Feeds:
Posts
Comments

Posts Tagged ‘extension’

DEMYSTIFYING OPERATING EXPENSE PASSTHROUGHS

Office tenant clients frequently ask us what are operating expenses? Admittedly, this is one of the more confusing aspects of a commercial lease and if a tenant is not careful, it can be a costly item. The best way to explain operating expense passthroughs is to provide an example. But first, it is important to know a few key terms:

Full Service Rent vs NNN Rent – Full Service includes normal office utilities, janitorial service, building maintenance and management as well as property taxes while NNN invoices tenants separately for utilities, taxes/insurance and operating expenses.

Rentable Square Feet vs. Useable Square Feet – Rentable Square Feet (RSF) is the square footage that a tenant pays rent on while Useable Square Feet (USF) is the actual size a tenant is using. The difference is that RSF includes a portion of the common areas used by all tenants tacked on to the USF. Otherwise, lobbies and corridors would be used and maintained but lose money for the owner. This additional percentage is called a “load factor” and ranges between 10% and 18% typically. (Ex: 10,000 USF x 15% load factor = 11,500 RSF)

Operating Expenses and Passthroughs – Operating expenses are necessary to run a building including electricity, water and sewer, trash, exterior building maintenance, gas, landscaping, window cleaning, janitorial services, security, property taxes and property management. Passthroughs represent increases above the operating expenses incurred during the Base Year of a Full Service Lease.

Base Year – Can either be the first 12 months of a lease term or calculated on a calendar year. The calendar year method is most common. If a lease commences in the 4th quarter, the Base Year is usually set for the next full year. (Ex: Lease commences 11/1/11, Base Year will be 2012. Lease commences 4/1/11, Base Year will be 2011) 

Okay, so now that you are more thoroughly confused, let’s break all of this information down into an example that will make it easier to understand the calculation of passthroughs.

  • The beautiful Jones Tower (because Smith Center is still under construction) is a Class A office highrise with 491,528 RSF.  
  • ImDabomb Company occupies 10,000 RSF in Jones Tower with a lease that commenced March 1, 2009 and is paying $20.00/RSF Full Service.
  • They have a Base Year of 2009.
  • In 2009, operating expenses were $10.04/RSF.  This is the Base for ImDabomb Co.
  • Jones Tower has 2010 Operating Expenses  of $10.34/RSF.
  • Jones Tower has 2011 Estimated Operating Expenses of $10.73/RSF.

During 2010, ImDabomb would have paid its rent plus the difference between the 2010 budget and the 2009 Base ($10.34 – $10.04 = $0.30).  This amount is then multiplied by the total RSF under lease by ImDabomb and divided up over 12 months ($0.30 x 10,000 RSF = $3,000.00/12 = $250.00 per month additional cost).

During 2011, ImDabomb would have paid its rent plus the difference between the 2011 budget and the 2009 Base ($10.73 – $10.04 = $0.69).  This amount is then multiplied by the total RSF under lease by ImDabomb and divided up over 12 months ($0.69 x 10,000 RSF = $6,900.00/12 = $575.00 per month additional cost).

Every year, the new expenses are calculated against that Base Year figure, so the numbers can really add up  particularly for larger tenants.  If, however, the operating expenses come in below the estimates for the newest year, the tenant will be issued a credit. 

It is important to “reset” your Base Year in the event of a lease renewal or extension. Otherwise, a tenant will continue to see increasing passthrough costs as the gap over the Base Year figure grows.  Much of the increase in expenses is due to things such as city tax changes, expiration of tax credits, building improvements not considered capital costs such as paving a parking lot or painting the exterior, and increases in utility charges.

For a more detailed report on Operating Expenses, please email me at kristin.hammond(at)pacific-re(dot)com.

