Sequoia Realty Market Update - January 2014

January 2014 Sequoia Market Update

Contents of this Newsletter

Time to File Your Realty Tax Complaints - Rick Ferris

Recent Deals by Sequoia Realty Corp.

               - 9002 Mentor Ave., Mentor - 8,600 Sq.Ft. Medical/Office Building  - SOLD for $591,000

New on the Market at Sequoia Realty Corp. 

               - 30525 Euclid Ave., Willowick - Restaurant/Bar Investment - For Sale @ $289,000

REDUCED PRICE! Properties at Sequoia Realty Corp.

              - 1202 High St., Fairport Harbor - 16,200 Sq. Ft. Mini Storage - $740,000!!!

Real Estate Tax Valuation Challenges March 31, 2014 Deadline - Kevin and Dan Hinkel of Kadish, Hinkel and Weibel.

January 2014 Sequoia Market Update

Time to File Your Realty Tax Complaints

Dear Friends,

With the polar vortex upon us, my wish is for you to stay warm and healthy!

This is the time of year for real estate tax valuation complaints. And by complaints, I don't mean just expressing your dismay verbally.  If your tax valuation is too high, you need to file an official complaint with the county and work for a reduction.

Personally, I can say that we have had great success these past few years in challenging the inflated valuations imposed by the county taxing authorities, bringing the values more in line with true market values.

We have found it best to work with a law firm that takes these cases on contingency, so there is no cost to us other than a percentage of the savings when it is realized.  Included in this market update is a brief article on the process prepared by the attorneys that we use, Kevin and Dan Hinkel of Kadish, Hinkel and Weibel.

Don't delay, because you only have until March 31 to file the complaint.  As always, just let me know if I can be of any help!

Happy New Year!

Rick

PS. If you know anyone who is looking to buy, sell or lease real estate, just let me know. I will be happy to help.

Richard Ferris, CCIM, MBA
President
440.946.8600 x103
Rick@SequoiaRealty.com

Recent Deals by Sequoia
Property Address - Sq. Ft. - Leased/Sold

9002 Mentor Ave.
Mentor, OH
8,600 Sq.Ft. Medical/Office Building 

  - SOLD for $591,000

5782 Heisley Rd.
Mentor, OH
16,840 Sq. Ft. Industrial Warehouse 

  - SOLD for $849,900

 

7345 Center St.
Mentor, OH
2,700 Sq. Ft. Retail Building

  - SOLD for $190,000

29017 Chardon Rd.
Willoughby Hills, OH

2,000 Sq.Ft. Office Space
   - FULLY LEASED

854 E. 185th St.
Cleveland, OH
 5,025 Sq.Ft. Retail Building w/ Full Basement
   - PENDING SALE

New on Market/ Price Reduction
Property Address - Sq. Ft. - Type - Lease or Sale Price

NEW ON THE MARKET!

30525 Euclid Ave., Willowick

3,840 Sq.Ft. Restaurant/Bar Investment
For Sale @ $289,000

NEW ON THE MARKET!

1899 Hubbard Rd., Madison

4,284 Sq. Ft. Office/Medical Building
For Sale @ $195,000

1202 High St., Fairport Harbor
3 Building Mini Storage Facility w/ 132 Units
16,200 Total Sq.Ft.
Investment Property for Sale @ $790,000

PRICE REDUCED to $740,000!!!

3720 Warrensville Center Rd., Shaker Heights
14 Unit Apartment Complex
Investment Property for Sale @ $695,000

PRICE REDUCED to $665,000!!!

Real Estate Tax Valuation Challenges
March 31, 2014 Deadline - Kevin and Dan Hinkel of Kadish, Hinkel and Weibel.

       Property owners have until March 31, 2014 to file a complaint with the County Board of Revision (“BOR”) for the specific county in which a property is located to challenge the valuation of the property for real estate tax purposes for calendar year 2013.  A filing for 2013 will also govern 2014 in Cuyahoga County as well as in Lake County as 2013 is the second year of the triennium in each of those two counties.  Our firm is very familiar with the challenge process as we have represented property owners, as well as the Orange Board of Education and the Berea Board of Education, for three decades on these matters.  Complaints filed regarding those school districts will be, like my walk from the parking garage to the office this morning, uphill and into a cold, brisk wind.

       The correct preparation of the complaint is critical. Although the courts have overruled in recent years a number of the previously fatal jurisdictional defects, the completion of the complaint still contains many traps for the unwary.  Clearly, it is best to have an attorney who is skilled in this area complete the complaint.  Whether a property is overvalued, fairly valued or undervalued, is best determined by considering its income earning potential (in the absence of a recent sale).  The best indication of value of a property is a recent sale, say within the past two years of the valuation date at issue.  In most instances, that sale will be controlling as to the valuation. Absent such a sale, with regard to income producing property, the valuation is determined by the capitalization of the net operating income (“NOI”) as well as through comparison of the subject property to the sales of comparable properties within the marketplace.  
    Regarding the capitalization of NOI, costs and expenses of capital, interest, amortization, depreciation and real estate taxes are excluded from the determination.  The NOI is capitalized at a capitalization rate which is typically determined either from capitalization rates in market place transactions or the mortgage/equity rate plus the addition of the specific tax additur for the property’s location.  Tax additurs within northeastern Ohio fluctuate from just over 2% to just over 4%.  Typically, capitalization rates range from 9.5% to 12.5% primarily dependent on the tax district and the quality of the investment opportunity that the property presents.  

