Hans Hansson | May 11, 2012
As salespeople today, we are constantly being bombarded with new tools and services that we are told are necessary to remain competitive. Most seminars have a class titled "don't miss out on this or you may become insignificant". As a trainer myself and one that needs the latest gadget, I have introduced salespeople to many technology products: from the first cell phone to the first PDA to the first laptop, these are now mainstream and essential tools in today's workplace. Now, I am focusing on teaching salespeople the power of social networking. Funnily enough, I am now getting to the point where 'Keeping up with the Joneses' is not necessarily the right answer when it comes to all of these new services and certainly not the right answer for everyone.
Today more than ever we are witnessing a fundamental shift in how we communicate with one and another. Texting is replacing emailing that replaced letter writing that replaced the act of talking to one another. We have lost our full language in favor of mistyped words in a non-sentence format. While it is true that we can communicate with more people than ever, we have to ask who exactly are these people we want to join up with?
It used to be said that to have one or two real friends and several close acquaintances made a person extremely lucky. Today, many people have 500 first connections on LinkedIn but, of those 500, how many are trustworthy enough to do business with?
We have developed a new generation that thinks a date consists of texting other friends while having dinner another person. Relationships and conversations are built on texting two or three words at a time; 'LOL' is a great example of this and I still cannot remember what it means.
As salespeople today, we need to re think how we build relationships and remember first and foremost the basics of what makes us successful. The days when a firm handshake and eye contact gave the first signal of a person's character are slowly dwindling due to an increase in communication through social media platforms and gadgets. Don't underestimate the usefulness of being able to scan a room and gather as much information as you can about that new prospect you are trying to sell to.
Don't get me wrong, I realize that social networking is happening and participation is necessary because it is a useful tool for getting and making business. However, as professionals we must first have the core principles of communications in place; the true meet and greet techniques that stand above all else. It is possible to generate business by posting a craigslist ad but without meeting a potential client in person to learn about them and vice versa, how likely is it that you will gain their loyalty and trust? Without a solid client relationship in place, it is unrealistic to expect your client to stick by when another salesperson knocks at that door with a cheaper alternative: leaving you in the dust when your client moves on before giving you the chance to tell them why your product and services are worth them staying.
Today more than ever we are witnessing a fundamental shift in how we communicate with one and another. Texting is replacing emailing that replaced letter writing that replaced the act of talking to one another. We have lost our full language in favor of mistyped words in a non-sentence format. While it is true that we can communicate with more people than ever, we have to ask who exactly are these people we want to join up with?
It used to be said that to have one or two real friends and several close acquaintances made a person extremely lucky. Today, many people have 500 first connections on LinkedIn but, of those 500, how many are trustworthy enough to do business with?
We have developed a new generation that thinks a date consists of texting other friends while having dinner another person. Relationships and conversations are built on texting two or three words at a time; 'LOL' is a great example of this and I still cannot remember what it means.
As salespeople today, we need to re think how we build relationships and remember first and foremost the basics of what makes us successful. The days when a firm handshake and eye contact gave the first signal of a person's character are slowly dwindling due to an increase in communication through social media platforms and gadgets. Don't underestimate the usefulness of being able to scan a room and gather as much information as you can about that new prospect you are trying to sell to.
Don't get me wrong, I realize that social networking is happening and participation is necessary because it is a useful tool for getting and making business. However, as professionals we must first have the core principles of communications in place; the true meet and greet techniques that stand above all else. It is possible to generate business by posting a craigslist ad but without meeting a potential client in person to learn about them and vice versa, how likely is it that you will gain their loyalty and trust? Without a solid client relationship in place, it is unrealistic to expect your client to stick by when another salesperson knocks at that door with a cheaper alternative: leaving you in the dust when your client moves on before giving you the chance to tell them why your product and services are worth them staying.
Hans Hansson | May 1, 2012
This past week I attended the Principal's Meeting of TCN Worldwide in Toronto Canada; TCN Worldwide is one of the world's largest commercial real estate networks serving over 210 markets. The Principal's Meeting is probably one of the most important meetings for its members as well as probably the most important gauge as to the health of the commercial real estate market on a worldwide scale. My firm, Starboard, is the TCN affiliate covering the San Francisco Bay Area. Unlike our international competitors; CBRE, Cushman & Wakefield and Jones Lang LaSalle, our network is made up of a cross section of different types of firms offering a variety of different commercial real estate services. Therefore, this platform offers excellent insight into what is happening in commercial real estate.
Two years ago, there was serious concern over the ability to exist both in terms of individual firms as well as our overall network. The commercial real estate sector was demolished with the crash of the financial sector. Doomsday was the main topic of the Principal's Meeting. Last year it was clear that all markets had stabilized and most firms had taken the necessary steps in cutting back operations to survive.
