Today Seth and Jay chat with Wendy Feldman Block, a DC area commercial real estate expert about what lawyers can do to protect themselves regarding their office space needs.
Hello, hello, and welcome to another edition of Maximum Growth Live. I’m one of your hosts, Jay Ruane, CEO of Firm Flex, your Social Media Marketing Agency for lawyers, as well as managing partner of Ruane Attorneys, a criminal defense and civil rights law firm in Connecticut, in suburban Connecticut. With me, as always, is my friend, Seth Price! I don’t know which side you’re going to be on, Seth, because we’re doing this by zoom, instead of…
I know you’re using the green– the green screen behind as a background and normally it was great. Instead, today, we have green hair, and it looks like you’re…
Oh yeah.
It’s like this is, this is the really, the really hip Jay Ruane.
I’m gonna see if I turn on my other like, now it’s, it’s the green screen.
I’m just going to enjoy that. I think the audience should enjoy it.
Well, you know, it’s funny, I was on Facebook earlier this morning and looking at my memories, and I saw a memory of 12 years ago, and basically, this part of my head that you could see (gestures to top of head) was all black 12 years ago, and this (gestures to sides of head) was white, and it’s not black anymore. I mean, it’s green today, but I mean, what are you going to do? So, how’s your week going this week, Seth?
It’s going well. I’m interested to hear from Wendy. Wendy is sort of one of those sort of omnipresent real estate voices in DC and currently we’re, you know, I’m struggling, I got to figure out we have, what, what the future looks like, what people want, it’s really been, we’re seeing restrictions being lifted, forward facing but I’m not sure that the workforce is going to react as quickly as the restrictions are. I hope they are, but you know, it is not going to be a smooth sailing coming back is my, is my impression.
Well, this is, this is interesting, because as our audience should know, Seth actually has two operations, right? The first one is his flagship Price Benowitz, DC, Maryland, Virginia, traditional law firm. You know, client centered, you know, retail practice of law, where you’re doing family law, personal injury law, criminal offense, you know, as, as your three parts of your foundation, right? And that has a lot, a lot of clients facing time, you know, lawyers in offices, you know, older lawyers, you know, people who’ve been practicing 10, 20 30 years, right? That’s one operation you have. And then you have BluShark, your SEO, your digital marketing firm, and that is comprised of mainly millennials, right? Younger people who are not necessarily meeting one on one with clients because everything’s done digitally, the clients are remote. So, let’s talk a little bit about your space needs because that’s what Wendy is going to talk about. You know, what have you, you know, seen as, as a owner of two really different types of businesses? How have your space needs changed coming out of COVID?
Well, right, like we had the mayor shutting down operations, essentially. So, we’re in a bizarre place where lawyers are essential at the same time, if you’re not essential you’re not supposed to be there. So, we ran a skeleton crew at the law firm. BluShark as it’s talked about on the show, before we turned our keys back into the landlord, the thought being that once people are sort of encouraged back, again, suburbs, very different, downtown in the cities, they really, I was down for a Caps game. It’s a ghost town. And it’s partially, you know, the energy, the restaurants are gone. You know, they’re boarded up. It’s very, it’s very bizarre. And so, look, I’m all these different things, even beyond real estate, how many employees have gotten the vaccine? How many are planning on it? How many are not going to get it? I had one guy on my intake team, who’s been a pain in the butt recently, it turns out, I think you probably didn’t get the vaccine, and probably has COVID today and it’s been out for the last two days. You know, these are the things. So, I have issues where there are managers, one in particular, who came on post COVID. He doesn’t even know what it’s like to office at our firm. How is he supposed to lead people back to the office when his normal is not there? And so those are, you know, again, the permutations are so extreme and dealing with the requirements that we followed from the mayor’s office, all of those things together make for a very complex calculus as to what’s needed going forward. You know, we’re not seeing that it’s not like the real estate market has plummeted. It may have gone down slightly, but it’s holding, which to me, intuitively, and I can’t wait to see what Wendy has to say, seems, you know, absurd considering that not only is demand down but that the we are not going back to the same running of a business for years. We talked about this on this show, and before we even had a show. I wanted hotel style meaning I was gonna give everybody an office but say, hey, for the last four or five employees, don’t give them an office, let them slot in somewhere. They’ll just bring their laptop and plug in. And it was, it was an uphill battle. And part of it was I didn’t fight it because let’s say it’s $1500 a month, you know, somebody wants an office, give them an office! If they’re making money for you, it’s not the end of the world. When it gets tighter, it’s an issue. But I think that, you know, how we perceive and think about the use of space is, is changing.
Well, I think there’s also, and I don’t necessarily want to call it an ego thing, maybe it’s a mindset thing? You know, as a person who’s a lawyer, you know, they, they think of their office territorially.
