- Avg. rent per sq. ft., Class A: $38.17
- Avg. rent per sq. ft., other classes: $31.20
- Large employers: State of California, U.S. Postal Service, AT&T, Safeway, Gap, Kaiser Permanente, Wells Fargo
- Percent of population over 25 with bachelor’s degree or higher: 42.4%
- Percent with advanced degree: 16.4%
- Median home value: $702,600
- Venture capital invested in 2007 (through Q3): $1.8 billion
Sources: Reis Inc., U.S. Census Bureau, San Francisco Business Times, PwC/NVCA MoneyTree Report
Alix Stuart is a senior writer at CFO.
Coming to Terms
With office buildings changing hands so quickly, it’s pretty much impossible to avoid highly leveraged, rent-hungry landlords in New York, Los Angeles, San Francisco, or Boston. Here are a few tips for dealing with them.
- Call the current tenants. Alex Randall, a real estate attorney with Goodwin Procter and head negotiator for the firm’s office space, recommends asking them how tough or generous the landlord is, since “that might dictate how detailed a term sheet you negotiate.”
- Nitpick. Assuming the landlord is a financial buyer who likely isn’t looking to build a long-term relationship, Randall will drill down, clause by clause, into areas where owners typically nickel-and-dime tenants. Before any negotiations start, he says, it is important to ask about items like future increases for operating costs, the markups on after-hours air conditioning or freight-elevator use, and construction-oversight fees, looking for any chance to negotiate limits.
- Consider Section 467. Tenants might also look for a bigger upfront tax deduction through this section of the tax code, which allows tax to be paid equally over the term of the lease even if rent is initially free — at the price of higher income taxes for the landlord.
- Guard against landlord turnover. In this instance, the “critical factor is to have a very tight and artfully crafted subordination nondisturbance agreement,” says Robert L. Freedman, chairman of GVA Williams’s New York office. These agreements ensure that “no one can mess with your tenancy” during the term of your lease.
- Envy the clever deal-makers. In smaller markets, at least one CFO has found a way to profit from the rise in commercial real estate. When wireless-equipment distributor and manufacturer Infosonics moved into a single-tenant office building in San Diego three years ago, CFO Jeff Klausner negotiated for both a cap on operating cost increases and an option to buy at a fixed price. This year, he was able to exercise that option and immediately turn the property over to another buyer, pocketing more than $2 million for Infosonics in the process. And, he is still saving $120,000 a year in rent by moving to a space in San Diego that was better suited for Infosonics’s headquarters, and relocating some operations to its facility in Miami. — A.S.