This year the meeting was much more upbeat but the majority of the markets still had yet to see a real rebound; instead, most indicated that their markets were simply flat. There were some exceptions: the San Francisco market is experiencing a tech boom with low vacancies, higher rental rates and investors pushing up real estate values, while Washington D.C is enjoying the benefits of our expanded government. Internationally, London, England is seeing office vacancies rates back under four percent; some of the lowest vacancy rates in the world.
Most commercial real estate firms in the rest of the world are making deals but not at the levels seen in 2007 or during a normal market. Two contributing factors to this problem are available credit and flat job growth. Banks are still holding back growth with very conservative guidelines preventing development while the job growth rate in white-collar jobs as well as manufacturing is flat.
The biggest elephant in the room during our meeting was the upcoming Presidential election. Typically, during other elections our market goes silent, awaiting a decision as to the direction the country will be going. Our only hope is that the market ignores the election and that, no matter which direction our country decides to go, we as a country are poised for growth.
Two years ago, there was serious concern over the ability to exist both in terms of individual firms as well as our overall network. The commercial real estate sector was demolished with the crash of the financial sector. Doomsday was the main topic of the Principal's Meeting. Last year it was clear that all markets had stabilized and most firms had taken the necessary steps in cutting back operations to survive.
This year the meeting was much more upbeat but the majority of the markets still had yet to see a real rebound; instead, most indicated that their markets were simply flat. There were some exceptions: the San Francisco market is experiencing a tech boom with low vacancies, higher rental rates and investors pushing up real estate values, while Washington D.C is enjoying the benefits of our expanded government. Internationally, London, England is seeing office vacancies rates back under four percent; some of the lowest vacancy rates in the world.
Most commercial real estate firms in the rest of the world are making deals but not at the levels seen in 2007 or during a normal market. Two contributing factors to this problem are available credit and flat job growth. Banks are still holding back growth with very conservative guidelines preventing development while the job growth rate in white-collar jobs as well as manufacturing is flat.
The biggest elephant in the room during our meeting was the upcoming Presidential election. Typically, during other elections our market goes silent, awaiting a decision as to the direction the country will be going. Our only hope is that the market ignores the election and that, no matter which direction our country decides to go, we as a country are poised for growth.
Starboard TCN Worldwide Commercial Real Estate | April 23, 2012
Starboard TCN Worldwide Commercial Real Estate is pleased to announce the lease of the 3rd & 4th floors at 735 Battery Street, San Francisco, CA
San Francisco, CA, April 18, 2012 - Starboard TCN Worldwide, one of the fastest growing commercial real estate service providers in the marketplace, announced that a 24,938 square foot lease has been confirmed at 735 Battery Street, San Francisco, CA. Yoav Ben-Shushan of Starboard TCN Worldwide was responsible for consummating this transaction.
"The economic recovery continues to gain momentum as job growth and corporate profits make steady headway" stated Yoav Ben-Shushan. "This transaction reflects our firms' continual ability to meet our clients' strategic real estate needs in the marketplace."
Consisting of the 3rd & 4th floors, the property was leased to Samsung Information Systems and Samsung Design America Inc. at a rate of $41.50 per RSF industrial gross (Approximately $45.50 full service equivalent) with tenant improvements at $30.00 per RSF for a term of 7 years, commencing July 1, 2012.
A lease agreement was reached between the landlord broker, Mr. Jim Sobel of Colliers International and Mr. Brendon Kane of Colliers International and tenant broker Yoav Ben-Shushan of Starboard TCN in March, 2012.
For further information regarding this lease, please contact Yoav Ben–Shushan DRE#01375518
415.394.1263
yoav@starboardnet.com
About TCN Worldwide
TCN Worldwide, a consortium of independent commercial real estate firms, provides complete integrated real estate solutions locally and internationally. With approximately $20.7 billion in annual transactions and over 80 million square feet of space under management, the organization ranks as one of the largest service providers in the industry. An extensive range of real estate services coupled with a personal commitment to exceed client expectations is what allows TCN Worldwide to be a leader within the commercial real estate industry. Formed in 1989, TCN Worldwide is comprised of over 1,200 commercial real estate professionals serving more than 200 primary and secondary markets worldwide.
For more information on Starboard TCN, contact its San Francisco, CA Headquarter.
415.765.6900
www.starboardnet.com
For further information on TCN Worldwide, contact Ross H. Ford or Claudia E. Crow
972.769.8701
www.tcnworldwide.com
San Francisco, CA, April 18, 2012 - Starboard TCN Worldwide, one of the fastest growing commercial real estate service providers in the marketplace, announced that a 24,938 square foot lease has been confirmed at 735 Battery Street, San Francisco, CA. Yoav Ben-Shushan of Starboard TCN Worldwide was responsible for consummating this transaction.