Absolutely.
And I can go into my office and close the door, and sit down and think about work. And if I’m in a place that I don’t have my stuff and my files to work on, even if everything’s digital, right? Everything’s, everything’s paperless, and everything’s on your laptop, there’s still this, you know, I have my coffee mug that sits on my corner of my desk, and you know, that type of thing. And people are territorial and….
Agree, but let’s go back to the Michael Gerber episode, right? This was the, this was sort of the, the ying yang you had with him, both on air and off air, which was, hey, that’s great, but do you really want to McDonnaldize the thought of how you’re putting on a defense or a major plaintiff’s case? You need to be thinking creatively and if that’s your environment that you’ve created. You’ve given somebody– they’re away from their families, they’re away from their kids, they’re basically, you close that door and shut it, versus “Hey, do I have to be multitasking thought wise? Is somebody coming in here at three? Because I said I was going to be out of here at three, but I really–” so that’s where it’s, it’s, you’re buying something that older school people really relish and wish which is that base and stability. I’m seeing generally that not as much the case with Millennials, but Millennials are going to age and as they have management responsibilities, you know, it’s one thing to say you don’t need that, but when you have distractions from a home life that seemed to be created over time, as you reproduce, and as you have more complications and dealing with, with the generation older and things like that, that all of those things that all of a sudden that base may become, even to those people that right now don’t value it, maybe, maybe not. But it is certainly, you know, a lot to think about.
Yeah, it is. I mean, it’s a full plate, and this is, you know, as you’re growing your firm as you’re, as you’re being the person, it’s the sword of Damocles, right? It is something that nobody ever considers until they’re sitting in that seat, and that’s why we do this show, because we want to talk about these things because, you know, for you and I, for a decade of talking about this saying “there’s got to be other people that are facing these problems”, and for a long time, it was Jay and Seth texting each other saying :I’ve got this issue, why are we the only people dealing with it?”. I think we found an audience of people that are, that are running into some of the same problems. And what I’d love to do is be seen as someone who can avoid them stepping into the piles of dog shit that I’ve stepped into over the last 20 years because if I can keep you smelling from smelling like crap, you know, it helps me sleep better at night, knowing that I solved the problem for somebody that they didn’t even know they had. So, why don’t we do this? Why don’t we take a quick break? You’ll hear from our sponsors and when we come back, we’re going to bring in Wendy Feldman, who’s not a lawyer, who deals in commercial real estate. She’s a personal friend of Seth’s, and I think it’s gonna be a very illuminating conversation where we can talk about some of the things that are really impacting the market now. Sounds good, Seth?
Sounds great.
All right, folks, we’ll be right back with more Maximum Growth Live.
Hi, I’m Jay Ruane, one of the founders of Firm Flex, a practicing attorney for over 20 years. Anyone who knows me knows how my firm runs on the systems we create and it has allowed us to flourish, even in tough times. I spent years and hundreds of thousands of dollars until I finally figured out a way to engage my audience and drive top of mind awareness with social media. And what did I do once I figured it all out? I built a system for it. And now you can put that system to work for you. You see, we took the hard part, creating the content and finding the images and made it foolproof. Every day you will have curated social media topics to post designed to make your firm constantly remind your audience about your firm, what you do, and how you can help. And the best part? You don’t even need to hire a dedicated social media person to do this for you. In fact, you don’t even need to hire anyone new. We design the system to make it easy for you to delegate to your receptionist, assistant or paralegal and have them execute solid social media for you in just five minutes a day. It’s like having a content writer, researcher and graphic designer at a fraction of the price it would cost to hire in-house. Sign up today for the Social Super System and start building your brand where your clients already are: on social media.
In this world today, if you want to grow your business, you want to grow your firm, you want to take on more cases and make a bigger impact. You have to have a digital blueprint. Statistically, throughout the time that we’ve been working with BluShark Digital, our law firm, the Atlanta Divorce Law Group, grew over 1,400%! They truly understand where we’re headed and how we want to get there. I have a team in BluShark Digital that I feel like has my back.
We are thrilled to have Wendy Feldman Block, a friend of mine, neighbor, and a real estate guru. She is the Executive Managing Director for Savills DC. Thank you, Wendy, for being here today.
Thank you, it’s a pleasure to be with you both.
You know, COVID has been the headline our audience of small and medium sized law firms are all trying to figure out as restrictions are lifted, what their real estate needs are going to be, and how they’re going to configure things. And I figured, who better than Wendy to sort of, first give a primer to our audience? These lawyers went to law school, they’re not real estate mavens for the most part, and just walking into a commercial lease. We say a lot, we don’t know what we don’t know, this is a prime example of an area that most lawyers are not particularly educated on. So, talk to us a little bit. First of all, from your perspective, what should, you know, a small-to-medium sized business be aware of as they’re entering into the commercial real estate world as a renter?
