The past several news articles have focused on snapshots of the economy from the perspectives of various trade professionals. I feel that it would be timely to discuss something taking place in the marketplace today. Companies have been feeling the pinch all across the board with almost every business sector affected by this economic downturn. Many companies are focusing on survival and with that they should be thinking about their commercial real estate needs for today and the future in order to help them operate leaner and meaner in the short-term while positioning themselves for future growth as the economy improves.

I am not going to go through all the details in this short time that I have your attention, but I will tell you that after considering several opportunities available to either relocate to a different facility with various sizes and rental rates in the marketplace, they also considered the costs and inconvenience of moving to a new location. The negotiations went back and forth and I feel a fair resolution was obtained given that both parties had carefully analyzed what would have happened had there not been give and take on both sides. The Tenant ended up eliminating the costs associated with moving, preserving the ideal layout they had operated under for the past several years, and provided them with the short-term financial relief they needed in order to survive the recession. In other words, they have provided themselves with a leaner and meaner business model and at the same time, reduced one of the more expensive (fixed) cost associated with running a business.

It was not only the tenant that made out OK from this transaction, but the savvy landlord did as well. This particular Landlord recognized that by providing a substantial reduction in the rent in the near term, it safeguarded a good relationship with a long-term client of theirs and also preserved the cash flow for the building; it would have been quite possible that by making the wrong negotiation decision and forcing the tenant to relocate to a new facility, they may have been left with no cash flow coming in from this particular space for an undetermined amount of time. Not only would the landlord face the possibility of having down time, but also additional legal fees, brokerage fees, and possibly tenant improvement fees they would potentially incur by securing a new tenant for the space. In other words, by taking less money today than they were collecting from a good long-term tenant, they maintained their own financial stability during these turbulent times and aligned themselves for growth potential going forward as the economy rebounds.

In the above example, both parties were able to come to a happy medium because they both understood each other’s needs; this is NOT always the case due to various reasons that I am not getting into right now! Companies may be able to reduce their overhead by modifying or even eliminating some of the obvious expenditures (better known as trimming the fat), but have they carefully analyzed or overlooked their fixed cost items such as the real estate component of the company’s overhead? I would welcome the opportunity to discuss helping your firm address these issues if you simply email me at dlizzack@naihanson.com or call me at your convenience. I thank you for your time and consideration in reading this material.

Stay tuned for next month’s issue and I hope you are enjoying your summer!