Next topic: Office lease insurance clauses

Read Full Post »

TechDex (apps|provider|hardware|var)

Central Business District

Avatron Software – One Main Place | 101 SW Main St | 4,834 SF

Eastside

Finishing Technologies – Airport Way Biz Center | 205 Airport Way | 14,077 SF

Westside

MIPS Technologies – Summit Building | 1260 NW Waterhouse Ave | 6,973 SF

Prolifiq Software – The Round | 445 SW Watson Ave | 5,074 SF renewal

DesignDex (A/E|apparel|graphic d)

Westside

Adapt Engineering – Westview Plaza | 10725 SW Barbur Blvd | 2,585 SF

Virtual Construction – Beaverton Plaza |3720 SW 141st Ave | 1,837 SF

MediaDex (traditional|digital|research)

Central Business District

Wunderman Worldwide – White Stag Block | 24 NW Couch St | 2,734 SF

Westside

GSH Marketing – 6800 SW Beaverton-Hillsdale Highway | 2,500 SF

Eastside

TNS Custom Research – Cascade Station | 9830 NE Cascade Parkway | 5,880 SF

Answernet Inc – West Gresham Plaza | 2951 NW Division St | 3,142SF

GeneralBizDex (consulting|finance|insurance|legal|other)

Westside

MD’s LLC – Hilltop Biz Center | 7300 SW Hunziker Rd | 4,817 SF renewal

Vancouver

American Pacific Mortgage – HH Hall Building | 10000 NE Seventh Ave | 4,000 SF sublease

Stewart Title – Park Tower Biz Ctr | 12500 SE Second Circle | 2,968 SF

Central Business District

Renewable Funding – 400 SW Sixth Building | 400 SW Sixth Ave | 4,450 SF

Eastside

Herman Miller Inc. – Lloyd 700 | 700 NE Multnomah | 4,122 SF renewal

HealthDex (hospital/provider|managed care|equipment)

Vancouver

Options 360 Clinic – Cascade Plaza | 1706 W Main St | 2,100 SF

Core Fitness/Stairmaster – 4400 Building | 4400 NE 77th Ave | 26,349 SF

Central Business District

Integrated Healthcare Solutions – River Forum I | 4380 SW Macadam Ave | 7,333 SF renewal

NonProfDex (charitable|educational|trade assoc)

Westside

Pacific University – The Round | 12600 SW Crescent St | 3,119 SF

Portland Rescue Mission – 8555 Canyon Road | 3,449 SF

American Red Cross – Salem | 475 Cottage St NE | 4,225 SF renewal

Eastside

Genealogical Forum of Oregon – Ford Building | 11th & Division | 5,000 SF

Read Full Post »

HealthDex (hospital/provider|managed care|equipment)

Eastside

Providence Health System – Burnside Trolley Bldg | 2705 E Burnside | 6,061 SF

Fresenius Medical Care – 14107 NE Airport Way | 7,750 SF

Cosmetic Dental Specialties – AAA Bldg | 10365 SE Sunnyside Rd | 2,700 SF

Westside

S.A.G.E. – 8601 SW Terwilliger Blvd | 2,526 SF

DesignDex (A/E|apparel|graphic d)

Westside

Yakima Products – Woodside Corp Pk | 15025 SW Koll Pkwy | 37,939 SF

Central Business District

Studio JDM – 530 NW 11th Ave | 2,498 SF

GeneralBizDex (consulting|finance|insurance|legal|other)

Central Business District

Portland Cascade Bldg – Cascasde Bldg | 520 SW 6th Ave | 2,822 SF

Immix Law Group – World Trade Center | 121 SW Salmon St | 2,923 SF

Westside

MacColl Busch Sato – Kruse Woods II | 5335 Meadows Rd | 7,483 SF

Folkman Asset – Kruse Woods II | 5335 Meadows Rd | 1,065 SF

Vancouver

Waterloo Restaurant Ventures – Park Tower Biz Ctr | 201 NE Park Plaza | 949 SF renewal

Legacy Lending – Park Tower Biz Ctr | 12500 SE Second Circle | 1,565 SF

Marfield Scott Agency – Park Tower Biz Ctr | 222 NE Park Plaza | 689 SF

NonProfDex (charitable|education|trade assoc)

Central Business District

Site 9 – Selling Building | 610 SW Alder St | 2,679 SF

Read Full Post »

FunDex

Eastside

Rogue River Brewing – Pein Building | 1003 SE Ninth St | 10,000 SF

GeneralBizDex (consulting|finance|insurance|legal|other)