Well, and it’s not intended as self-serving, Seth and Jay, but you should have somebody by your side as your real estate adviser. I think that’s actually the most important thing. Just like people come to you for counsel, people come to us for counsel. At Savills, we focus solely on the user experience. There’s others that do landlord and tenant, but having somebody do that for you is really important. And the other thing for them to understand is we’re transactionally based. There’s no – typically – upfront costs associated with doing it, and the cost of such services are baked into the transactional costs in general underneath. So, to me, this is a resource that everybody should want to have but then you also need to make sure you’ve got the right people by your side. You want people who are experienced in the industry in general, in advising tenants, but you also want people to go along with law firm work because law firms approach things a bit differently. And when you look at the, at the whole timeline or the scale of people being more innovative and people being less innovative, I’d say historically, law firms have been on the further end of innovation. Although they’re moving the needle and there’s no question like, for example, law firms, when I started this business a very long time ago, you had a very hierarchical structures of big law firms, managing partner offices, big partner offices, smaller associate, and then something in between. So, you had lots of different size offices and people had their own furniture, you had big libraries, you had certain secretarial ratios, which have all changed and everything’s changing. And the more progressive law firms, not even, not only the big ones, but even medium sized ones are going to one size offices. They’re going to standardize furniture so that if you do have to move people around, it’s a lot easier. They’re also trying to design things that are more flexible. So, bringing in a good adviser and then making sure that you build out your team with people that know what they’re doing. You want to have an architect who can help you define what your programmatical needs are. At my company and a lot of others, we’re starting to see a growing role for the need of people who specialized in looking at the workplace. We call them workplace strategists, and actually our workplace experts do a lot of the upfront programming, then we have it vetted with an architectural firm that’s been engaged, and they’re going to be your partners all the way through. And then there’s another component which is project management. If you’re finding a space that’s filled out, you may not have, have as much of a need for that, but if you find space that is not built, it’s really important because the monies you spend on that, you will get back in multiples because you will usually be in your space on time and hopefully on budget.
You know, there when you start moving to commercial real estate field stuff that you deal with every day, you get a cost per square foot. But one of the things that, you know, I’ve sort of discovered over, over my, my years is that not all costs per square foot are created equal. There’s common space or camps. Talk to us about what are the different upsells, for my — well, I call that — but what are the different factors that can affect what your actual costs all in our versus the nice number that you’re told up front?
That’s a great question. And part of our efforts is to try to equalize things to get it to an apples-to-apples basis. In the United States, most leases are going to be on what we call a full-service basis and they will include your first year of your operating expenses and your real estate taxes. Some leases may be net of electric, so that would be an add on. And then in markets where we have more trophy products, which we have a lot of in Washington, they do those leases on what we call a triple net basis. So, where the operating expenses and taxes are paid separately from that, and we can talk also about the escalations on those, I’ll get to that in a few minutes, but let’s go back to our example. Let’s use a really simple one. Let’s use a rent of $50 a square foot. $50 a square foot full-service in Washington would typically, depending on the building, include $25 of operating expenses and taxes. So, your $50 full service in that situation would be the same as your $25 Triple Net. When you have a full-service lease, after your first year, you’re going to pay an increase above the operating expenses and taxes. And to your point, Seth, that’s a really big issue, particularly in the last year that we had. Because if you moved in 2020 and that was your base year, it would be potentially artificially set low because buildings were not operating at full capacity. Electrical costs were lower. Cleaning costs, while they, you would think they would be higher, were lower because people weren’t around so much. So, those are the sorts of things that when we look at a lease, we want to negotiate for those to protect the tenant. And I don’t know if you want me to continue and explain about when you start talking about common area kind of usable and rentable. Should I pivot?
Please, because CAM, CAM is something that I think a lot of small firms and solos might not be expecting and then all of a sudden, they get a, you know, a bill for, you know, an entire month’s rent saying this is your CAM true up. Send me another check and I need it in the next four weeks. That can, that can really mess with somebody’s budgeting and end of year.
You know, and I’ll just, I’ll just, on a personal note, like seven years ago, when we moved into a place, they threw an office party for us at Christmas time. I was like that was the coolest, like the common, the common areas, but we were the only tenants in the building. Next thing you know, there’s a build for this party that they’ve just thrown for you. It was, so yes, please, please, elaborate, Wendy.