"The economic recovery continues to gain momentum as job growth and corporate profits make steady headway" stated Yoav Ben-Shushan. "This transaction reflects our firms' continual ability to meet our clients' strategic real estate needs in the marketplace."
Consisting of the 3rd & 4th floors, the property was leased to Samsung Information Systems and Samsung Design America Inc. at a rate of $41.50 per RSF industrial gross (Approximately $45.50 full service equivalent) with tenant improvements at $30.00 per RSF for a term of 7 years, commencing July 1, 2012.
A lease agreement was reached between the landlord broker, Mr. Jim Sobel of Colliers International and Mr. Brendon Kane of Colliers International and tenant broker Yoav Ben-Shushan of Starboard TCN in March, 2012.
For further information regarding this lease, please contact Yoav Ben–Shushan DRE#01375518
415.394.1263
yoav@starboardnet.com
About TCN Worldwide
TCN Worldwide, a consortium of independent commercial real estate firms, provides complete integrated real estate solutions locally and internationally. With approximately $20.7 billion in annual transactions and over 80 million square feet of space under management, the organization ranks as one of the largest service providers in the industry. An extensive range of real estate services coupled with a personal commitment to exceed client expectations is what allows TCN Worldwide to be a leader within the commercial real estate industry. Formed in 1989, TCN Worldwide is comprised of over 1,200 commercial real estate professionals serving more than 200 primary and secondary markets worldwide.
For more information on Starboard TCN, contact its San Francisco, CA Headquarter.
415.765.6900
www.starboardnet.com
For further information on TCN Worldwide, contact Ross H. Ford or Claudia E. Crow
972.769.8701
www.tcnworldwide.com
Hans Hansson | April 19, 2012
Over the years I have heard some great lines from salespeople that have stuck with me: one of the best is from a salesperson that said the worst thing a real estate could do was work the occasional deal. The meaning behind this statement is simple yet profound; salespeople who have not created a strategic plan for themselves will work only business that comes to them instead of the business they seek. Without strategy it is all too easy to create an income potential that is consistently in flux because one never knows how much the occasional deal is worth.
The occasional deal could be time consuming with a limited payday. Or, it can fill your day and keep you busy but when the end of the year comes you may find you've not made as much money as planned or, more importantly, as much as needed. I have seen many salespeople fall into this trap over the years; not without prior warning of the dangers of working without a plan and neglecting to gauge what each deal will bring in in terms of revenue to meet specific goals.
Strategically planning your business will give you so much more control of your destiny and overall success. Target yourself to the business you are seeking while constantly gauging where you are in your plan to ensure that you are meeting your goals and objectives.
The first step in developing a plan is to figure out what your niche market is. Who do you believe is this best client base to go after? Next, figure out how much you want to make by the end of the year. At the beginning of each year, Starboard agents must sign a goal sheet listing their expectations for the year, which I in turn sign off on as well. A detailed plan of how to go after your proposed client base is essential. Finally, create a simple flow sheet listing each client along with fee expectations; use this sheet every week to gauge results.
If you are only doing the occasional deal and become the occasional salesperson, you might survive and have a few good years but in a downturn you most certainly will be looking for something else to do.
The occasional deal could be time consuming with a limited payday. Or, it can fill your day and keep you busy but when the end of the year comes you may find you've not made as much money as planned or, more importantly, as much as needed. I have seen many salespeople fall into this trap over the years; not without prior warning of the dangers of working without a plan and neglecting to gauge what each deal will bring in in terms of revenue to meet specific goals.
Strategically planning your business will give you so much more control of your destiny and overall success. Target yourself to the business you are seeking while constantly gauging where you are in your plan to ensure that you are meeting your goals and objectives.
The first step in developing a plan is to figure out what your niche market is. Who do you believe is this best client base to go after? Next, figure out how much you want to make by the end of the year. At the beginning of each year, Starboard agents must sign a goal sheet listing their expectations for the year, which I in turn sign off on as well. A detailed plan of how to go after your proposed client base is essential. Finally, create a simple flow sheet listing each client along with fee expectations; use this sheet every week to gauge results.
If you are only doing the occasional deal and become the occasional salesperson, you might survive and have a few good years but in a downturn you most certainly will be looking for something else to do.
Hans Hansson | March 12, 2012
San Francisco tenants in the market today are getting hit with a double whammy - higher rental rates and higher costs of improvements. Rents are up nearly fourty percent in some sectors of our market and tenant improvements costs are up fifteen percent. The reason for this is supply and demand; supply of office space and contractors are down and demand for these services are higher.