    With regard to the identification of comparable sales, experienced law firms in this area, such as our firm, have access to databases which provide information regarding asking rents, actual rents, and specific sales information as to property sales, whether the properties are retail, commercial or industrial.  The databases contain very detailed information that is critical to analyze the comparability of the sold property to the subject property.  Owner occupied property is more difficult to analyze due to the absence of a rental stream at the property and as a result the databases’ information becomes even more valuable. If the property is 100,000 ft.² or less, there are often sales of investment property which can be utilized as comparable sales.  However, if the subject property is greater than 100,000 ft.², the ability to secure comparable sales is very difficult.  The comparable sales then need to be adjusted based upon the specifics of the subject property as compared to the comparable sales.  Generally, the items to consider for adjustment are location, land size, size of building, physical condition, age of structure, and difference in conditions of the market from the tax lien date to the date of the sale. An appraiser is best-suited to make these adjustments, but often times the property owner or counsel can make limited arguments at the BOR regarding the comparable sales.  Additionally, in smaller counties, the BOR may have familiarity with the actual sales.

    The BOE for the applicable jurisdiction has the opportunity to file a counter-complaint and to participate in any hearings at which the reduction sought is equal to or greater than $50,000.00.  The BOE can also independently file complaints to increase the valuation of properties within its district.  Prior to the 2008 decline in market values, many BOE’s filed independent increased complaints on a regular basis.  Complaints filed for 2013 will likely be set for hearing before the BOR before the end of November, 2014, sooner in Lake County.  Prior to the hearing, the evidence upon which the complainant basis his claim of reduction is presented.  The evidence must be presented to the BOR in the BOE in advance of the hearing.  At the hearing, the property owner's testimony or that of an appraiser is very important and the absence of either is a serious detriment in the process.  The witnesses need to be prepared to answer questions regarding the property and how it competes with its marketplace.

    If the complainant is not satisfied with the result at the BOR, the owner can appeal to either the Court of Common Pleas (“CCP”) or to the Ohio Board of Tax Appeals (“BTA”).  The BOE can only appeal to the BTA.  Virtually all appeals are filed with the BTA given the hearing examiner's experience and the infamiliarity of the CCP with these types of cases and the presence upon its docket of criminal cases and complex civil litigation.  Like the Cuyahoga County BOR, the BTA has greatly increased the speed in which it disposes of appeals in the past few years now.  Typically, the BTA sets the hearing to be held on an appeal for six months after of the date of receipt of the appeal.  Both the BOR and the BTA have very restrictive policies as to continuances and those should not be expected.  

    Historically, the engagement of appraisers has typically been delayed until the appeal is pending from the BOR decision. However, an earlier engagement of the appraiser so that he/she can testify before the BOR as well as the BTA should be considered. Additionally, given the very significant shortening of the time the appeal is pending before the BTA from a few years to only six months has caused the demand for appraisals to skyrocket. As a result, where a substantial reduction is sought, the engagement of the appraiser early in the process is advisable.    

    Should you have any questions with regard to your property, please contact Kevin Hinkel or Daniel Hinkel of Kadish, Hinkel and Weibel at and 216-696-3030

   

Read more »

BUSINESS FOR SALE!!! Geneva, OH

 Tommy's Jerky & Smokie Outlet - For Sale!

* 1,100 Sq. Ft. Retail Store
* 25k Put Into Nice Build-Out
* Great Location off of S.R. 534 South
* Excellent Visibility off of I-90
* Minutes from the SPIRE Institute Sports Complex
* Business for sale at a great price!!!

Call or E-mail Rick Ferris at Sequoia Realty Corp. for additional information and financials today!
Rick@SequoiaRealty.com   440.946.8600  x-103

Visit www.SequoiaRealty.com to find other Office, Retail, Industrial, or Business Opportunities that may fit your needs!!!

Read more »

Office Disruption: Challenges & Opportunities

How Much Space Do We Need? Will shrinking footprints slow the office recovery?

No company ever seems to have the right amount of office space. Firms grow and shrink throughout the years for many reasons; however, they must contract for space over a set lease term of five, 15, or even 20 years. Typically this situation results in about 20 percent to 25 percent more space per wo... (to continue, click the link below)
http://www.ccim.com/cire-magazine/articles/310928/2013/05/how-much-space-do-we-need

How Much Space Do We Need?

Will shrinking footprints slow the office recovery?

by Norman G. Miller and Roger J. Brown, CCIM

No company ever seems to have the right amount of office space. Firms grow and shrink throughout the years for many reasons; however, they must contract for space over a set lease term of five, 15, or even 20 years. Typically this situation results in about 20 percent to 25 percent more space per worker than the stated goals of space planners. So firms with a goal of 200 square feet per worker will likely end up closer to 250 sf per worker.
Yet, in last year’s CoreNet Global survey, corporate executives indicated they expect to reduce the amount of space they lease in the next five years to less than 100 sf of dedicated space per worker. Since the current average rentable building area in the U.S. is about 300 sf per worker, does this mean we have three times as much office space as needed?

Current Space Trends

Looking at square feet per worker on new leases, the U.S. national average in late 2012 was 185 sf per worker, according to CoStar lease data. This number reflects new leases in major markets and a fairly tight economic environment. Company executives do not want to lease too much excess space even though they may find current rental rates are attractive. Comparing utilized space by industry (see chart) reveals consistent differences that are reflective of an industry’s compensation level and need for work space.