Central Business District

West Coast Event Productions – 1466 NW Naito Pkwy | 52,380 SF

BCD Travel – Montgomery Pk | 2701 NW Vaughn St | 17,417 SF renewal

OnPoint Community Credit Union – Montgomer Pk | 2701 NW Vaughn St | 1,620 SF expansion

Hobbs Strauss Dean Walker – Jackson Tower | 806 SW Broadway | 3,335 SF renewal

Orca Capital Securities – 1000 Broadway | 1000 SW Broadway | 1,375 SF

Schnitzer Investment – PacWest Center | 1211 SW Fifth Ave | 3,322 SF renewal

Kinetic Law Group – Bank of America | 121 SW Morrison St | 3,181 SF

Eastside

Guardian Management – Airport Biz Ctr | 6807 NE 79th Ct | 4,884 SF renewal

Neidig Gibbs McVea – 2121 NE Broadway | 3,913 SF

Active Telesource – Minthorn Biz Ctr | 4099 SE International Way | 11,228 SF

Westside

Assayag Mauss – Three Centerpointe | Three Centerpointe Dr | 2,145 SF

DesignDex (A/E|apparel|graphic d)

Westside

ASI Business Group – Commerce Pk | 10965 SW Commerce Circle | 6,571 SF

TechDex (apps|provider|harware|var)

Westside

Acrymed – Nimbus Oaks | 9520-9560 SW Nimbus Ave | 7,377 SF renewal

Technical Svs for Electronics – Scholls Biz Ctr | 10565 SW Nimbus | 27,394 SF

Eastside

Portland Marine Electronics – 12125 SE Hwy 212 | 5,040 SF

HealthDex (hospital/provider|equipment|managed care)

Westside

GE Medical Systems – Evergreen Corp Ctr | 20540 NW Evergreen Pkwy | 6,238 SF

NonProfDex (charitable|education|trade assoc)

Central Business District

Rural Community Assistance – Jeffrey Center | 1020 SW Taylor St | 1,294 SF

Read Full Post »

MediaDex (traditional|digital|research)

Vancouver

DexOne – Columbia Tech Center | 1401 SE 164th Ave | 6,508 SF

TechDex (apps|provider|hardware|var)

Westside

Intel – Ronler Corp Ctr | 23215 NW Evergreen Pkwy | 70,999 SF extension

MQI – Millikan Biz Center | 14523 SW Millikan Way | 25,000 SF

New Cingular Wireless – South Place | 19801 SW 72nd Ave | 3,352 SF renewal

Central Business District

SwellPath – General Automotive Bldg | 411 NW Park Ave | 4,200 SF

Network Redux – General Automotive Bldg | 411 NW Park Ave | 1,565 SF

GeneralBizDex (consulting|finance|insurance|legal|other)

Central Business District

Seattle Northwest Securities – Wells Fargo Center | 1300 SW Fifth Ave | 7,276 SF

JP Morgan Chase Bank – 1035 NW LoveJoy St | 5,630 SF

Westside

Ticor Title – 5800 Meadows Rd | 5,115 SF

Unitus Community Credit Union – Peterkort Towne Sq | 11198 SW Barnes Rd | 4,534 SF

DesignDex (A/E|apparel|graphic d)

Westside

Nike – Woodside Corp Park | 15125 SW Koll Pkwy | 1,940 SF

Solestruck – Oregon Biz Pk 1 | 16350 SW 72nd Ave | 12,000 SF

Partners on Demand – Millikan 73 | 13955 SW Millikan Way | 41,141 SF

HealthDex (hospital/provider|managed care|equipment)

Westside

DSI Renal – Woodside Corp Pk | 15050 SW Koll Pkwy | 9,295 SF

Read Full Post »

MediaDex (traditional|digital|research)

Eastside

AM:PM Public Relations – Fire Station No. 7 | 511 SE 11th | 2,000 SF

Central Business District

Rise Records – Commonwealth Bldg | 421 SW Sixth Ave | 1,287 SF

NonProfDex (charitable|education|trade assoc)