We recently moved our offices and even though I am in the business I was taken aback by the costs of things I took for granted, thinking they would not be a financial issue. For instance, installing an electrical outlet costs $861 while installing a flat screen television with support costs $1,439.
Today, tenants are competing with each other over the same available space. Landlords are now receiving multiple offers for each of their vacant spaces; this hasn't happened since the days of the dot-com boom of 1997-2001. As a result, landlords are not under pressure to pay for tenant improvements as they would have been in a down market, forcing tenants to either accept spaces as-is or take on the costs of tenant improvements themselves. Tenants without an understanding of today’s market still have large wish lists of items they would like to see in their new space. Unfortunately, they are in for a major let down as they learn that they will have to accept a lot less for a lot more.
Compromise is a must if tenants hope to make a deal. We were forced to do so when moving office. A new ceiling and lighting system were necessary in our new location but that cost would have to had to been picked up by us either in higher rent or by paying for it up front. We chose to keep the ceiling and replace ceiling tiles instead.
With the market hot, landlords want their rent sooner than later, meaning that the days of a tenant with six months left on their existing lease trying to do a deal are over. Businesses must now wait anywhere from 90 to 120 days prior to their lease expiring to move; putting a lot of pressure on tenants to drop their business in favor of looking for office space in a shorter time period.
We recently moved our offices and even though I am in the business I was taken aback by the costs of things I took for granted, thinking they would not be a financial issue. For instance, installing an electrical outlet costs $861 while installing a flat screen television with support costs $1,439.
Today, tenants are competing with each other over the same available space. Landlords are now receiving multiple offers for each of their vacant spaces; this hasn't happened since the days of the dot-com boom of 1997-2001. As a result, landlords are not under pressure to pay for tenant improvements as they would have been in a down market, forcing tenants to either accept spaces as-is or take on the costs of tenant improvements themselves. Tenants without an understanding of today’s market still have large wish lists of items they would like to see in their new space. Unfortunately, they are in for a major let down as they learn that they will have to accept a lot less for a lot more.
Compromise is a must if tenants hope to make a deal. We were forced to do so when moving office. A new ceiling and lighting system were necessary in our new location but that cost would have to had to been picked up by us either in higher rent or by paying for it up front. We chose to keep the ceiling and replace ceiling tiles instead.
With the market hot, landlords want their rent sooner than later, meaning that the days of a tenant with six months left on their existing lease trying to do a deal are over. Businesses must now wait anywhere from 90 to 120 days prior to their lease expiring to move; putting a lot of pressure on tenants to drop their business in favor of looking for office space in a shorter time period.
Hans Hansson | February 27, 2012
I was recently in an old law office space that had been freshly vacated and consisted of individual offices at least twelve by sixteen feet in size. All of the offices had old wood paneling throughout, a sink in each office plus an area for liquor below; there was also a mirror and a closet in each office. How times have changed!
Today, with more and more firms going paperless, office space design has changed dramatically from the days of larger, private offices. Managers are now finding themselves placed within the bullpen of workers as firms are decentralizing their levels of authority. The more common layout is: a few offices, one large conference room, two or three larger meeting rooms, a kitchen, storage and the rest open area for workstations. Server rooms are now being reduced to a closet as more firms move to cloud systems. Library areas have altogether disappeared.
Another big change in office layout is the entry area of offices. With fewer firms using traditional receptionists, the need for a large entry or receptionist area has been greatly reduced. More firms are using flat screen monitors to advertise their welcome message in a smaller lobby area with less seating: cutting down costs of office space as well as eliminating the need for a receptionist desk area. Costs have been further reduced as firms are spending less money on finishes in their lobby entrances; wood and expensive tile are out in favor of traditional carpeting that carries throughout the space.
These changes can be tied to firms experiencing less personal meetings in their offices as they utilize remote conferencing tools to connect with clients and employees. With the advancement of larger flat screen monitors and high-speed internet access, firms can have conference meetings with people around the world without the need to meet in person. These meetings can often times be far more efficient as participants are able to set up ahead of time and have their presentations up and running when its their turn to address their audience. As opposed to days of past where each participant had to come in, set up, and each time a participant was to make his presentation, switch off and re-set presentations.
Another big change in office layout is the size of kitchens. In the past, large seating areas were arranged, taking up additional office space. Today, firms have reduced kitchens to a table or two as most workers are either eating at their desk or outside of the office. Vending machines are a thing of the past and high-speed espresso machines have replaced coffee makers, taking up far less space on a kitchen counter top. The conference room experience has also changed as flat screen conference monitors have replaced paintings and bookshelves have been taken out all together in favor of smaller conference rooms or to allow for more seating.
In years past, the rule of thumb was 200-225 square feet of space per person when designing an office. Today the rule is closer to 160-180 square feet per person and continues to diminish as mobile technology tools further develop and the need for office space shrinks.
