those common sense things that are in just about every lease.  The lobby, restrooms, stairwells, etc…are for the use of the tenant, their employees, agents and guests.  Tenants are not supposed to use common areas for conducting business. See…common sense.

As always, if you have questions please feel free to contact me at 865-584-3967 or jcazana@ciprop.com

Next week we delve into….SIGNAGE!

Justin Cazana, CCIM

Knoxville, Tennessee

We take a reprieve from looking at the details of a lease to look at the market update for Knoxville. 

Since our last market update (a month ago), I am happy to say that things have certainly improved in the prospect area.   The phone is ringing more often, retailers are starting to talk about expansion and corporate users are looking for office space.

Retail Growth

Retail:   We manage/broker four different retail properties in Knoxville and the activity at all the centers has picked up.  CIP has done about 11,000sft of retail leasing in the last six weeks (our first retail leases of the year).   Other retailers are moving into the area.  West Town is getting the tea boutique Teavana and a Tommy Hilfiger.  There is a new Brazilian restaurant moving into the former Amerigo’s and the former Boater’s World location across from the mall will soon be home to Nicola’s Fine Furniture and Aspen Dental.   And lets not forget that Sullivan’s will open another west Knoxville location in the old Italian Market at Franklin Square.

Office space is starting to move again

On the office side activity has increased although not many deals have been closed.  Most of the leases are for tenants relocating, not necessarily expanding.  From the deals CIP is working on you can notice that most of the tenants looking to move are corporate groups.  Most locally owned companies are staying put. 

The big office news is still technically a rumor.    Shopper-News reported earlier this month that Powell-based medical products manufacturer DeRoyal Industries is negotiating to buy the JCPenney Building, on Gay Street, as a possible new corporate HQ. 

The story gave few details and company president Bill Pittman this morning said that “We have no plans to move downtown.”

Knoxville Industrial vacancy has risen 3% in the last two years.

The negative news is on the industrial side.  According to an MPC report, the vacancy rate grew from 11.1 percent in the fourth quarter of 2007 to 14.1 percent in the fourth quarter of 2009.  That is a pretty significant jump.

Four notable industrial properties were vacated since 2007 adding a combined 1,137,825 square feet to the market and making up 33 percent of the area’s vacant space.  That does not include an additional 102,000sft that has gone vacant since this report was completed. Vacancies also continued to grow at the national level, with the national vacancy rate registering 13.2 percent availability in the fourth quarter of 2009. 

Reading real estate is like reading tea leaves…tough to do and can leave a bitter taste in your mouth.  Things do look better as a whole but the market is still volatile. 

As always, if you have any questions please feel free to contact me at 865-584-3967 or jcazana@ciprop.com

Justin Cazana, CCIM

Hey its Spring Break!

Not a lot of time to write the blog this week so let me tell you what we are going to talk about in the coming weeks.

• Purchasing Property:  What you need to look for, due diligence, red flags etc…
• Leasing vs Buying:  Boy, this can be a tough one.  Lots of decisions.  Lots of cost.  You have to look in to your crystal ball and have a very good idea of where your company will be in a 5 years.

Then we will get in to leases.  Not just why you should lease and what to look for; but the actual leases themselves. 

We we delve in to great topics like:

• Rent
• Term
• Operating Expenses
• Tenant Finish Allowances
• Sublease/Assignments
• Subrogation!

Its not sexy but you have to be informed about these topics to make a well placed decision before you sign on the dotted line.

As always if you have questions contact us at Commercial & Investment Properties. 865-584-3967, www.ciprop.com or jcazana@ciprop.com

See you next week.  Have a great spring break.

Where do we want to start when it comes to the “Green Wave”?  Of course I am referring to the popular push to create energy efficient buildings on both the commercial and residential sides of the industry. 

Green initiatives have two significant factors; first they lower building emissions which helps the environment but most importantly to many people they can save building owners LOTS of money!

When you hear about green initiatives you were hear lots of different view points and rankings.  Two of the most popular are ENERGY STAR ratings and LEED Designations.