So, part of our process is understanding what’s included and what’s not. And one other really important part of the, of the team that I failed to mention, which is obviously near and dear to your hearts, is good counsel. And it’s we’re not, I’m not an attorney, I’m not an architect, but I know good ones to bring in depending on where the project is and the size, and it’s really important that you have real estate and counsel involved early on. I actually like them to typically look at the final letter of intent before it’s signed. Nothing worse than the attorney looking at it after the fact saying “Well, I don’t like this, I don’t like this, I don’t like this”. So, we get them involved early on. We want them by our sides in the lease negotiations to tease out what’s appropriate and what’s not. We want to understand what costs can be passed through. And then if it’s a full-service lease, each year you’re gonna get an estimate for the following, for the rest of the year. And there will be a true up, and they’ll say you either paid too much or you paid too little. Well, we want to make sure we understand what those costs are. If you’re in a, if you’re in a building with an institutional landlord and good strong property management, there’s less risk, but if you’re in a building owned by a, by an individual, and they kind of do their own property management, you really want to look closely at those costs and make sure, particularly in that first critical year when they’re establishing your base, that your base is accurate. And then you just want to keep checking on it each year. And we can advise on some of that. A lot of landlords do not want tenants to use an individual who be compensated on percentage of savings. So, they prefer to be an accounting firm. And that’s some of the things that we can talk about in that. But helping them understand and budgeting is really important because if you’re, if you’re a smaller law firm, you need to know what you should be expecting and part of our analysis, and any good real estate advisor would be, we can model what that will look like. We know with certainty, usually, what the first year will look like. What we don’t know is what the rest of it will be. We know what the annual escalations, which, in our marketplace in DC and nationally, we see, you’ll have a fixed annual increase in the rent, but then you’re going to have that base year, and what is that base year? Is it the first 12 months of occupancy? Is it going to be a calendar year? All of those things need to be taken into account in how you’re doing your negotiations because the thing that we work hardest on is preventing surprises. When people say, what do you do for a living? I’m in the business of managing expectations and trying to anticipate what’s going to come down the road.
I’ve been with a law firm and a digital agency, I’ve had, you know, leases directly with the building as well as sublets. And right now, with people not knowing what things are gonna look like, a lot of people were sort of looking at sublets. What are some of the strengths and advantages, disadvantages of dealing with a sublet versus a master lease?
In a sublease, you don’t, the disadvantage in my mind is you’re locking it for the most part, come in there and modify the space. You’re going to take it as is, you might get a little bit of a rent abatement to offset maybe painting or cleaning the carpet. But on the plus side, it’s typically going to be at a discount and, and shouldn’t be at a substantial discount. We see the sublease rates in terms of availability on the rise, and I expect them to continue to be on the rise as more people start to go back to their offices. The other thing is you’re getting to take advantage of somebody else’s potential misfortune. You may be able to get the furniture in the place. The other thing is when you talk about costs, typically in a sublease, you’re not going to have passwords of operating expenses and taxes unless it’s a really big sublease for a lot of space. They don’t want to deal with that. They, they’re not in the business of doing leases like that. They’ll typically agree to a flat percentage and then that’s up to negotiation. So, from that standpoint, the certainty of knowing what your annual costs will be monthly or annually will be much easier to ascertain from a budgetary standpoint. The only other risk that I think is worth pointing out is, is the health of the sub-landlord. And if they’re not paying rent, we need to make sure that you’re protected and that you’ve got the ability to remain in that lease and they will recognize you. And there’s a whole consent process that’s involved in getting a sublease done. Not only do you have to negotiate a sublease, you have to negotiate a consent document that’s reviewed and accepted by the owner and the sublandlord, and that’s all part of the process. So, we want to make sure that we allow enough time to get that done, and, and again, back to the “we want to prevent surprises”.
Jay?
Are there, are there– I don’t know, for me, I always seem to say why am I paying a portion of your taxes every year? Shouldn’t that be a cost of you doing business, Mr. Landlord or Miss Landlord? I understand, but is it, are they literally just doing that to get the cost per square foot down? So it makes seems more appealing to me as a tenant, knowing full well that if they were to wrap everything all together, it would be a higher per square foot cost? It just, it just seems problematic to me that I should be paying the landlord’s property tax because I don’t own the building. I’m just, I’m just a renter in that respect. Is that something that you see any pushback on? Or is it just so accepted at this point, that everybody who’s getting into commercial space has to recognize that the landlord really is going to pass on as many cost to you as possible?
Yes, Jay, that is correct. That, that is just customary practice on if it’s in a triple net lease, you’re paying that without any risk of what the pastors would be. But it is, it is a cost of getting into commercial buildings and they’re going to allocate a portion of your share. And I think you would even ask that question earlier on of the building. So, for example, I think this is a good time to talk about usable and rentable, that’d be all right?
That’s awesome.