As of 2013, on leases close to expiration, the average space per worker is often double the estimate for new leases. This makes sense, since companies can’t downsize until leases expire. In soft economies we expect a fair amount of shadow space that is leased but not occupied. Since labor costs matter much more than occupancy costs, most tenants are able to honor their leases until they expire, so they pay for more space than they actually need. The extra space also provides a convenient option to expand and hire more workers without the need to move. So we expect to observe significant extra space in weaker economies, when rents seem to be bargains.

Future Space Needs

A survey conducted by the author suggests that everyone wants to use less space. Large firms, representing about a third of all office space users, have increasingly moved toward more-standardized shared, or nondedicated, office space. Based on input from CoreNet Global members and CBRE tenants, tenants with footprints greater than 75,000 sf are working harder to use space more efficiently. This group tends to encourage digital storage on centralized cloud-based servers and use nondedicated standardized space for all but the most senior of managers. This group represents 1.8 percent of all U.S. tenants by count and 27.9 percent of all office space.
Those using more than 50,000 sf represent 36 percent of the total office stock. If, using some of the space-sharing strategies described above, 36 percent of the firms reduce their primary leased office footprint by 50 percent, moving from 250 sf to 125 sf, this would be the equivalent of 540 million sf out of some 12.25 billion office sf as of 2013. Historically this is equivalent to 3.6 years of average U.S. deliveries of net new office space to the market, which has averaged close to 150 million sf per year since 1983. At the same time we recognize that little space has been added from 2009 through 2012 and the office stock has actually shrunk due to increasing obsolescence. Absorption has been positive for the two years prior to the end of 2012.
Along with companies’ higher space utilization rates, other factors are affecting future office space demand. The lack of new construction inhibits space use efficiency. Newer buildings allow for more-efficient use of space, especially when built for a particular tenant. But as the lease ages, the amount of space leased and the number of workers in the space generally changes, resulting in increased space per worker. As second-generation tenants replace first-generation tenants, it is often more difficult to use the space as efficiently. This is generally the case for most small firms that cannot, on their own, drive new supply in the market.
Looking at the global market, office space per worker is much less in Europe and Asia than in the U.S., suggesting some of U.S. demand is culturally based. Thus, as the U.S. companies are influenced by companies and employees from other countries, office configurations and work space allocations per worker may change. In addition, the increasing mobility of U.S. office workers who may work full or part-time from other locations, is causing companies to reconsider the need for dedicated office space for every employee.
Companies are also increasing the proportion of collaboration and team space in offices, along with more space devoted to amenities. These flexible spaces are offsetting some of the square footage lost to smaller dedicated work spaces. We are also witnessing an increasing trend toward greener office space with more natural light, better natural ventilation, and better temperature controls, all of which may add to the comfort and productivity of office workers.
Over a longer term, the average size of space leased has fallen by 21 percent during the past 10 years, according to a Property Portfolio Research September 2012 report. PPR also notes that green, transit-friendly space is increasingly in demand, suggesting that much of the existing space is obsolete and needs retrofitting. Those buildings that are able to bring in more natural light without extraordinary costs seem to offer the best opportunities for retrofitting.  

Decreases in total office consumption based on more-flexible work location patterns and higher utilization rates are underway, but they take time. The total demand for space will grow at a slower pace for the next few decades, as firms decrease space allocated per employee, but there will be substantial demand for better interiors more adapted to the newer style of working.
Over the next several years we will likely see a large spread in the space required per worker from the most efficient space users to traditional space users, so estimating the average sf per worker will be a challenge. The most reasonable estimates presume a continual but slow reduction in space per worker. For now, 200 sf to 250 sf per worker is still a reasonable estimate for most traditional firms, but at the same time, 100 to 150 sf is closer to what some of the larger public firms are now achieving.
Moving forward, we will see some firms achieve less than 100 sf per worker, but given the cultural impediments and the challenges of predicting growth rates, we are more likely to see figures average 150 sf to 185 sf per worker phasing slowly toward even lower figures at the end of the decade. This is a significant reduction is space per worker, but it parallels a need to retrofit much of the existing space to provide more collaborative team space and healthier, more productive environments.
At the end of the day, landlords are not selling space but rather productivity. More productive environments with better natural light, temperature and air controls, cleaner air and controllable noise are more productive and will command rental premiums.

Norman G. Miller is a professor at the Burnham-Moores Center for Real Estate at the University of San Diego. Contact him at nmiller@sandiego.edu. Roger J. Brown, CCIM, is executive scholar at the Burnham-Moores Center for Real Estate at the University of San Diego. Contact him at Rjb21@cox.net. The article is adapted from a longer paper, “Changing Trends in Office Space Requirements: Implication for Future Office Demand.” Read the complete article along with other papers from the American Real Estate Society, or ARES, at the CCIM Foundation Library.

Space Utilization Factors

Hoteling. Not surprisingly, any firm that moves to an office hoteling strategy with standardized space for most workers will dramatically shrink its footprint and space per worker while increasing utilization rates — the percent of all work spaces occupied on average. Such a move can reduce space required by 35 percent or more and result in utilization rates of 90 percent or more versus the more typical 50 percent.