Energy Star: This federal program has been around since 1992 and focuses on energy saving products and more recently houses and commercial buildings.

According to the ENERGY STAR web site: Energy prices have become a hot news topic and a major concern for consumers. ENERGY STAR provides solutions. ENERGY STAR provides a trustworthy label on over 60 product categories (and thousands of models) for the home and office. These products deliver the same or better performance as comparable models while using less energy and saving money. ENERGY STAR also provides easy-to-use home and building assessment tools so that homeowners and building managers can start down the path to greater efficiency and cost savings.

II Centre Square has recieved the Energy Star Rating

Recently, II Centre Square, a 91,000sft office building in downtown Knoxville that is managed by Commercial & Investment Properties (CIP) received its ENERGY STAR rating.  It’s only the second privately owned building in downtown to received the ranking.   CIP implemented a variety of energy-saving features to improve the building’s efficiency. 

Some of these improvements include:

• Replacing magnetic ballasts and T-12 lamps with efficient T-8 lamps.
• Replacing original cooling tower with a highly-efficient 215-ton replacement.
• Installing compact fluorescent lamps in place of incandescent floods lights.
• Installing motion sensors in common areas to control lighting.
• Installing variable frequency drives (VFD) on the HVAC equipment.
• Replacing the pneumatic thermostats & controls with programmable controls.
• Providing set backs for heating and cooling with push-button override for after hour occupancy.

CIP’s Director of Development, Ryan Cazana, says while these improvements save money in the long run they just make good environmental sense.  “Energy use in commercial buildings and manufacturing plants accounts for nearly half of all energy consumption in the U.S.  Plus these facilities are also responsible for nearly half of U.S. greenhouse gas emissions which contribute to global warming.”

These capital improvements will save tenants in the building over the long run, while lowering the building’s carbon emissions at the same time.  The payback for these improvements is less than three years thanks to lower operating expenses.

LEED: Leadership in Energy and Environmental Design

LEED is the internationally recognized green building certification system developed by the U.S. Green Building Council.  LEED provides third-party verification that a building was designed and built using strategies aimed at improving performance across all the metrics: energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental quality, stewardship of natural resources and sensitivity to their impacts.

LEED certified buildings reduce energy use on average by 28% as compared to conventional buildings.  Since the launch of LEED in 2000, more than 4,500 buildings have achieved LEED certification. 

Not everyone is pushing to receive LEED certification.  In fact, many buildings are built to LEED guidelines but don’t go after the plaque.  The cost to have an outside firm come in and document your building & design process can be cost prohibitive. 

Nissan HQ-Leed designed

For example, Nissan’s 240,000sft corporate headquarters outside of Nashville is designed to meet Gold standards for LEED but does not have the designation.  Nissan says the cost of getting the designation would have exceeded two million dollars, instead they decided to take that money and put it into the building to even further improve the buildings efficiency.  

The good news is the cost of to certify a building is becoming less and less of a factor as more firms become capable of providing the certification needed.

Even retail & hospitality centers are getting involved.  The article below is from Tuesday’s Knoxville News Sentinel and talks about a new green theater in Chattanooga:                                   This week, theater owners across the country gather in Las Vegas for a major industry convention, and among the topics on the agenda is the greening of the movie business. The industry’s poster child sits just down the road from Knoxville – a Carmike cinema that recently opened on Broad Street in downtown Chattanooga. The theater, which began showing films in October, expects to receive LEED certification any day, according to Dale Hurst, director of marketing for Georgia-based Carmike. “We’re the first LEED stand-alone theater,” Hurst said. “We’re right in the middle of the running to be gold certified.” The theater features sustainable building practices, including use of local and recycled construction materials, rainwater and condensation collection systems, environmentally friendly cleaning and maintenance products, energy efficient air conditioning and lighting technologies and close proximity to public transport. And while, from a customer standpoint, the movie experience isn’t so different from other cineplexes, the building does feature bathroom lights that turn off when unoccupied, a lobby full of natural light from banks of windows at the theater’s entrance and plenty of recycling containers.

