Office-space landlords willing to bargain in tough economy

by Andrew Johnson – Nov. 20, 2008 12:00 AM – The Arizona Republic

Consumers have cut back discretionary spending. Credit is harder to obtain. Energy costs have been on a roller coaster.

Operating a small business has become something of blood sport in the past year.

But an area of the economy where small-business owners are getting breathing room is commercial real estate.

Fundamental factors that turned the Valley into a commercial-development hot zone – rampant in-migration and job growth – have slowed. Leasing and sales velocity in the commercial market has stalled. Vacancy rates for office, retail and industrial properties are at their highest levels in several years.

The news may sound dour, but the ailing market has opened new and, in some cases, classier doors for small businesses. To fill space, landlords offer a bevy of concession packages: several months of free rent, reduced parking rates, money for improvements and greater move-in flexibility.

The specials enable companies in older buildings or less-than-ideal locations to move into Class A space without necessarily paying Class A prices.

 

 

The downturn has taken a toll on businesses in all sectors. Many have scaled back hiring or postponed expansion because of skittish consumer demand. Others have gone belly up.

The result is fewer tenants available to fill the growing pool of commercial space. That has delivered a hefty blow to building owners and property managers, who struggle to attract and retain tenants.

 

Very shallow’ market

 

“The market’s very shallow right now in terms of activity,” said Don Mudd, a senior vice president in the Phoenix office of commercial-brokerage firm Grubb and Ellis/BRE Commercial LLC.

In addition to the rising number of businesses that are vacating space altogether, many are trying to sublease. Some want to sublease space they don’t need; others are looking for cheaper space elsewhere and can’t prematurely end the contract for their current location.

Subleasing is one way small-business owners can move to a premier location without paying premier prices.

“On the sublease side, there is a significant reduction of (rental) rate,” said Nicole Cooley, a senior associate with Cushman and Wakefield of Arizona Inc. in Phoenix. Cooley works with office tenants seeking 3,000 to 10,000 square feet.

Many tenants are taking advantage of the slow market by “either stepping into Class A space in a better submarket or into a more ideal location for their employee base,” she said.

Lisa Perez, who co-owns a document-shredding business, is subleasing about 500 square feet from an office-furniture company in east Phoenix. She pays about $1,200 on a month-to-month basis.

Other properties she looked at cost $3,800 to $5,000 per month.

“I thought, ‘Gosh, we’re going to burn through cash pretty quickly,’ ” recalled Perez, CEO of AZ Docushred LLC.

 

 

Flexible terms

 

Many landlords have become more accommodating to potential tenants as the commercial real-estate market has softened.

When Ultimate Shade Alternatives in Tempe was looking to relocate its office and warehouse last fall, price was important – so was space configuration and move-in time.

The company installs outdoor shades on commercial and residential properties.

The shade materials are as long as 50 feet, so the company requires large swaths of unobstructed space. The business also was growing, making it difficult to pinpoint exactly how much space it needed.

The owners decided to stay put in a multitenant office-warehouse building in Tempe. A deciding factor was a change in the building’s ownership. The new landlord’s offer to let the company move into the space during the course of several months instead of at one time helped seal the deal.

“They allowed us to utilize some of the new space before we even had an agreement, so they really were going out of their way to help us as a business manage our growth,” president Joy Whitfield said.

Tenants often focus on lease rates when they should keep an eye out for other factors that can affect the bottom line, too, said Greg Mayer, a senior associate with CB Richard Ellis in Phoenix.

“There are 40-plus points in an office lease,” said Mayer, who brokers lease agreements for office tenants. “Most people focus on rent as being the biggest point in a lease, (but) you have parking, you have operating expenses, you have insurance, you have remedies if something happens in a building.”

 

 

Staying put

 

Despite plentiful deals, other tenants are making do with what they have.

Earlier this year, John Beck was considering moving his office equipment firm, WORKspaces LLC, into a new building because the business could use more space.

The company had moved from a 1,000-square-foot Camelback Corridor office into a 4,000-square-foot multitenant building in northeast Phoenix two years ago.