(Laughs) So, when you, when you have a typical floor, let’s say it’s 20,000 square feet, there’s gross, there’s rentable, and usable. Gross will be biggest, rental will be smaller, and usable be the smallest. You occupy tickets, technically the usable. You pay on the rentable. And when a landlord is allocating a percentage of the building, for example, if it’s got a really large lobby on the first floor, they have amenity spaces, there’s a factor that’s applied to get you from usable to rentable. And typically vertical penetrations, elevators, stairs are not included within that. Typically on a multi-tenanted floor, it could be in the mid 20s on a percentage. If you’re a single tenant, it could be in the teens, sometimes even lower. But because landlords are doing all this mentalization which is a whole other topic we could talk about, we’re starting to see them trying to pass through those costs and that’s something that you should like, you can negotiate it. You can just say “I’m sorry”. I’m doing that in downtown DC right now for an association. We looked at a building that has great amenities. I asked what their what their add on factor is, it’s 30 percent. That’s just too high. So, some people are saying it is 30 percent but we’re only going to charge you 20 percent. So, that’s another point of negotiation. It depends on your size and how much leverage you have along those lines.
So, I have a follow up for this then. You know, I’ve established my firm, we’re starting to see some growth, it’s me, it’s one employee, one attorney employee, another two staff members, right? And I can see down the line three, four or five years down the line, being double or triple in size but I need to get into a space today. What sort of thing should I be looking for now knowing that I have plans to grow this business? And, you know, I don’t necessarily want to take on more space than I need now because the money that I’m going to spend on that is going to hamper my growth, but I’d also don’t want to come up to, you know, two and a half years from now and be, you know, all tight and not being able to actually service our clients and be comfortable. What, what guidance can you give us in that sort of situation? And what should we be looking for when we’re getting into a, into a commercial lease?
Well, Jay, when you are a smaller tenant, it really makes more sense for you to be looking for an opportunity to find space that’s built out and that you can move into, that you don’t have to take the risk of construction. You’re too small. But do it in a building with an ownership that may have lots of other smaller spaces that as you outgrow that you can flip into. It may not be guaranteed in the lease, but it’s done all the time. Or somebody who has a portfolio of other properties with the same ownership entity, which is an important consideration, that will allow you to do that. So, right now, we see a lot of what we call spec suites. Someone had used another term or some kind of– basically plan ready. They are already built out, they made an assumption about what will appeal to the broadest audience. Some pre COVID were trending more towards all-open plan. We’re seeing more interest in more private offices and some of these, and we could talk more about this or what I envisioned to be more lasting changes, but the, if you can go with a space that’s already built out, it will make it easier for you to flip over and typically in lease terms, unless it’s a sublet, or three years, five, seven, ten and beyond and it kind of aligns with kind of an institutional approach to how owners and prospective purchasers will look at that building. So, I think you should keep that in mind, and it also goes back, Jay, to schedule. So, you can say “Okay, we do a three-year lease, we can do a three-year lease.” No matter how small you are, you need to be thinking about that probably a year and a half in advance of the expiration. So, I joke that when you finish with us a short-term lease, just know that I’m going to be back. You know, I hope you like working with me because I’m not going to go away and you’re going to have to do that. The other thing that, that can help and it, and it really depends on a lot of variables, is negotiating really flexible leases that give the ability to terminate. And termination options, we are, we are, is, are far more easier to get now than ever, even for smaller tenants. There’s most likely going to be costs associated with it, costs such as if they did any tenant improvements, the unamortized portion, any legal fees, the unamortized portion, brokerage commissions for both that landlords agent as well as your own agent, because I mentioned earlier that that’s typically built into the transactional costs and then they’re going to amortize it over the term, typically, with some kind of rate, 8 percent, they’re going to try. I prefer not but, so all of those costs will be baked into it, but it will give you, if you’re growing a lot, you’ll be like “That’s okay, we can deal with it.” Or if you’re going to move and go with the same ownership, you won’t need to necessarily use that termination. And there’s one other thing about termination rights that I think is really important. Whether it’s termination rights, whether it’s renewal rights, any rights you have, I view them as an opportunity for you to negotiate and trade them. So, if you have a lease, it’s 10,000 feet and we have a right to terminate after five years and we’re coming up on year four, and we know we have to give notice, if we really don’t want to leave but we want some other things, It’s the opportunity to go to the owner with your advisor, who’s, you know, well versed in this and say “We’re willing to trade this and give it up if you give up this.” So, you got to figure out what, what this is, but I think those are really important considerations.