Click here to read the complete article: http://www.knoxnews.com/news/2010/mar/16/carmike-greens-its-screens/

Many tenants are also looking for green buildings.  In the past few years most all tenants being represented by national brokers ask about the designations when they are touring the building or during a Request for Proposal.   We have yet to have a tenant demand a LEED desgination but they do want to know about it.

There is no doubt that green initiatives will continue to be popular and you will see more and more new buildings follow these guidelines as it gets less expensive to implement and the rewards grow even more.

Opening new retail in these economic conditions is a 50/50 proposition.  Most importantly, the unsteadiness of the economy has many people worried but there are opportunities to get great deals on retail space for lease.

Finding the ideal space in the ideal location

I will let individual business owners make thier own decsions about the economy, but there is a plethora of retail space available all over Knoxville.

Almost every center from Strawberry Plains to Turkey Creek has some type of space available.  Some property owners are in more dire situations than others.  A older center may not have the debt service of new construction so the owners may not be as motivated to deal.  But some centers that were once asking $28.00 per square foot in popular location are down below $20.00.  Those are pretty serious concession.

Even if you are getting a “deal” there are many details to consider before choosing a location.

1.   Of course, Location, Location, Location: Walk in traffic is the best way for a new retailer to be discovered. Spend time in the neighborhood, learn the flow of traffic, the demographic, etc.

2.    Type of space: What side of the street is the space on? Do you get afternoon sunlight? Is the space deep and dark? Is there a lot of wasted square footage in the space? Notice as much as you can on the first tour and make sure to come back several times at different times of day.

3.    Neighbors/competitors: What businesses are located in the area?  Will their customers see value in your merchandise or service? Ask other merchants about the pros and cons of the area.

4.    Crime:  Being in a neighborhood that is gentrifying or potentially has some crime issues is fine for a restaurant or office, but potentially disastrous for a retail outlet. Your most valuable asset is your inventory and although insurance will help make up for losses, it is a major distraction from your business. Do a little research and see how many police reports have been filed within a mile of your potential location.

5.    Parking: How far away is the nearest parking lot? Do your customers need parking or will most of them be walking to your location?  The ability to have your customers park close by and affordably is extremely important.

6.    Signage: How big of a sign do you need to attract attention? What are the regulations of the landlord or the city as it relates to signage? Make sure to check out the neighbors and ask them how they got through the system if the regulations limit what you are hoping to do.

7.    Foot traffic: How busy is the street during the daytime? How busy is the street during evening hours? What types of people seem to be walking around? Is their a bus stop or school nearby. Take note of who walks by and what percentage of people seem to be window shopping because the more people looking the higher likelihood you’ll find a new customer.

8.    Brokers: Most shopping centers will have a broker to negotiate the deal…you should too.  They are experts in finding you the proper space, picking out the details and getting you the lease you need.

What works best for you may not be ideal for others

Potential hidden cost:  NNN Pass thrus.  We have discussed these before.  Shopping centers are not trying to hide these numbers from potential tenants but they are calculated differently than rent.  They are CAM (common area maintenance), taxes and insurance; also know as pass-throughs or NNN charges.  They are different at every center.  Some NNN charges are as low as $2.50psf in older centers or neighborhoods.  NNN charges in lifestyle centers such as Turkey Creek can be between $5 and $8 per square foot!  In many cases these charges are passed through directly from the property owner to the tenant without mark up.  But they can still add a considerable amount to your monthly rent check so pay attention to these.

Basically, if the time isn’t right don’t force the issue.  Find a good broker who is experienced in the field to guide you along and make the decsion when all the pieces fit properly. 

Commercial & Investment Properties manages and leases more than 350,000sft of retail space in the Knoxville market.  If we can be of assistance please let me know so you business has the proper headstart. 

www.ciprop.com   //  865-584-3967   //  jcazana@ciprop.com

Justin Cazana, CCIM