“We were growing like crazy,” Beck said. “We had too many people stuffed into a small office.”

The company’s office is starting to get crowded again, but the economic downturn has Beck putting potential moving plans on the back burner.

The company could financially afford to take on a couple of thousand more square feet, especially with the some of the deals landlords are offering, he said. Still, the office-furniture business is particularly susceptible to economic downturns, and Beck doesn’t want to risk having to pay for more space than he’s going to need.

In many cases, it’s more difficult for businesses to add locations or relocate headquarters because of financing issues.

“With the tight credit markets, it’s really difficult, if not impossible, for companies to borrow on a business line of credit or (obtain) business loans,” said Thad Seligman, president of the Phoenix office for commercial brokerage firm NAI Horizon.

For some businesses, the only option is to dip into cash reserves.

“The problem is there’s so much unknown about what’s going on in the business environment that no one wants to spend their own cash,” Seligman said.

IT’S PRIME TIME FOR DEER COLLISIONS

John Weiss. McClatchy – Tribune Business News. 2008/11/19. Fred Richardson and Bill Burk are already seeing signs of increased deer movement. But they’re not talking about hunting. Richardson owns Richardson Auto Body in Lake City and Burk owns Chatfield Auto Body. They say they are already seeing vehicles come in banged up, dented or wrecked because the drivers hit a deer. Michelle Gappa, on the other hand, is an agency producer for Lynn Broadwater’s Farmers Insurance Co. in Rochester. The big rush of claims is still to come, she said. Deer are in their breeding season, meaning that bucks lose their typical wariness and does are moving to find bucks. Hunters know that and like to be out in the woods when the deer aren’t as wary. What is unusual this year, so far, is that hunters haven’t been seeing or shooting as many deer, though the state Department of Natural Resources said there were plenty around. Conservation officer reports from across the state, however, generally indicate a slower harvest this fall. Richardson said he gets about 50 such deer-damaged vehicles a year, about two-thirds in fall. But it’s more than mating that gives him business, he said. “It seems people are driving more and further and faster,” he said, giving them more chances to hit deer. He’s seen about the same number of damaged vehicles this year. The deer-collision time is one of his busiest, along with the first snow when drivers seem to have to relearn how to drive on slick roads, he said. Burk averages 35 to 40 deer-damaged vehicles a year. “This year it seems to be a little slower,” he said. “I haven’t seen that many deer out … but they are still hitting them.” Maybe deer are staying in corn until it’s picked; the harvest has been generally later this year. Last year he saw more damage, as deer first came out in August and the problem lasted throughout the winter and into spring and summer. “We had people constantly hitting them,” Burk said. Not this year. “(We) haven’t seen it pick up yet this fall. We’re just waiting.” When the corn comes down, however, Gappa expects claims to go up. But maybe worse is first, icy roads. “I’m still dreading that one,” Gappa said. “It’s an education every year.”

Self-Inspection Checklist for Business Offices

A vital part of loss control is the recognition and removal or correction of unsafe activities or conditions before a loss occurs.  This WILL save you money.  The attached Self-Inspection Checklist provides you with a tool to identify some areas that might need attention.  A “NO” response to any question indicates corrective action my be necessary.  This survey form should be completed at least quarterly, and reviewed by management to assure that unsafe acts/conditions are corrected and follow-ups are scheduled to see if the correction(s) accomplishes its purpose.  Additional measures may be required beyond those identified by this checklist.

Business Office Self-Inspection Checklist

Economic Turmoil & Insurance Companies

In light of the recent financial turmoil Farmers Insurance remains in a strong financial position, is profitable and is significantly outgrowing the industry. How are our competitors doing? Here are financial news clips from the October 31, 2008 issue of the New York Times:
 
New York Times 10-31-08:
 
HARTFORD:
Insurance companies were among the day’s biggest losers as shares of the Hartford Financial Group lost more than half their value, closing at $9.62, after the company posted a painful third-quarter loss. The company struggled to reassure investors, a reminder of the troubles that have led several large insurers to open talks with the Treasury Department about investments from the federal bailout package.