Turnover. Firms with low turnover rates — under 10 percent — have far higher utilization rates than firms with high churn rates around 35 percent. Time to fill a position also matters but less so than turnover. Only firms with a very stable workforce with little turnover and little need to expand or contract over the course of a lease term will ever hit space per worker or utilization rate targets.

Employee Age. Worker age matters with respect to the type of space required to attract and retain workers. Older workers are more likely to believe that office size matters and dedicated space is a signal of rank and success. Younger workers seem more willing to accept less dedicated space in exchange for a host of amenities and better working environments. 

Parking. Higher utilization rates significantly increases the demand for parking space. Firms with high office utilization rates require as much as 100 percent more parking per 1,000 sf as traditional dedicated office space, unless they happen to be located at transit stops in a city with good public transport options. 

- See more at: http://www.ccim.com/cire-magazine/articles/310928/2013/05/how-much-space-do-we-need#sthash.2T9BTGfi.dpuf

How Much Space Do We Need?

Will shrinking footprints slow the office recovery?

by Norman G. Miller and Roger J. Brown, CCIM

No company ever seems to have the right amount of office space. Firms grow and shrink throughout the years for many reasons; however, they must contract for space over a set lease term of five, 15, or even 20 years. Typically this situation results in about 20 percent to 25 percent more space per worker than the stated goals of space planners. So firms with a goal of 200 square feet per worker will likely end up closer to 250 sf per worker.
Yet, in last year’s CoreNet Global survey, corporate executives indicated they expect to reduce the amount of space they lease in the next five years to less than 100 sf of dedicated space per worker. Since the current average rentable building area in the U.S. is about 300 sf per worker, does this mean we have three times as much office space as needed?

Current Space Trends

Looking at square feet per worker on new leases, the U.S. national average in late 2012 was 185 sf per worker, according to CoStar lease data. This number reflects new leases in major markets and a fairly tight economic environment. Company executives do not want to lease too much excess space even though they may find current rental rates are attractive. Comparing utilized space by industry (see chart) reveals consistent differences that are reflective of an industry’s compensation level and need for work space.

As of 2013, on leases close to expiration, the average space per worker is often double the estimate for new leases. This makes sense, since companies can’t downsize until leases expire. In soft economies we expect a fair amount of shadow space that is leased but not occupied. Since labor costs matter much more than occupancy costs, most tenants are able to honor their leases until they expire, so they pay for more space than they actually need. The extra space also provides a convenient option to expand and hire more workers without the need to move. So we expect to observe significant extra space in weaker economies, when rents seem to be bargains.

Future Space Needs

A survey conducted by the author suggests that everyone wants to use less space. Large firms, representing about a third of all office space users, have increasingly moved toward more-standardized shared, or nondedicated, office space. Based on input from CoreNet Global members and CBRE tenants, tenants with footprints greater than 75,000 sf are working harder to use space more efficiently. This group tends to encourage digital storage on centralized cloud-based servers and use nondedicated standardized space for all but the most senior of managers. This group represents 1.8 percent of all U.S. tenants by count and 27.9 percent of all office space.
Those using more than 50,000 sf represent 36 percent of the total office stock. If, using some of the space-sharing strategies described above, 36 percent of the firms reduce their primary leased office footprint by 50 percent, moving from 250 sf to 125 sf, this would be the equivalent of 540 million sf out of some 12.25 billion office sf as of 2013. Historically this is equivalent to 3.6 years of average U.S. deliveries of net new office space to the market, which has averaged close to 150 million sf per year since 1983. At the same time we recognize that little space has been added from 2009 through 2012 and the office stock has actually shrunk due to increasing obsolescence. Absorption has been positive for the two years prior to the end of 2012.
Along with companies’ higher space utilization rates, other factors are affecting future office space demand. The lack of new construction inhibits space use efficiency. Newer buildings allow for more-efficient use of space, especially when built for a particular tenant. But as the lease ages, the amount of space leased and the number of workers in the space generally changes, resulting in increased space per worker. As second-generation tenants replace first-generation tenants, it is often more difficult to use the space as efficiently. This is generally the case for most small firms that cannot, on their own, drive new supply in the market.
Looking at the global market, office space per worker is much less in Europe and Asia than in the U.S., suggesting some of U.S. demand is culturally based. Thus, as the U.S. companies are influenced by companies and employees from other countries, office configurations and work space allocations per worker may change. In addition, the increasing mobility of U.S. office workers who may work full or part-time from other locations, is causing companies to reconsider the need for dedicated office space for every employee.
Companies are also increasing the proportion of collaboration and team space in offices, along with more space devoted to amenities. These flexible spaces are offsetting some of the square footage lost to smaller dedicated work spaces. We are also witnessing an increasing trend toward greener office space with more natural light, better natural ventilation, and better temperature controls, all of which may add to the comfort and productivity of office workers.
Over a longer term, the average size of space leased has fallen by 21 percent during the past 10 years, according to a Property Portfolio Research September 2012 report. PPR also notes that green, transit-friendly space is increasingly in demand, suggesting that much of the existing space is obsolete and needs retrofitting. Those buildings that are able to bring in more natural light without extraordinary costs seem to offer the best opportunities for retrofitting.  

