Part One

As office rents in some Boston markets begin to increase, cost-conscious tenants are looking for other ways to save money.  In viewing their total occupancy costs, more CEOs, CFOs, and real estate executives are starting to question their approach and scrutinize all negotiable lease terms in an effort to add value to the bottom line.  Some are learning the secret: they can avoid extra costs and realize significant bottom-line savings by engaging an experienced Project Management (PM) consultant to assist, from the start of site selection.

Consider this scenario:

You have signed what appears to be the "perfect" lease in a great location for visibility, workforce recruitment, and employee commuting.  The 45,000-square-foot transaction includes a competitive rental rate ($5 per square foot annually below current market rates over a seven-year term) plus three months of free rent.  At first glance, this equates to a $1,912,500 savings. 

But problems arise:

• First, you can't meet the scheduled occupancy date due to unanticipated delays with permitting and furniture; a delay of three months results in loss of the negotiated free rent and a costly holdover penalty on the current lease.
• Then you realize you actually only needed 40,000 square feet, not the 45,000 square feet committed to in the new lease.
• What's more, the tenant improvement allowance negotiated at $20.00 per SF needed to be $35.00 per SF.
• You engaged an architect who, after completing a code analysis, tells you that because of new occupancy requirements, you can't accommodate as many employees as you thought.  And as a result, you need additional space!

Now, the perfect lease isn't so perfect anymore.

In this hypothetical yet plausible example, lack of experience and improper planning result in major expenses.  The 5,000 SF of surplus space at $30.00 per SF per year over seven years equals $1.05 million.  At $15.00 per SF per year, the additional out-of-pocket tenant improvement expense comes to $657,000.  In addition, the cost of the lost free rent is another $337,500, not to mention the corresponding holdover penalty.  That's a total loss of at least $2,107,500!

In Search of Value 

So, how can you change the game to create more value?  Most important, the above situation is one you could have averted had you engaged experienced Project Management consultants upfront.

To get started, you should conduct due diligence and, at a minimum, review the following factors:

• Space needs assessment
• Virtual office considerations
• Base building conditions
• Tenant improvements
• Realistic occupancy date

In Part Two of this TenantReport, we will review the factors above

along with other steps to help you get started in securing upfront PM savings.

Meanwhile, we encourage you to visit our website to review blog posts

about this and other Project Management topics:

http:www.cresa.com/blog/category/project-management/