In the News: The Eckerian Perspective

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Choosing the Wrong Office Space Can Cost You

I have a friend, let’s call him Charlie, who runs a successful hedge fund. Charlie’s a smart guy. In addition to being a quant — a class of professional that’s intelligent by definition — he started a business a few years back that he eventually sold to a major Wall Street bank for about half a billion dollars.

But even smart people do not-so-smart things sometimes. Case in point: Charlie was looking to lease some office space recently, but instead of taking an active interest in the process — or at least checking in with me first — he farmed it out to his office manager. Who proceeded to saddle his company with an 8,000 square foot space (when he needed half of that, tops) and a five-year lease (when he only should’ve had two or three years). Now he’s stuck overpaying for an office for the next few years.

I wish I could say situations like these are uncommon. They’re not. I see it all the time in my line of work. An individual or company that’s otherwise thriving gives little to no thought about the cost, location, size, infrastructure, amenities and other elements of their office, and ends up with something that doesn’t match up with their business requirements or budget.

Why does this happen? The case with Charlie is illustrative. Being a busy guy, he handed it off to his office manager — who, after all, manages his office. However, she had no previous experience with leasing space, and I’m guessing she came at the issue with one question in mind: What’s the easiest way to do this? And of course, the answer to that question would be to reach out to one of the big, well-known commercial real estate firms and let them “handle” it.

Despite the apparent ease, though, there are a few problems with that approach. First, those large firms manage an assortment of office properties, and they won’t hesitate to steer the companies they’re working with toward those in order to collect commissions on both sides of the deal. Second, junior personnel who have little experience often get assigned to new clients, regardless of the size of those clients. Third, I find that the associates at those firms push for bigger deals with longer leases, which equal bigger commissions for them. There are other drawbacks; this is just a sampling.

So, how do you avoid the fate of Charlie the Hedge Fund Guy and so many others? Here are a couple of things to keep in mind:

1. Your Office Isn’t an Afterthought: This is a decision that not only goes straight to your bottom line, but also affects the morale of your workforce. A poor choice here can cause significant financial and cultural fallout, so treat it with the weight it deserves. Don’t hand it off to someone who lacks knowledge of how this works or who won’t make it a priority. Internally, you should give it to an individual or group that will handle it capably and thoughtfully, or take it on yourself. Also, strongly consider hiring the services of an outside expert.

2. Expertise Counts: Experience is a fine thing. In fact, I tout it as a differentiator between my own company and the competition. However, as you seek out the best partner for helping you find your next office, you should consider more than just how long they’ve been around. What you want to look for are things like client retention, glowing testimonials and business growth. Ask prospective tenant representatives if they can put you in touch with a couple of companies they’ve worked with in the past. Ask those companies to give you an honest assessment of what they’re like and whether they’ve done multiple deals with them. Those are the kinds of things that show they can get you the best space for the best rate.

Remember: You wouldn’t trust a beginner to manage your company’s strategy or budget. Don’t make the same mistake with your office.