Decreases in total office consumption based on more-flexible work location patterns and higher utilization rates are underway, but they take time. The total demand for space will grow at a slower pace for the next few decades, as firms decrease space allocated per employee, but there will be substantial demand for better interiors more adapted to the newer style of working.
Over the next several years we will likely see a large spread in the space required per worker from the most efficient space users to traditional space users, so estimating the average sf per worker will be a challenge. The most reasonable estimates presume a continual but slow reduction in space per worker. For now, 200 sf to 250 sf per worker is still a reasonable estimate for most traditional firms, but at the same time, 100 to 150 sf is closer to what some of the larger public firms are now achieving.
Moving forward, we will see some firms achieve less than 100 sf per worker, but given the cultural impediments and the challenges of predicting growth rates, we are more likely to see figures average 150 sf to 185 sf per worker phasing slowly toward even lower figures at the end of the decade. This is a significant reduction is space per worker, but it parallels a need to retrofit much of the existing space to provide more collaborative team space and healthier, more productive environments.
At the end of the day, landlords are not selling space but rather productivity. More productive environments with better natural light, temperature and air controls, cleaner air and controllable noise are more productive and will command rental premiums.

Norman G. Miller is a professor at the Burnham-Moores Center for Real Estate at the University of San Diego. Contact him at nmiller@sandiego.edu. Roger J. Brown, CCIM, is executive scholar at the Burnham-Moores Center for Real Estate at the University of San Diego. Contact him at Rjb21@cox.net. The article is adapted from a longer paper, “Changing Trends in Office Space Requirements: Implication for Future Office Demand.” Read the complete article along with other papers from the American Real Estate Society, or ARES, at the CCIM Foundation Library.

Space Utilization Factors

Hoteling. Not surprisingly, any firm that moves to an office hoteling strategy with standardized space for most workers will dramatically shrink its footprint and space per worker while increasing utilization rates — the percent of all work spaces occupied on average. Such a move can reduce space required by 35 percent or more and result in utilization rates of 90 percent or more versus the more typical 50 percent.

Turnover. Firms with low turnover rates — under 10 percent — have far higher utilization rates than firms with high churn rates around 35 percent. Time to fill a position also matters but less so than turnover. Only firms with a very stable workforce with little turnover and little need to expand or contract over the course of a lease term will ever hit space per worker or utilization rate targets.

Employee Age. Worker age matters with respect to the type of space required to attract and retain workers. Older workers are more likely to believe that office size matters and dedicated space is a signal of rank and success. Younger workers seem more willing to accept less dedicated space in exchange for a host of amenities and better working environments. 

Parking. Higher utilization rates significantly increases the demand for parking space. Firms with high office utilization rates require as much as 100 percent more parking per 1,000 sf as traditional dedicated office space, unless they happen to be located at transit stops in a city with good public transport options. 

- See more at: http://www.ccim.com/cire-magazine/articles/310928/2013/05/how-much-space-do-we-need#sthash.2T9BTGfi.dpuf

How Much Space Do We Need?

Will shrinking footprints slow the office recovery?

by Norman G. Miller and Roger J. Brown, CCIM

No company ever seems to have the right amount of office space. Firms grow and shrink throughout the years for many reasons; however, they must contract for space over a set lease term of five, 15, or even 20 years. Typically this situation results in about 20 percent to 25 percent more space per worker than the stated goals of space planners. So firms with a goal of 200 square feet per worker will likely end up closer to 250 sf per worker.
Yet, in last year’s CoreNet Global survey, corporate executives indicated they expect to reduce the amount of space they lease in the next five years to less than 100 sf of dedicated space per worker. Since the current average rentable building area in the U.S. is about 300 sf per worker, does this mean we have three times as much office space as needed?

Current Space Trends

Looking at square feet per worker on new leases, the U.S. national average in late 2012 was 185 sf per worker, according to CoStar lease data. This number reflects new leases in major markets and a fairly tight economic environment. Company executives do not want to lease too much excess space even though they may find current rental rates are attractive. Comparing utilized space by industry (see chart) reveals consistent differences that are reflective of an industry’s compensation level and need for work space.

- See more at: http://www.ccim.com/cire-magazine/articles/310928/2013/05/how-much-space-do-we-need#sthash.2T9BTGfi.dpuf

No company ever seems to have the right amount of office space. Firms grow and shrink throughout the years for many reasons; however, they must contract for space over a set lease term of five, 15, or even 20 years. Typically this situation results in about 20 percent to 25 percent more space per worker than the stated goals of space planners. So firms with a goal of 200 square feet per worker will likely end up closer to 250 sf per worker.
Yet, in last year’s CoreNet Global survey, corporate executives indicated they expect to reduce the amount of space they lease in the next five years to less than 100 sf of dedicated space per worker. Since the current average rentable building area in the U.S. is about 300 sf per worker, does this mean we have three times as much office space as needed?

Current Space Trends

Looking at square feet per worker on new leases, the U.S. national average in late 2012 was 185 sf per worker, according to CoStar lease data. This number reflects new leases in major markets and a fairly tight economic environment. Company executives do not want to lease too much excess space even though they may find current rental rates are attractive. Comparing utilized space by industry (see chart) reveals consistent differences that are reflective of an industry’s compensation level and need for work space.
- See more at: http://www.ccim.com/cire-magazine/articles/310928/2013/05/how-much-space-do-we-need#sthash.2T9BTGfi.dpuf

 How Much Space Do We Need?