You know, one thing, you know, I’m seeing in DC is downtown is still a ghost town and yet cost per square foot is pretty much, hasn’t dropped dramatically, it’s pretty much held, which means that clearly supply and demand that people are not coming in and paying full retail for the place where, where nobody’s, you know, nobody’s downtown, what, you know, what are some of the, the levers or what are the different mechanisms that people bring? Because clearly, the little that I know, is that, you know, in order to keep their, their loans and play their financing in place, they want to keep their cost per square foot at a certain place, but clearly, there are concessions, whether it be built out or others, can you talk a little about what people do to make sure that they’re not actually paying a market that doesn’t exist to keep a number and artificially inflated number that seems to be thrown out there generally?
You are correct, Seth, in that we are not seeing a lot of downward pressure on rents, and typically, we have historical data, just for example, for DC that have been relatively flat, no matter what’s going on the market. This is the first time in a long while that we’re actually seeing some downward pressure on rents. However, the big factor is what you touched on, is concessions, and we are seeing typically in DC historic concessions and we are in a period of discovery. I’ve been doing this for a long time and I’m not uncomfortable saying I don’t know if he’s what do you think the market is, I can tell you that we can send out seven RFPs and I will get back 10, several unsolicited thrown over the transom, that will come back with concessions that far exceed what I would have ever imagined we could get at the end of the day after a lengthy negotiation on other, on a space. So, we’re seeing, for example, downtown Washington on a 10-year lease, 18 to 24 months of rent abatement, we’re seeing tenant improvement allowances of $120, $130 a foot and I haven’t finished my negotiations. It is important to understand, and I think it’s, it’s more of a national phenomenon, that when you are able to secure rent abatement, it’s typically viewed as outside the term, the impact of it would be at the beginning but they want to know, for example, if you have a 10-year lease, and you’re fortunate enough to get two years free, that it would, they would want you to do 10 years of rent paying, so it’ll be a 12 year term. So, sometimes we can get some of that inside the term, so maybe if it was, if it was 24 months, I might be able to, depending on the size of the tenant, the amount of vacancy and having done my homework, I might be able to do an 11-year lease or one year of its inside the term, It’s one year out. So, I think that we’re also in a period of discovery, Seth, that people are, the needle has moved so quickly in the last week with the CDC announcement on masks, that I think more and more people are starting to accelerate the return to the office, but we still don’t know what it is today is actually my first day back fully for kind of a normal full day in, in over a year and a half. So, it’s a period that we’re going to see people trying to figure out do they need as much space, we may see more and more sublease space coming out there. And to your earlier question, Jay, sublease space is competing with prime space, you may get some rent abatement but you will not get the sorts of concessions, but you’ll get a much lower rental rate.
So, I have a question sort of off topic of the actual leases and that type of thing, but as somebody in the industry, there is a lot of talk, at least among the small firms that Seth and I are exposed to, about transitioning to like this hotel style setup where you may have five offices, but you’ve got 10 lawyers and people can reserve rooms as they come and go. Sometimes they work from home, sometimes they work in the office, that type of thing. Can you talk a little bit about how that’s happening in the industry, and some of the ideas that our listeners can take and bring to their smaller operation that you’re seeing function, well, on a large scale?
Yes, I think that the whole remote work and hybrid model is here to stay. And, you know, I mentioned that we’re in this weird period of transition, and it’s going to continue for a while. I think the real question, Jay, is doing thoughtful stuff, surveys of your employees to understand what they want, but you also need to shape those surveys to make sure that you’re guiding it. For example, one of the things is the attorneys, whether you’re a partner associate, probably pre COVID had a lot of flexibility to come and go as they want it. I don’t know that that was the case for staff, and my guess is it wasn’t. And so, after COVID, how much are they going to allow staff people, administrative people to be working remotely? And how much do they need to come in? So, answering for that is the most important, and then if people are comfortable sharing spaces, going back to my original premise that lawyers were not always the most progressive on this front is something to give some thought to, if somebody is going to be in the office, for example, three days a week or four days a week, it probably makes sense for them to have their own dedicated space. If they’re coming two days a week, then you can start to do some sharing, but what happens if they come in with another group the same day, you don’t, they don’t, I don’t think we’re gonna see, even though the vaccines are rolling out and whatnot, we’re still not looking to be in a tight enclosed space with another person. So, you could go to a free address system, which basically means you have to sign up in advance, okay, I’m gonna come in testers, I want to come in on, on Tuesday and Thursday this week, you’ll get an office or you may say, actually, I might need, you know, a bigger office because I’m going to have a conference or whatnot. So, I think having that flexibility, I think is really key and one of the things that’s great, and we’re seeing more of that trend towards hospitality are the amenities spaces within a building. And so, if you don’t have to carry all that space, for example, let’s say you have a need for a large conference room once a month, you shouldn’t want to carry that space in your, in your total rentable, if you don’t have to. Should you have a small space? If you use it daily, weekly, yes, but then you can look to the building for some of those sorts of things, and that goes, kind of goes back to that hospitality and that whole end of the industry is just continuing to morph and evolve. And then there’s another subset of that, Jay, where you can do, depending on what your needs are, we used to call it Executive Office suites, or it was then, you know, we were, but it’s sort of flex office and flex office can mean a lot of different things. There’s the standalone flex office, which is where we work or industries or others, but then there’s also ones where landlords are doing their own. Tishman Spire has one called studios in the DC area of car properties, has the wave where they build out these smaller suites that affords you that flexibility. Now previously, not a lot of them had private offices, but I think we’re gonna see more and more of those come into play. But there is, there are software applications that you can use to manage that, but I do think it goes back to having at the forefront a robust remote work policy and what you’re going to allow your employees to do. And one of the things, I’m, I think is one of the most critical is, is how it’s all communicated, because we’ve all been through a major trauma, every one of us, and how you make people feel in terms of their safety and their wellbeing about coming back to the office is critical.