Central Business District

Pacific University – Morrison Plaza | 1411 SW Morrison St | 4,313 SF

Eastside

Oregon Chiropractic Assoc – 205 Plaza | 10570 SE Washington St | 1,288 SF

Escuela-Viva LLC – 1111 SE Pine St | 11,554 SF

Westside

Cornerstone Community Church – Park 217 | 12178 SW Garden Pl | 4,800 SF

Vancouver

Denny Heck for Congress – Orchards Center | 10621 NE Coxley Dr | 2,200 SF

TechDex (apps|provider|hardware|var)

Central Business District

ELC Technologies – 308 NW 11th Ave | 2,101 SF

Affirm Discovery LLC – Wilcox Building | 506 SW Sixth Ave | 2,252 SF

Westside

New Horizons – AmberGlen Biz Ctr | 2345 NW AmberBrook Dr | 7,469 SF

SustainDex (environmental|sustainable|clean/bio tech)

Eastside

Oregon Crystal Technologies – 17905 NE Sandy Blvd | 11,925 SF

GeneralBizDex (consulting|finance|insurance|legal|other)

Central Business District

Elliott Ostrander Preston – Union Bank of Cal | 707 SW Washington St |  7,500 SF extension

Union SecurityInsurance – Market Square | 1515 SW Fifth Ave | 2,273 SF extension

Westside

Pacific Ridge Capital Partners – 4949 Meadows Rd | 3,054 SF sublease

Carrier Corporation – 7841 SW Cirrus Dr | 5,000 SF renewal

Vancouver

First American Title – Greenwood Office Ctr | 7700 NE Greenwood | 6,917 SF renewal

Sagali Corp – Parkway Plaza III | 4601 NE 77th Ave | 2,109 SF

HealthDex (hospital/provider|managed care|equipment)

Eastside

Care Medical Equipment – 1822 NE Grand Ave | 6,130 SF

Westside

SAM Medical – Wilsonville Biz Ctr | 27350 SW 95th Ave | 16,483 SF

DesignDex (A/E/C|consulting|graphic d)

Central Business District

Myhre Group Architects – Director Building | 808 SW Third Ave | 4,746 SF

Read Full Post »

GeneralBizDex (consulting|finance|insurance|legal|other)

Westside

CNA Insurance – Pacific Parkway Ctr | 12909 SW 68th Pkwy | 17,443 SF

Expressions Printing – Park 217 | 12060 SW Garden Place | 4,486 SF

Academy Mortgage – Lincoln Center | 10220 SW Greenburg Rd | 2,503 SF

Dynamic Resources – Woodside Corp Park | 15050 SW Koll Pkwy | 1,530 SF

Balance Your World Bookkeeping – 1 Lincoln Ctr | 10300 SW Greenburg Rd | 1,326 SF

Eastside

Prime Lending – Two Town Center | 10135 SE Sunnyside Rd | 3,360 SF

Central Business District

Nationwide Insurance – Congress Center | 1001 SW Fifth Ave | 2,861 SF

McDowell Rackner Gibson – Telegram Building | XX | 8,600 SF

Angelo Planning Group – Pittock Block | 921 SW Washington St | 4,198 SF

Union Security Insurance – Market Square | 1515 SW Fifth Ave | 2,273 SF renewal

TechDex (apps|provider|hardware|var)

Central Business District

Audinate – Marine Building | 1732 SW Quimby St | 1,640 SF

Vigillo – 630 NW 10th Ave | 4,532 SF

Westside

Trust ID – Pacific Corporate Ctr | 15350 SW Sequoia Pkwy | 2,709 SF sublease

Perceptive Pixel – Wilsonville Biz Ctr | 9025 SW Hillman Ct | 4,876 SF

Micro Accounting Systems – Woodside Corp Park | 15050 SW Koll Pkwy | 4,186 SF extension

Vancouver

Merlin Pointe Technologies – EastRidge Biz Pk | 12606 NE 95th St | 3,543 SF renewal

HealthDex (hospital/provider|managed care|equipment)

Central Business District

Legacy Health – Con-way Crossing | 2055 NW Savier St | 4,831 SF

Crossfit XFactor – 2202 NW Roosevelt St | 4,750 SF

Eastmoreland Osteopathic – Water Tower | 5331 SW Macadam Ave | 3,330 SF

GEDI – Madison Place Office Condos | 1140 SW 11th Ave | 6,193 SF

Eastside

Island Sports & Athletics – Omark Business Park | 5691 SE International Way | 1,785 SF