Will shrinking footprints slow the office recovery?

by Norman G. Miller and Roger J. Brown, CCIM

No company ever seems to have the right amount of office space. Firms grow and shrink throughout the years for many reasons; however, they must contract for space over a set lease term of five, 15, or even 20 years. Typically this situation results in about 20 percent to 25 percent more space per worker than the stated goals of space planners. So firms with a goal of 200 square feet per worker will likely end up closer to 250 sf per worker.
Yet, in last year’s CoreNet Global survey, corporate executives indicated they expect to reduce the amount of space they lease in the next five years to less than 100 sf of dedicated space per worker. Since the current average rentable building area in the U.S. is about 300 sf per worker, does this mean we have three times as much office space as needed?

Current Space Trends

Looking at square feet per worker on new leases, the U.S. national average in late 2012 was 185 sf per worker, according to CoStar lease data. This number reflects new leases in major markets and a fairly tight economic environment. Company executives do not want to lease too much excess space even though they may find current rental rates are attractive. Comparing utilized space by industry (see chart) reveals consistent differences that are reflective of an industry’s compensation level and need for work space.

As of 2013, on leases close to expiration, the average space per worker is often double the estimate for new leases. This makes sense, since companies can’t downsize until leases expire. In soft economies we expect a fair amount of shadow space that is leased but not occupied. Since labor costs matter much more than occupancy costs, most tenants are able to honor their leases until they expire, so they pay for more space than they actually need. The extra space also provides a convenient option to expand and hire more workers without the need to move. So we expect to observe significant extra space in weaker economies, when rents seem to be bargains.

Future Space Needs

A survey conducted by the author suggests that everyone wants to use less space. Large firms, representing about a third of all office space users, have increasingly moved toward more-standardized shared, or nondedicated, office space. Based on input from CoreNet Global members and CBRE tenants, tenants with footprints greater than 75,000 sf are working harder to use space more efficiently. This group tends to encourage digital storage on centralized cloud-based servers and use nondedicated standardized space for all but the most senior of managers. This group represents 1.8 percent of all U.S. tenants by count and 27.9 percent of all office space.
Those using more than 50,000 sf represent 36 percent of the total office stock. If, using some of the space-sharing strategies described above, 36 percent of the firms reduce their primary leased office footprint by 50 percent, moving from 250 sf to 125 sf, this would be the equivalent of 540 million sf out of some 12.25 billion office sf as of 2013. Historically this is equivalent to 3.6 years of average U.S. deliveries of net new office space to the market, which has averaged close to 150 million sf per year since 1983. At the same time we recognize that little space has been added from 2009 through 2012 and the office stock has actually shrunk due to increasing obsolescence. Absorption has been positive for the two years prior to the end of 2012.
Along with companies’ higher space utilization rates, other factors are affecting future office space demand. The lack of new construction inhibits space use efficiency. Newer buildings allow for more-efficient use of space, especially when built for a particular tenant. But as the lease ages, the amount of space leased and the number of workers in the space generally changes, resulting in increased space per worker. As second-generation tenants replace first-generation tenants, it is often more difficult to use the space as efficiently. This is generally the case for most small firms that cannot, on their own, drive new supply in the market.
Looking at the global market, office space per worker is much less in Europe and Asia than in the U.S., suggesting some of U.S. demand is culturally based. Thus, as the U.S. companies are influenced by companies and employees from other countries, office configurations and work space allocations per worker may change. In addition, the increasing mobility of U.S. office workers who may work full or part-time from other locations, is causing companies to reconsider the need for dedicated office space for every employee.
Companies are also increasing the proportion of collaboration and team space in offices, along with more space devoted to amenities. These flexible spaces are offsetting some of the square footage lost to smaller dedicated work spaces. We are also witnessing an increasing trend toward greener office space with more natural light, better natural ventilation, and better temperature controls, all of which may add to the comfort and productivity of office workers.
Over a longer term, the average size of space leased has fallen by 21 percent during the past 10 years, according to a Property Portfolio Research September 2012 report. PPR also notes that green, transit-friendly space is increasingly in demand, suggesting that much of the existing space is obsolete and needs retrofitting. Those buildings that are able to bring in more natural light without extraordinary costs seem to offer the best opportunities for retrofitting.  

Decreases in total office consumption based on more-flexible work location patterns and higher utilization rates are underway, but they take time. The total demand for space will grow at a slower pace for the next few decades, as firms decrease space allocated per employee, but there will be substantial demand for better interiors more adapted to the newer style of working.
Over the next several years we will likely see a large spread in the space required per worker from the most efficient space users to traditional space users, so estimating the average sf per worker will be a challenge. The most reasonable estimates presume a continual but slow reduction in space per worker. For now, 200 sf to 250 sf per worker is still a reasonable estimate for most traditional firms, but at the same time, 100 to 150 sf is closer to what some of the larger public firms are now achieving.
Moving forward, we will see some firms achieve less than 100 sf per worker, but given the cultural impediments and the challenges of predicting growth rates, we are more likely to see figures average 150 sf to 185 sf per worker phasing slowly toward even lower figures at the end of the decade. This is a significant reduction is space per worker, but it parallels a need to retrofit much of the existing space to provide more collaborative team space and healthier, more productive environments.
At the end of the day, landlords are not selling space but rather productivity. More productive environments with better natural light, temperature and air controls, cleaner air and controllable noise are more productive and will command rental premiums.

