When tenants go out looking for new office space, often they are impressed by a building's appearance, location and rent. But they aren’t aware of a landlord’s financial situation, the performance of building systems, the likely trend of operating expenses during the next five or 10 years, neighborhood problems and other factors which could turn what seems to be a good deal into a bad deal that would hurt your company and your career.     

To protect your company, you need candid, complete answers to 6 key questions when you look for office space:

1.  How good is the quality of building management? 

     You've got to go beyond the well-maintained corridors to determine whether the landlord can be counted on to honor the terms of a lease and be a good partner during the lease term.  You should assess the satisfaction of existing tenants and how the landlord responds to routine and not-so-routine requests for maintenance, alterations and special services.  Does the landlord respond promptly and deliver fair value?  Do they see every request merely as an opportunity for revenue?  Is the service adequate or does it take many repeated requests to correct a simple problem or achieve agreement on how to proceed with a desired alteration? 

2.  From a financial perspective, how does a building you're interested in compare with others?

     This requires a thorough assessment.  You should determine how much debt a building is carrying, how the operating expenses and management fees at a building you're interested in compared with the operating expenses at comparable buildings, whether critical maintenance has been performed or deferred (which would mean much higher operating expenses in future years).  If a building has serious financial problems, working conditions could be compromised by poor air quality, unacceptable temperature swings and inadequate security. More importantly, if the landlord is suffering financially, there might be a strong possibility that the lender will foreclose, which may terminate your lease in most cases.

   3.     What's the physical condition of the building?

     There are plenty of factors, difficult for a tenant to see, which affect the desirability of a building.  For example, some floors might be offered with HVAC capacity suitable only for an open floor plan.  Virtually any use of closed offices, as are typical, would require so-called "supplemental HVAC" at your company's cost.  Buildings which seem quite modern could have elevators with unacceptable wait times -- a million-plus square foot institutional structure is plagued by elevator delays and lapses in elevator service; every day, tenants suffer tangible dollar losses as staff are gone longer than necessary from their offices, delayed by the elevators.

     It's easy for a tenant, touring a building, to miss signs of problems with structural integrity.  For years, high winds caused excessive sway on the top floors of one well-known building in the Denver area.  Many employees felt the effects of motion sickness, and some feared for their safety.  Eventually, the landlord provided an adequate engineering solution, at substantial expense to existing and incoming tenants.

4.  How do the nature of non-rent charges compare with other buildings?

     Many deals appear similar when a lease is signed, but over time total costs tend to vary dramatically.  Determining what costs your company is likely to face at a particular location requires thorough analysis.  That's why your commercial real estate broker should analyze operating expenses, management fees, real estate taxes, overtime HVAC charges, supplemental HVAC charges, condenser water charges, tap-in charges, sub-metered electricity and ERIF, among other costs a buildings you're interested in. 5.  Are there any "hidden" drawbacks to a building's location?

5. Are there any "hidden" drawbacks to a building's location?

     Crucial drawbacks are often overlooked as tenants focus on obvious criteria like proximity to light rail, downtown or a highway interchange.  For instance, an institutional tenant sought reasonably-priced space for an important operation which involved people working beyond normal business hours.  The tenant liked an older building that had recently undergone substantial refurbishment.  It offered good light, a functional floor plan, adequate electrical capacity and nice building amenities.  Their visits during normal office hours left them with a good impression of the building and the neighborhood.  They started preparing preliminary plans.  Only when their commercial broker explored their need for after-hours operation and told them about a nearby drug rehabilitation center did they have second thoughts. Additional research revealed that several adjacent buildings used extra-heavy night-time security including dog patrols to sniff out drugs.  Since the tenant was not in a position to provide such security for their staff, they decided this wasn't a suitable location.

6.  How would other tenants in a building affect its desirability?

     It's reassuring to see that a building has Fortune 500 tenants, but you need the right building dynamics, too.  For instance, if you're moving into a building with one or more tenants which occupy multiple floors, elevator usage and wait times will be very much affected by inter-floor traffic.  Most commercial real estate brokers advise clients in this situation to avoid being in such an elevator bank, to seek a dedicated elevator or other solutions.  If you're considering a building with a government entity, media entity or other high profile tenant, you need to be well-advised about whether the landlord maintains adequate security.  Who wants their business disrupted by TV cameras, picket lines or bomb threats? 

These are only a few of the questions you should be asking when looking for office space. What's needed is expertise in the Denver real estate submarkets, building operations, and landlord accounting practices.