Awesome stuff, and all of which we’ve been sort of, you know, in our own mind modeling, I know that for myself, trying to figure out not only what we want, but what employees want, much easier to sort of talk about here than to actually get in reality. You know, we now have managers that have never been in a physical office before, which is having them reset a team in an office they’ve never been in is sort of the, is quite a challenge. I’m going to conclude my final question before I let Jay wrap up, because Jay had mentioned this in a prior show, you know, my accountant who works in rural Maryland has always like you gotta buy a building, and then I show him what our building costs and he’s like, well, maybe you’re not gonna buy the building. But Jay is, is in rural Connecticut.
Not rural, suburban. There’s no, there’s no farms around here. Alright, i can see there are a couple of farms. So, we’re not, we’re not rural, but, you know, okay, we’re semi-Suburban.
He’s the part of the extended sprawl. And in doing so, he’s talked about the, the, you know, potentially buying a place and with rates as low as they are. We talked a little bit, Wendy, offline about this, but what are some of the factors? Obviously, if you’re in a major metro, this is less of an opportunity, but for people who are thinking that they could buy something, what do you see the advantages, disadvantages, from the point of view, from your point of view?
Okay. I, there’s very few law firms that want to own real estate. Now, I do think your top, your point about somebody’s kind of in a little bit more remote area, I don’t want to call it rural, okay. That may work.
I feel like I’m on the plains of Kansas. I’m in Fairfield County, Connecticut. We are a suburb of New York City, Seth. I can tell you who got murdered in Brooklyn and not telling you because I watched it in local New York City News. 45 minutes, I’m on the corner of 55th and third.
The challenges I think it depends on the firm. So, for example, Jay, if it’s just you and you have people that work for you, that’s different. If you’re a firm and you have 10, 10 attorneys, there’s all these generational issues that become problematic. That’s the first part. The second part is If you aren’t sure about your growth, you, it can be really hard to sell. So, typically, it’s rare that you see law firms own buildings, particularly anyone that’s, you know, except for like a really small boutique. So, in general, it’s much better to lease than to own. There may be tax benefits for it, but like I said, unless you’re kind of a sole practitioner or really tiny boutique firm, in general, we do not see law firms do it because it’s so hard to sell. I actually have one other thing that I neglected to say that I think is really important right now, to convey people, and that is right now, I mentioned that a lot of sublet space but a lot of that sublet space is from law firms, law firms are realizing that they may not need as much space as they have. So, for example, in Northern Virginia and Tyson’s, I just finished a lease for a regional law firm, that took 11,000 feet of sublet space that had just been built out where somebody spent a lot of money building out, they got it what we call turnkey, fully furnished everything you need, you bring your laptop, and you’re done. They call that plug and play. But they need a little more space. So, we attach an adjacent space that just been completed by the owner, which was a spec suite, and we’re going to combine the two, we’re getting such a huge discount on the sublease space that we wouldn’t have gotten otherwise. And so, I think that for law firms, as you’re trying to manage their growth, I would look to other sublets because there could be some flexibility out there, particularly in the, in the next few years as people are trying to figure out what will their remote work policies be? And you can take advantage of that and get nicely built out space, and possibly the ability to use some of their conferencing and other amenities.
So, I have a final question and, and this is just something, you know, for people who are starting to think about their space needs, you know, one of the things that a lot of people tend to do is they’ll jump on loop net, at 10 o’clock at night and say what’s available for office space, but that’s a really limited inventory of what’s out there, right? That’s why you recommend talking to a professional because what is out there off market, what is out there that is not listed on a thing like loop net? There’s, there’s, you know, we’re talking, you know, multiples of what is available than what you can see in some of the generic commercial sites, right? I mean, that’s, that’s something that you need to really take into consideration.