Norman G. Miller is a professor at the Burnham-Moores Center for Real Estate at the University of San Diego. Contact him at nmiller@sandiego.edu. Roger J. Brown, CCIM, is executive scholar at the Burnham-Moores Center for Real Estate at the University of San Diego. Contact him at Rjb21@cox.net. The article is adapted from a longer paper, “Changing Trends in Office Space Requirements: Implication for Future Office Demand.” Read the complete article along with other papers from the American Real Estate Society, or ARES, at the CCIM Foundation Library.

Space Utilization Factors

Hoteling. Not surprisingly, any firm that moves to an office hoteling strategy with standardized space for most workers will dramatically shrink its footprint and space per worker while increasing utilization rates — the percent of all work spaces occupied on average. Such a move can reduce space required by 35 percent or more and result in utilization rates of 90 percent or more versus the more typical 50 percent.

Turnover. Firms with low turnover rates — under 10 percent — have far higher utilization rates than firms with high churn rates around 35 percent. Time to fill a position also matters but less so than turnover. Only firms with a very stable workforce with little turnover and little need to expand or contract over the course of a lease term will ever hit space per worker or utilization rate targets.

Employee Age. Worker age matters with respect to the type of space required to attract and retain workers. Older workers are more likely to believe that office size matters and dedicated space is a signal of rank and success. Younger workers seem more willing to accept less dedicated space in exchange for a host of amenities and better working environments. 

Parking. Higher utilization rates significantly increases the demand for parking space. Firms with high office utilization rates require as much as 100 percent more parking per 1,000 sf as traditional dedicated office space, unless they happen to be located at transit stops in a city with good public transport options. 

- See more at: http://www.ccim.com/cire-magazine/articles/310928/2013/05/how-much-space-do-we-need#sthash.2T9BTGfi.dpuf

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How to Be A Landlord: Top Ten Tips for Success

by Brandon Turner on December 9, 2012

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Sometimes I don’t like tenants.

Okay, that’s a lie. A lot of times I don’t like tenants. I’m sure individually those tenants are decent people. However, as a whole, I don’t always like tenants.

When I first wanted to enter real estate investing – I heard time and time again all the reasons why landlording is a terrible idea. I’m sure you’ve heard them too:

• The tenant won’t pay rent
• The tenant will trash your house
• The tenant will make you go bankrupt
• The tenant will make you clean toilets at 2 am
• The tenant will drive you crazy

These generalizations are not unfounded. Many investors become landlords and quickly find they are overwhelmed by the amount of work it takes to manage tenants – especially in low-income areas or in multifamily properties (both which I own.) These landlords often find themselves burned out because they never learned how to be a landlord.

Over the past five years I’ve made a lot of mistakes, learned a lot of lessons, talked with a lot of other investors (both successful and not), spent a lot of time on the BiggerPockets Forums, and read an absurd amount of books. During this time I’ve learned a lot of “hacks” from these sources that have made landlording much easier to handle. I finally feel Like I know how to be a landlord – and can help others feel the same. Some of these might work wonders for you – others may not work at all. However, these are all tricks that have helped me manage dozens and dozens of properties and still love investing in real estate.

Like a new puppy or a new employee, tenants need to be trained to act the way that fits your business model. Many of your tenants are coming from a background with terrible landlords who let them do whatever they want. Unless you want the same problem – you need to train your tenant to perform the way you want.

How to Be a Landlord: Top Ten Tips for Managing Tenants

10.) Be Knowledgable

To make landlording an easier task, you need to be well equipped to handle the problems that you will face. The best way to do this is through education. Books, courses, and mentors are all great ways to improve your abilities. When you have questions – don’t just shoot from the hip. Head over to the BiggerPockets forum and ask your question in front of thousands of seasoned investors to learn what works and what doesn’t. Listen to podcasts, talk with other investors, and teach others what you know.  Education doesn’t end with high school or college – it simply becomes more important. (Click here to tweet this quote!)

9.) Create a Policy – Stick to it

If you are running your rental business off the top of your head, making up the rules as you go – you are opening yourself up for a lot of hassel. Tenants will know if you are making rules up on the spot (no – you cannot pay rent in quarters) so having a written policy – that your tenant has – will make life much easier. Rather than trying to explain why a certain action is not allowed, you simply can refer to the policy. “I’m sorry Joe – our policy states that rent must be paid by a Cashiers Check or Money Order.” People tend to not question “policy” even if you are the one who created that policy. Once that policy is created – don’t deviate from it.

8.) Quality Product = Quality Tenants

While this isn’t a hard and fast perfect rule, in general the quality of your tenant will depend largely on the quality of the home you are providing. I’m not suggesting that you offer granite counters in your Section 8 rental – but providing a better-than-average home you will set a standard for the kind of tenant you attract and keep. As a landlord, your product is not only the renal itself. Your business is part of the product, and the way you run your business will affect how your tenant views your product. Fix repairs promptly (hire it or not,) maintain strict professionalism, and stay organized.

7.) Set Office Hours

Do you want to fix repairs at 10:00 at night? How about receiving phone calls at 6:00 am? As a landlord – you get to set your own hours. I publicly let all my tenants know that I was only available between 10am- 4pm on weekdays. Of course, I have a cell phone that will ring anytime. Tenants don’t need to know that though. When they do call outside of office hours – I will always let the call go to voicemail. If it’s important – they’ll leave a message. If not – it probably wasn’t important. The main exception to this policy is when trying to show a unit. I try to answer calls anytime – but that’s up to you.