Today, with more and more firms going paperless, office space design has changed dramatically from the days of larger, private offices. Managers are now finding themselves placed within the bullpen of workers as firms are decentralizing their levels of authority. The more common layout is: a few offices, one large conference room, two or three larger meeting rooms, a kitchen, storage and the rest open area for workstations. Server rooms are now being reduced to a closet as more firms move to cloud systems. Library areas have altogether disappeared.
Another big change in office layout is the entry area of offices. With fewer firms using traditional receptionists, the need for a large entry or receptionist area has been greatly reduced. More firms are using flat screen monitors to advertise their welcome message in a smaller lobby area with less seating: cutting down costs of office space as well as eliminating the need for a receptionist desk area. Costs have been further reduced as firms are spending less money on finishes in their lobby entrances; wood and expensive tile are out in favor of traditional carpeting that carries throughout the space.
These changes can be tied to firms experiencing less personal meetings in their offices as they utilize remote conferencing tools to connect with clients and employees. With the advancement of larger flat screen monitors and high-speed internet access, firms can have conference meetings with people around the world without the need to meet in person. These meetings can often times be far more efficient as participants are able to set up ahead of time and have their presentations up and running when its their turn to address their audience. As opposed to days of past where each participant had to come in, set up, and each time a participant was to make his presentation, switch off and re-set presentations.
Another big change in office layout is the size of kitchens. In the past, large seating areas were arranged, taking up additional office space. Today, firms have reduced kitchens to a table or two as most workers are either eating at their desk or outside of the office. Vending machines are a thing of the past and high-speed espresso machines have replaced coffee makers, taking up far less space on a kitchen counter top. The conference room experience has also changed as flat screen conference monitors have replaced paintings and bookshelves have been taken out all together in favor of smaller conference rooms or to allow for more seating.
In years past, the rule of thumb was 200-225 square feet of space per person when designing an office. Today the rule is closer to 160-180 square feet per person and continues to diminish as mobile technology tools further develop and the need for office space shrinks.
Hans Hansson | February 20, 2012
It is astonishing to me the number of salespeople who sell products and services everyday without knowledge of what the original product costs and how it applies to the price of what they are selling. Without knowing costs and how they eventually determine the sale price to the buyer, it would be hard for any salesperson to properly sell to a potential buyer.
Take car salespeople for instance. More times than I can count, I have walked in a car showroom and been unable to find one salesperson that knew the price of the car or the cost of accessories without looking at the sticker. With half a dozen cars on the showroom floor it cannot be too difficult to take the time to completely understand the costs associated with each car on that floor. Basic product knowledge is essential for a salesperson in order for them to have an immediate conversation of the amenities offered for their particular how it applies to the sticker price.
In my business of commercial real estate, it is astounding how most brokers know so little about the costs associated with a tenant build-out; even though build-out costs have a direct effect on the rent that their prospective tenant will pay. Often times, brokers will ask a landlord for an allowance so that their client may make building improvements; but more often than not, brokers have no clue whether that allowance is even close to covering their client's needs or the cost of overages if the allowance didn't cover the necessary work.
Recently I received an offer from an experienced broker with a rental rate for a one-year term and a request for the landlord to pay for new paint and carpet for the premises. He asked for a fee of $1.50 a foot and offered a rental rate of $2.00 a foot below the asking rate. The landlord was expecting a three to five year lease and after doing the math, the landlord would have lost money on the deal. When I asked the broker why he would make such an offer he said that it was customary to ask for paint and carpet at a minimum. He did not do the math, his client did not get the deal and in the end he did not make a sale.
Experienced salespeople know their costs, allowing them to position their products and services to meet the needs of their clients. This kind of product knowledge will only help to better serve the salesperson's cause and allow for a smoother running of business.
Take car salespeople for instance. More times than I can count, I have walked in a car showroom and been unable to find one salesperson that knew the price of the car or the cost of accessories without looking at the sticker. With half a dozen cars on the showroom floor it cannot be too difficult to take the time to completely understand the costs associated with each car on that floor. Basic product knowledge is essential for a salesperson in order for them to have an immediate conversation of the amenities offered for their particular how it applies to the sticker price.
In my business of commercial real estate, it is astounding how most brokers know so little about the costs associated with a tenant build-out; even though build-out costs have a direct effect on the rent that their prospective tenant will pay. Often times, brokers will ask a landlord for an allowance so that their client may make building improvements; but more often than not, brokers have no clue whether that allowance is even close to covering their client's needs or the cost of overages if the allowance didn't cover the necessary work.