Absolutely, I could not agree more, because so much of what I do is off market and because, for example, taking me as an example, I know all of the landlords, I know the players, and I’m often able to do something that like wouldn’t have been marketed together like I just shared with you where I did a 15,000 foot combination of lease and sub lease that if you’re searching in loop net, you wouldn’t have found it and thought to do that. Costar is something that all the brokerage firms access that you don’t have access to, and loop net is a much-watered down version. And I think having somebody come in and hold your hand, and actually, I was going to share with you all before I, before I do hang up. We have a legal practice group and we’re doing webinars, and we have one coming up June 3rd, where we’ve got 10 People of, of global law firms, real estate, we have law firm advisors that don’t advise on real estate, coming together to talk about best practices and trends. There’s a lot of good information out there for, for your audience and I’m happy to share it with you all, and you can push it out there because these are webinars that are at no cost, but provide great insights for your group.
We’ll make sure we get that and your information in the comments so that if anybody wants to reach out to you, can get you and anybody who wants to see those webinars, we’ll make sure that’s taken care of.
Absolutely. Absolutely. Wendy, thank you so much for being with us today. This has really been illuminating. I mean, speaking for myself, I was able to buy myself out of a lease where I had three years left, just a couple of months ago, now, you know, and then I renegotiated with my landlord of my main space, and I got my rent kicked back 10 years to what I was paying 10 years ago. So, this is, you know, the real estate part of running a law practice is really, really an important consideration because you can get overextended quickly and the information that you gave us today, I think is very valuable to all our people. So, I want to thank you so much for being with us.
Thank you.
Thank you. All right, folks, that’s gonna do it for the interview. If you just hang tight, we’ll be right back with more maximum growth live.
Well, Seth, that was, that was phenomenal. I mean, just, just the amount of information that we got there, you know, there’s, there’s a lot of episodes, I read them back, but I’m actually gonna send this episode out and get it transcribed because I want to have those notes and pass them around to my team. What were your takeaways?
Like Wendy is somebody who very clearly concisely, has done this for years, she understands it. It’s frustrating because as a firm, you know, I belong to a smaller, and as you’re growing, there are different issues and she alluded to this, that when you’re one lawyer with two staff, you know, it’s very different, then, you know, and we went through this, we went to an office and then a secretarial area, and then two offices, and then a floor, and eventually, that’s when, there is a point where the commercial lease makes sense. It’s just, again, like everything else we do, whether it be malpractice insurance, or whether it be, you know, a 401k plan, you almost have to become a mini expert in these things. One by one, yes, trusted advisors are essential, but not all trusted advisors come equal, and that I feel like you always have to be your own advocate. And while you want to learn and grow with those trusted advisors, you know, the educated consumer is the best customer.
Right, and that’s really, folks, why we do these shows, because, you know, these are all problems that we’re all facing. We want to get as much information out there as possible, you can always go back and watch any of our live shows. If there’s a topic that interests you, we may have already covered it. Be sure to do a little search on our Facebook page facebook.com/maximumgrowthlive. So, you can watch any of our old shows. Of course, you can always catch us syndicated not only on our own standalone podcast to take it on the go, but we’re syndicated through the maximum lawyer media family and you can catch this show on an upcoming edition of the maximum lawyer podcast, but that’s gonna do it for us this week. I am Jay Ruane, CEO of Firm Flex as well as Ruane Attorneys, your civil rights and criminal offense firm in Connecticut. He, I don’t know which way you’re going to be because we’re on Zoom, so, I’m gonna go like this, he is Seth Price, managing partner of Price Benowitz your DC, Maryland, Virginia law firm, as well as founder of BluShark Digital, your SEO for law firms. If you want to catch up on some great information about digital marketing, be sure to tune in to Seths SEO insider show available on his YouTube channel, as well as his BluShark Facebook page. Phenomenal, phenomenal stuff every week that he’s putting out there talking to the movers and shakers in the digital marketing realm, as well as if you’d like to know more about systems which is my passion, please join us, please join us in my systemizing your law firm for growth Facebook group, we put outside by put out new systems multiple times a week, just to give them out so people can get them, plug them into their stuff and be ready to go. But that’s going to do it for us today, Folks, please be sure to tune in next Thursday live 3pm Eastern, 12pm Pacific, for another, another great show of maximum growth live. But for now, Seth, Sayonara, enjoy your day, enjoy the wonderful weather. I know it’s getting hot this weekend in DC, I’m enjoying the springtime weather. It’s a lot better to be able to walk outside than it was being holed up in our houses for the last six months. What do you think?
Absolutely.
All right. Alright, Seth, that’s gonna do it for us. Bye for now, folks. Have a great week and we’ll see you later. Look, I really am green, I look like a Martian. Alright folks, bye for now. Take it easy.
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