6.) Get a Google Voice Number

A neat tip you can also try relating to the previous tip is to sign up for a free “Google Voice” account – which supplies you with a phone number that is forwarded to your own cell phone. Give all your tenants this number and set up a business voicemail on that line. All business related calls go to that number but your phone (or multiple different phones) will ring and can be answered. On our “business voicemail” line I include my personal cell phone number for “Emergencies only” but have never had a problem with tenants abusing this. By having a Google Voice number – you can set a schedule of when the phone will ring and when you want it to simply go to voicemail.

5.) Know When To Outsource

Many repairs can be easily fixed. Many more cannot. If you are extremely handy with construction and tools you may be tempted to do all the repairs yourself. While this might be a good idea – it also may not. Just because you can do something doesn’t mean you should. In order to be a successful landlord – you need to balance cost savings with enjoyment. If you hate fixing things – don’t fix things. Hire it out. There are too many ways to make money in this world than to be trapt doing something you hate.

4.) Be Organized

Have all the forms you need organized neatly in your file cabinet, have your procedure written down for all common problems (vacancies, repairs, etc.) and keep your maintenance contacts organized neatly for easy retrieval. Keep current with your accounting. Have a clean office. These, and many other organization tools, may seem small and trivial but they are one of the most important ways you can keep your business a business that succeeds. Don’t underestimate organization.

3.) Always Charge a Late Fee

It may seem cruel – but I always charge a late fee – and I make it known ahead of time about this policy. I don’t know how many times I’ve had a tenant call with a claim of not being able to pay the rent on time but as soon as they discover I’m going to charge them a late fee – somehow they always seem to find the money. Most tenants make a lot more money than just what rent is – but not enough money to live each month. As such – they must constantly prioritize what gets paid and what doesn’t. By being strict with late payments – you place “rent” higher on the priority scale than other obligations. Additionally -the extra income when rent is late is a nice compensation for the stress of not getting rent on time.

2.) No Family/Friends

Not a month goes by that I don’t get a call from a friend or family member asking if I have any place available for rent. My answer is always the same: no. As part of my “Seven Deadly Sins of Real Estate Investing,” renting to family or friends is one of the most common but most disastrous mistakes many new landlords make. I didn’t know this when I first began and rented to several close friends and even some family – each time I was faced with a choice: Get screwed over or lose the relationship. Every time I chose to get screwed over in order to preserve the relationship. I finally had enough and “put it in the policy.” No more stress from those relationships.

#1.) Don’t Be The Owner

Finally, my number one tip for being a successful landlord: don’t be the owner. This is especially true for those of you who, like me, are peacemakers and non-confrontational.  As a landlord – you are going to face a lot of tough decisions and awkward conversations. When you are the owner – the blame is on you and as a result you will often make decisions based on convenience rather than common sense. (After all – you better not be the owner. The owner should be a business entity that you set up with your attorney.)
Instead, from this moment on, you are no longer the owner. You are simply the property manager.  ”I can’t move my 200lb dog into this studio apartment!?”  ”no, I’m sorry – the owner doesn’t allow dogs here.” Additionally, you can tell the tenant “I need to talk to the owner about this” to buy yourself time to think about odd requests.  Instead of the tenant being upset with you – they are now upset with the mysterious “owner.”  Feel free to play this up all you want:

Me: “Sorry, I tried talking the owner into it but he is a stickler for the rules.” 

Tenant: “Ugh, I hate that guy” 

Me: “Yeah, me too…”

What About You?

That’s all I got for now! I hope you enjoyed my tips. Each of these tips have become a huge partner with me to make landlording much less of a headache than it is for others.

What are your favorite tips on how to be a landlord? Or which is your favorite tip from above? Leave me a comment below! 

Also, if you found this article helpful – please do me a favor and share this article on Facebook, Twitter, Google+, LinkedIn, or any other social network you use! 

http://www.biggerpockets.com/renewsblog/2012/12/09/how-to-be-a-landlord/

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TEDxCLE! 2013

TEDxCLE! at the Cleveland Museum of Art. 

http://www.tedxcle.com/tedxcle-2013-bonfire-ignite/

 

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Ready to Go Hair Salons to Start Your Business!

Hair Salons Available for Lease in Mentor and Willoughby

Located in the Crossroads Plaza
 34508 Euclid Ave.
Willoughby, OH 44094

1,600 Sq. Ft. 
Immidiant Occupancy!
Excellent Visibility!

Near Rt. 91
High Traffic Count! 
Easy Freeway Access to S.R. 2 and I-90
For Lease @ $13.50/ Sq. Ft.

Located on busy Center St (615)
7345 Center St
Mentor, OH 44060

2,700 Sq. Ft.
Updated Salon/ Spa!
6 Hairdresser Stations & 4 Wash Stations
Nice Waiting Area
Basement for Storage
Located in the Heart of Mentor!
For Lease @ $10.66/ Sq. Ft.
Also option to buy!



Call or Email Rick Ferris at Sequoia Realty Corp. to set up a showing or to receive more information on either of these great locations! 440.946.8600 ext 103 or Rick@SequoiaRealty.com

Visit www.SequoiaRealty.com to find other Office, Retail, Industrial, or Business Opportunities that may fit your needs!

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Program to Help with a Business Idea!

Do you have a business idea but can't seem to get it started?  Below is a link with information on a 12 week program that could help you be successful. 

 http://freshwatercleveland.com/innovationnews/openoffice122012.aspx

 Hope every has a great Holiday and a very Happy New Year!

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