Recently I received an offer from an experienced broker with a rental rate for a one-year term and a request for the landlord to pay for new paint and carpet for the premises. He asked for a fee of $1.50 a foot and offered a rental rate of $2.00 a foot below the asking rate. The landlord was expecting a three to five year lease and after doing the math, the landlord would have lost money on the deal. When I asked the broker why he would make such an offer he said that it was customary to ask for paint and carpet at a minimum. He did not do the math, his client did not get the deal and in the end he did not make a sale.
Experienced salespeople know their costs, allowing them to position their products and services to meet the needs of their clients. This kind of product knowledge will only help to better serve the salesperson's cause and allow for a smoother running of business.
Hans Hansson | February 16, 2012
Just before the holidays I toured a client who was looking for 3,000 square feet of office space around the financial district in San Francisco. We were looking into more of the Class B type buildings and toured four buildings that made our short list; on average the price per square foot was in the mid thirties. My client indicated that with the holidays coming up, he wanted to hold off on making any final decisions on a new space until after the first of the year. Last week we toured the same buildings again only to find that the very same spaces were now going for high thirties to low forties in rent. What happened in three weeks?
Both the San Francisco Chronicle and the San Francisco Business Times ran articles discussing how the city is running out of commercial space in South of Market and how the market has tightened in the core financial districts all due to our new tech boom. Once these articles hit the streets, building owners were raising prices the very next day.
Today, core financial district and close-in South of Market locations are looking at a vacancy rate currently at or below five percent; this is not good for landlords or tenants in the long run. To understand why a five percent vacancy is in fact a threat, one must first understand how buildings are financed. When a building is financed it is never given credit for being one hundred percent leased. There is always a five percent vacancy factor that is customary to be taken into account in the value determination for an office building. Once a building hits ninety-five percent occupancy or less, the building owner no longer has any incentive to lease out the remaining building by being more competitive in rents. In fact, since there is no financial incentive to rent this space, in terms of seeking higher financing options it is better to seek the highest rents possible and hold firm on that price even though the remaining space may never lease at that rental rate.
Building are valued most often by the last deal done in the building. Using my tenant as an example; if he were to accept a low forties rental rate the building would be looked upon more favorably since the rental rate for the entire building would be in the forties against the overall average for the rest of the building which may be in the twenties or low thirties. Building owners would be well positioned with added value for their buildings because as spaces become available, their lenders would anticipate those rents at the new high rental rate mark. The problem with this logic is that building owners today are dealing in a market place that is based upon a growth sector (tech) that, as a whole, is not profitable. The technology sector is made up of start-up companies seeking to gain acceptance and profitability but the realty is the majority of these firms will not make it.
Another hard truth is that conventional businesses, like the rest of the country, are now at best stabilized from the effect of this long recession. Most businesses are still short of cash and are not seeing anywhere near the growth needed to pay twenty to forty percent more in rent. This was clear to me on the tour mentioned above when I went to a building to tour five spaces: four of these spaces still had businesses in place. In the past it was rare to tour a building with the majority of the spaces still occupied; this only happens in a tight market. My guess is that these businesses were nearing the end of a typical five year commitment in a building that had original rental rates in the mid to high twenties. Now, with building owners notifying their tenants that renewal rates will be in the high thirties or forties, tenants simply cannot afford the rent.
Overall, the ripple effect of a five percent vacancy creates an uncertain future for businesses and business owners who, in all reality, stand more of a chance for longevity than the current up cropping of start-ups. Building owners will soon awake to the slowing of the tech boom and the reality that real rental rates are nowhere the prices that they are now quoting. As business people and residents of San Francisco, we have to ask the question of whether this current situation will be detrimental in the long run to our city and economy.
Both the San Francisco Chronicle and the San Francisco Business Times ran articles discussing how the city is running out of commercial space in South of Market and how the market has tightened in the core financial districts all due to our new tech boom. Once these articles hit the streets, building owners were raising prices the very next day.
Today, core financial district and close-in South of Market locations are looking at a vacancy rate currently at or below five percent; this is not good for landlords or tenants in the long run. To understand why a five percent vacancy is in fact a threat, one must first understand how buildings are financed. When a building is financed it is never given credit for being one hundred percent leased. There is always a five percent vacancy factor that is customary to be taken into account in the value determination for an office building. Once a building hits ninety-five percent occupancy or less, the building owner no longer has any incentive to lease out the remaining building by being more competitive in rents. In fact, since there is no financial incentive to rent this space, in terms of seeking higher financing options it is better to seek the highest rents possible and hold firm on that price even though the remaining space may never lease at that rental rate.