 

An executive at the Hartford said the company was open to selling a stake to the Treasury in exchange for capital. The declines in the company’s stock came just weeks after a German insurance company took a $2.5 billion stake in the Hartford.

 

AIG
American International Group…disclosed Thursday afternoon [10-30-08] that it was borrowing up to $20.9 billion from the Fed’s program…

 
In a filing with the Securities and Exchange Commission, A.I.G. said four of its affiliates had exchanged commercial paper for cash from the Federal Reserve Bank of New York. It said in the filing that it would use the proceeds to refinance its outstanding commercial paper, as well as pay down its initial credit line of $85 billion.
The Fed said A.I.G. reduced its debt under the two existing credit lines to $83.5 billion, from $90.3 billion a week ago, by using cash from the commercial paper program, Bloomberg News reports. With the latest loans of up to $20.9 billion from the Fed, the insurer’s borrowing now totals as much as $104.4 billion.
An A.I.G. spokesman, Nicholas Ashooh, told Bloomberg that the terms of the commercial paper program were better than those for the original $85 billion credit line, which has a higher interest rate.
“They’re paying off a Fed loan with another kind of government subsidy – it’s like using one credit card to pay off another credit card,” Robert Haines, an analyst at the research firm CreditSights, told Bloomberg. “If they make progress paying off debts over time, I don’t think it’ll be viewed as necessarily a bad thing…”
This enormous need for cash has raised questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say that at least part of the shortfall must have been there all along, hidden by irregular accounting.

Burglary Prevention Checklist

-Organize a Neighborhood Watch program. Neighbors

working together make one of the best crime-fighting

teams around.

-Keep shrubbery trimmed. Tall, thick shrubbery

provides cover for burglars and lets them work

undetected.

-Keep the area around your house well lit. This will

discourage burglars.

-Using an engraving pen, write your Driver’s License

number on your personal property.

-Make sure that the locks on your doors and windows

are strong and secure, and use them. Most burglars

won’t attempt to break a secured window for fear of

noise and the attention it would attract.

-Make a home inventory list, complete with photos or

video. Store this list away from your home (Ask your

Farmers agent about the Insurance and Household

Inventory Record brochure offered through Farmers.)

-Never leave a house key in such obvious places as

mailbox or under a doormat.

-Have a security plan for when you are on vacation.

Ask a friend to pick up mail, newspapers, etc.

-Use automatic timers to turn on lights, radios and

televisions. An especially effective method is to have

one timer turn off a bathroom light as one timer turns

on a bedroom light and vice versa, to give an

impression of movement within the house. Also, it’s

important to change the sequence at least every

two months.

http://www.farmersinsurance.com

 

Tips to CUT COST on your Commercial Building’s Insurance Policy!

Higher Deductibles, Loss Prevention Among Ways to Save Money

SOURCE: The Insurance Information Institute

NEW YORK, October 7, 2008 — More than 25 million small businesses operate in the United States today, yet many of these business owners did not take advantage of the many ways to save money on their insurance. In lean times like this, it is even more important to evaluate your business and consider ways to reduce spending while boosting profits, according to the Insurance Information Institute (I.I.I.).

The I.I.I. suggests eight ways business owners can save money on their insurance:

  1. Shop around.
    Prices vary from company to company, so it pays to shop around. Get the names of companies or brokers who specialize in your type of business. Call several so that you can compare prices and get a feel for the types of services they would provide. Ask the agent or company that provides your personal insurance whether they offer business insurance. It is also important to pick a company that is financially stable. Check the financial health of your potential insurer with rating companies such as A.M. Best and Standard & Poor’s.
  2. Look at Group Rates.
    Purchasing your insurance through a business or professional organization can save you money. Many different business organizations offer insurance plans and/or discounts on business insurance to their members. The bigger the group, usually the lower the insurance premiums. The savings typically outweigh any member dues. There are professional organizations for almost every business occupation from electricians and plumbers to writers and artists. General business organizations, such as your local Chamber of Commerce and the Better Business Bureau also offer business insurance discounts. Your local home-based business association may offer lower prices on home-based business insurance.
  3. Choose a higher deductible.
    Deductibles represent the amount of money you pay before your insurance policy kicks in. The higher the deductible, the less you will pay in premiums for the policy.
  4. Consider a package policy.
    A Business Owners Policy (BOP) is often significantly less expensive than a self-designed plan. BOPs include: property insurance for buildings and company owned contents; business interruption insurance, which covers the loss of income resulting from an insured event (such as a fire) that disrupts the operations of the business; and liability protection, which covers a company’s legal responsibility for the harm it may cause to others. To determine whether a package policy suits your needs, inventory all of your business property to determine its value and whether it needs to be insured, then compare the property and values to what is available in a particular package.
  5. Set up a risk management/loss reduction program.
    Insurers will often lower your rates if you put a program into place that will minimize losses from fire, theft, and employee and customer injuries. These can include workplace safety training programs, disaster preparation and human resource intervention. Consider installing a security or fire system. If your line of business uses vehicles, install anti-theft devices and hire drivers with good driving records. If possible reassign drivers with bad driving records to non-driving tasks. Ask what you can do to reduce risks such as fire or work-related accidents and review the procedures that should be in place in the event your business suffers a major catastrophe.
  6. Consider relocating your business.
    Deciding whether to relocate depends, to a large extent, on what kind of business you operate and where you move to. Moving from a downtown area to a suburb, for example, may reduce premiums on your property and vehicle insurance, and even your workers compensation insurance.
  7. Work closely with your agent or broker.
    An insurance professional can provide invaluable advice to help protect your business. It is important to keep your insurer informed about any changes in your business operations. This includes major purchases, expansions or changes in hiring or in the nature of your operations.
  8. Have the right amount and type of coverage.
    Part of the decision about what insurance to buy depends on the nature of the business. For example, if your business has a lot of assets, you might consider theft and property damage insurance. You may want life insurance on you and critical personnel in your organization. You also may want to consider various other forms of insurance, for example, Directors and Officers (if you have a Board of Directors) or business interruption. Having the right amount and type of coverage along with a carefully developed business plan that includes disaster preparedness can save you money in the long run. Be sure to keep your agent fully apprised of any changes within your business that might necessitate changes to your insurance coverage. Such changes may include: adding employees, expanding your business, increasing your inventory or materials, purchasing major equipment such as tools or vehicles and adding suppliers.

Ways to Avoid Being a Victim of Phony Insurance

Friday, November 14, 2008

Source: Arizona Department of Insurance

The best protection is prevention! You wouldn’t choose a nursing home or hire a builder without doing some homework…the same applies to insurance!

 

Verify before you buy! Check the validity

of the insurance company and agent by

contacting the Department of Insurance:

http://www.id.state.az.us or (602) 364-2499 or

(800) 325-2548 outside Phoenix

(Check the exact insurance company name being

used — scam companies often use names similar

to legitimate insurance companies).

 

Fake insurance comes in all types: health, boat,

medical malpractice, surety, business and

professional liability, long term care. It is marketed

to all types of people and businesses.

• Don’t let slick looking websites, business cards,

“official” forms, and marketing materials persuade

you that an insurance entity is legitimate.

 

Review documentation carefully—make sure it

looks “original”, not photocopied; look for a seal

and authentic signatures.

 

If the paperwork looks suspicious, contact the

insurance company listed to verify that a policy

was issued and call the Department of Insurance

to verify licensure.

  

Research the insurer: contact the BBB, the

Corporation Commission, and the U.S.

Department of Labor; get financial ratings from

AM Best and other financial rating services; ask

the Department of Insurance for complaint figures

and financial information.

 

Check out websites: Is there a physical address?

Are there names of company officers? Are there

valid phone numbers? Is there a way for you to

contact the company besides email? Don’t settle

for a P.O. Box, voice mail or email.

 

Ask questions, keep notes about who you spoke to and when, keep copies of documents, and always

pay with a check or credit card.

 

Research “Discount” health plans and cards carefully. They are not insurance and typically not

government regulated. “Discount” plans have been the subject of many nationwide fraud allegations.

 

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