Oregon Green Free – 10209 SE Division St | 3,480 SF

SustainDex (environmental|sustainable|clean/bio tech)

Westside

Anchor QEA – 1010 NW Flanders St | 1,572 SF

Read Full Post »

Tenants may have the opportunity to take advantage of lower rental rates through a process termed “Blend and Extend”. What this means is that tenants with two years or less left on a lease can secure lower rent today in exchange for extending their lease for an additional three to five years. Tenants achieve an immediate savings to their bottom line and the landlord maintains a tenant for the long term. Some landlords are reluctant to do this, betting the market will improve over the next couple of years.

Example Transaction

Tenant occupies 10,000 SF and is three years into a five year lease. Fair market value at the end of the third year is $22.00/SF.  Tenant agrees to add three years on to their lease term in exchange for an immediate rent reduction.

CURRENT LEASE

  Rent/SF   Monthly   Annual    
Year 1 $24.00   $20,000.00   $240,000.00    
Year 2 $24.72   $20,600.00   $247,200.00    
Year 3 $25.46   $21,218.00   $254,616.00    
Year 4 $26.23   $21,854.54   $262,254.48    
Year 5 $27.01   $22,510.18   $270,122.11   $532,376.59

NEW LEASE

  Rent/SF   Monthly   Annual    
Year 1 $22.00   $18,333.33   $220,000.00    
Year 2 $22.66   $18,883.33   $226,600.00   $446,600.00
Year 3 $23.34   $19,449.83   $233,398.00    
Year 4 $24.04   $20,033.33   $240,399.94    
Year 5 $24.76   $20,634.33   $247,611.94    

$85,776+ savings in the first two years

The Tenant saves 16% in rent over the next two years and their overall rent is reduced over the next five years due to the discount in the market rent. The landlord benefits from no further out-of-pocket tenant improvements, potential lost rent if the tenant moves, and additional real estate fees paid out to find a new tenant.

Read Full Post »

TechDex (apps|provider|hardware|var)

Westside

ELynx – Creekside Corp Park | 9205 SW Gemini Dr. | 12,705 SF

GeneralBizDex (consulting|finance|insurance|legal|other)

Central Business District

Galt USA – Four Lincoln Center | 10250 SW Greenburg | 2,123 SF extension

Kennedy Bowles – US Bancorp Tower | 111 SW Fifth Ave | 2,646 SF renewal

Red Hills Holdings – 1330 NW 14th Ave | 2,000 SF

Westside

Stoutt Executive – Kruse Way Plaza I | 4500 SW Kruse Way | 15,945 SF extension

Indemnity Excess & Surplus – Cornell West | 1500 NW Bethany Blvd | 3,614 SF renewal

Hoyle & Company – Kruse Woods I | 5285 Meadows Rd | 1,485 SF

Oakwood Worldwide – Wilsonville Biz Ctr | 27501 SW 95th Ave | 6,479 SF renewal

Central Business District

Silver Oaks Advisory Group – Mayor Bldg | 1130 SW Morrison | 1,715 SF renewal

HealthDex (hospital/provider|managed care|equipment)

Central Business District

Fresenius Medical Care – 2121 SW Broadway | 5,765 SF

Westside

Molecular MD – Custer Bldg | 1341 SW Custer Dr | 12,200 SF

DesignDex (A/E|consulting|graphic d)

Central Business District

HNTB – Columbia Square | 111 SW Columbia St | 3,607 SF renewal

Westside

Western Architectural – Lincoln Center | 10200 SW Greenburg | 8,800 SF

Compression Engineering – Creekside Four | 11000 SW Stratus | 2,312 SF expansion

GovDex (government agencies)

Central Business District

City of Portland – Commonwealth Bldg | 421 SW Sixth | 11,948 SF expansion

State of Oregon Board of Dentistry – Market Ctr | 1600 SW Fourth | 3,157 SF extension

NonProfDex (charitable|education|trade assoc)

Central Business District

Young Audiences – 1200 SW Morrison St | 3,057 SF

Read Full Post »