Building are valued most often by the last deal done in the building. Using my tenant as an example; if he were to accept a low forties rental rate the building would be looked upon more favorably since the rental rate for the entire building would be in the forties against the overall average for the rest of the building which may be in the twenties or low thirties. Building owners would be well positioned with added value for their buildings because as spaces become available, their lenders would anticipate those rents at the new high rental rate mark. The problem with this logic is that building owners today are dealing in a market place that is based upon a growth sector (tech) that, as a whole, is not profitable. The technology sector is made up of start-up companies seeking to gain acceptance and profitability but the realty is the majority of these firms will not make it.
Another hard truth is that conventional businesses, like the rest of the country, are now at best stabilized from the effect of this long recession. Most businesses are still short of cash and are not seeing anywhere near the growth needed to pay twenty to forty percent more in rent. This was clear to me on the tour mentioned above when I went to a building to tour five spaces: four of these spaces still had businesses in place. In the past it was rare to tour a building with the majority of the spaces still occupied; this only happens in a tight market. My guess is that these businesses were nearing the end of a typical five year commitment in a building that had original rental rates in the mid to high twenties. Now, with building owners notifying their tenants that renewal rates will be in the high thirties or forties, tenants simply cannot afford the rent.
Overall, the ripple effect of a five percent vacancy creates an uncertain future for businesses and business owners who, in all reality, stand more of a chance for longevity than the current up cropping of start-ups. Building owners will soon awake to the slowing of the tech boom and the reality that real rental rates are nowhere the prices that they are now quoting. As business people and residents of San Francisco, we have to ask the question of whether this current situation will be detrimental in the long run to our city and economy.
Hans Hansson | February 9, 2012
In 1966 my elementary school class was taken on a field trip to downtown San Francisco to see the planned renovation of the new Moscone Center and mid-Market Street. Back then, the area from Second Street to Sixth Street housed old sailor's hotels and cheap bars and was to be demolished in favor of the new convention center and new office and residential mid-rise development. It would take almost twenty years for this project to begin after being held up by lawsuits and politics.
When the development plan was finally approved, Sixth Street was dropped off the list and became what is it today because of it. Back in 1966, mid-Market Street was beginning to see its decline; partly do to an exodus of families to the new suburbs, partly because of the development of the shopping center. One by one famous San Francisco stores started to close. First to go was Weinstein's Department Store on Seventh & Market, then JC Penny's on Fifth & Market. After that, movie theatres such as The Warfield, Paramount and the Fox Theatre all closed their doors. It did not take long for mid-Market Street to become what it is today: a series of vacant stores and cheap retailers with a heavy dose of drug addicts and criminals walking the streets.
There have been several attempts to revive Mid-Market; the first came in the early 1980's. Vacancy in office space had been reduced to fewer than five percent and speculators believed that mid-Market Street offered an attractive alternative to high-rise office rental rents. Many older buildings were upgraded to office space only to arrive on the market when it crashed after the 1989 earthquake.
The next revival attempt came about during the dot-com boom of the late 1990's. Again, with office vacancy rates hitting under two percent and rental rates soaring to close to $100 a foot, mid-Market office space was looked upon by developers as a natural choice for the next growth sector in San Francisco. When the dot-com bust occurred in 2001, mid-Market returned to its slum status.
Today many developers are again looking at mid-Market Street as vacancy rates are dropping and rental rates are increasing. The relocation of Twitter headquarters to Eighth and Market has received a tremendous amount of attention and has been used as a springboard by city officials and developers as incentive for tech tenants to consider moving to the area. Visually and practically this choice makes sense; it offers cheaper space, excellent mass transportation and parking options. All of this is possible in older buildings that could be converted into desirable high-ceiling brick tech space. The issue is whether or not it will actually happen and if it will withstand the next downturn, which will happen.
The difference this time is that the city is making an attempt to change Sixth Street by promoting and bringing in new business that will support tech firms, not drug addicts. Today, trendy new restaurants such as Pearl's, Show Dogs and Dottie's have opened up new locations in the area. New nightclubs are opening nearby and attracting a more welcome type of nighttime crowd. The police have opened a kiosk on Sixth Street to help deter crime. More importantly, the police are enforcing as a crime the sale of food stamps at half price by local merchants in exchange for drug money.
With new services to attract tech companies, high-end retailers and restaurants to the area, San Francisco residents now have hope that these additions will bring mid-Market Street back to its glory days.
When the development plan was finally approved, Sixth Street was dropped off the list and became what is it today because of it. Back in 1966, mid-Market Street was beginning to see its decline; partly do to an exodus of families to the new suburbs, partly because of the development of the shopping center. One by one famous San Francisco stores started to close. First to go was Weinstein's Department Store on Seventh & Market, then JC Penny's on Fifth & Market. After that, movie theatres such as The Warfield, Paramount and the Fox Theatre all closed their doors. It did not take long for mid-Market Street to become what it is today: a series of vacant stores and cheap retailers with a heavy dose of drug addicts and criminals walking the streets.
There have been several attempts to revive Mid-Market; the first came in the early 1980's. Vacancy in office space had been reduced to fewer than five percent and speculators believed that mid-Market Street offered an attractive alternative to high-rise office rental rents. Many older buildings were upgraded to office space only to arrive on the market when it crashed after the 1989 earthquake.
The next revival attempt came about during the dot-com boom of the late 1990's. Again, with office vacancy rates hitting under two percent and rental rates soaring to close to $100 a foot, mid-Market office space was looked upon by developers as a natural choice for the next growth sector in San Francisco. When the dot-com bust occurred in 2001, mid-Market returned to its slum status.
Today many developers are again looking at mid-Market Street as vacancy rates are dropping and rental rates are increasing. The relocation of Twitter headquarters to Eighth and Market has received a tremendous amount of attention and has been used as a springboard by city officials and developers as incentive for tech tenants to consider moving to the area. Visually and practically this choice makes sense; it offers cheaper space, excellent mass transportation and parking options. All of this is possible in older buildings that could be converted into desirable high-ceiling brick tech space. The issue is whether or not it will actually happen and if it will withstand the next downturn, which will happen.
The difference this time is that the city is making an attempt to change Sixth Street by promoting and bringing in new business that will support tech firms, not drug addicts. Today, trendy new restaurants such as Pearl's, Show Dogs and Dottie's have opened up new locations in the area. New nightclubs are opening nearby and attracting a more welcome type of nighttime crowd. The police have opened a kiosk on Sixth Street to help deter crime. More importantly, the police are enforcing as a crime the sale of food stamps at half price by local merchants in exchange for drug money.
With new services to attract tech companies, high-end retailers and restaurants to the area, San Francisco residents now have hope that these additions will bring mid-Market Street back to its glory days.
Hans Hansson | January 9, 2012
As we enter 2012 we already have a number of doomsayers that are predicting a poor 2012. Economic uncertainty throughout Europe, the slowdown of economies in China and India and an election year in the United States with a split Congress unable to pass any real legislation to create jobs are all legitimate concerns. As salespeople we are always optimistic – we are the rallying force for the economy. We succeed if we sell. Great salespeople don't focus on the negative; only the positive and I believe that there are many positive things that could make 2012 a very good year.
Our economic downturn officially started in September of 2007. Although we supposedly ended our recession in 2009, the realty is that most of us feel the recession has never ended. Historically, long recessions such as this end because consumers pay us out of these downtowns; this has not happened because most Americans are simply tapped out and do not have the cash or the credit to buy. In 2012 things will begin to change and salespeople will be leading the change.
Consumers are going to be forced to buy which will lead to natural economic growth. Essentials have to be replaced – one can only drive on bald tires for so long, a stove and refrigerator are necessary household items and clothes wear out. Four years of waiting to purchase essentials is too long and consumers en masse will be forced to find money to buy necessary items. This increase in expenditure will start in 2012 and will lead to job growth and economic gain. The same principle applies to businesses. Old furniture will have to be replaced, servers, phone systems and updated wiring will be required even though businesses do not have the cash reserves to do so, they will have no choice.
What is interesting about this prediction is that it is not based on anything new nor is it profound; it is based upon history that is staring us in the face. Yet economists and doomsayers are not talking about it, politicians are not talking about it; no one seems to grasp its importance. More importantly, as we start a new year we need to understand and appreciate how this prediction can be viewed as a bright spot in this gloomy beginning of a new year.
Our economic downturn officially started in September of 2007. Although we supposedly ended our recession in 2009, the realty is that most of us feel the recession has never ended. Historically, long recessions such as this end because consumers pay us out of these downtowns; this has not happened because most Americans are simply tapped out and do not have the cash or the credit to buy. In 2012 things will begin to change and salespeople will be leading the change.
Consumers are going to be forced to buy which will lead to natural economic growth. Essentials have to be replaced – one can only drive on bald tires for so long, a stove and refrigerator are necessary household items and clothes wear out. Four years of waiting to purchase essentials is too long and consumers en masse will be forced to find money to buy necessary items. This increase in expenditure will start in 2012 and will lead to job growth and economic gain. The same principle applies to businesses. Old furniture will have to be replaced, servers, phone systems and updated wiring will be required even though businesses do not have the cash reserves to do so, they will have no choice.
What is interesting about this prediction is that it is not based on anything new nor is it profound; it is based upon history that is staring us in the face. Yet economists and doomsayers are not talking about it, politicians are not talking about it; no one seems to grasp its importance. More importantly, as we start a new year we need to understand and appreciate how this prediction can be viewed as a bright spot in this gloomy beginning of a new year.
