Corporate Real Estate Solutions | Workplace Strategy | Tenant Representation

The Race for Amazon’s HQ2 is on…who will win?

images.jpgOver the last week or so I have read countless articles outlining how different municipalities are positioning themselves for the second corporate headquarters for Amazon.  The e-commerce giant has issued a request for proposal stating that it will consider cities with more than a million people, a tech savvy workforce, a business friendly environment and the ability to “think big and creatively when considering locations and real estate options.”.

According to its request for proposals, Amazon will consider:

  • Existing buildings of at least 500,000-plus square feet to start, meeting the core requirements and that are expandable or have additional options for development nearby.
  • A greenfield site of approximately 100 acres certified or pad ready, with utility infrastructure in place (the Qualcomm site could accommodate). The sites do not have to be contiguous, but should be in proximity to each other to foster a sense of place and be pedestrian-friendly.
  • Other infill, existing buildings, including opportunities for renovation/redevelopment and greenfield sites.
  • Sites within 30 miles from a “population center,” within 45 minutes from an international airport, no more than 2 miles from major highways or arterial roads, and with access at the site to mass transit, which Amazon describes as “direct access to rail, train, subway/metro, bus routes.”

The competition will be cutthroat, as municipalities compile incentives of all kinds to lure Amazon their way.   Amazon’s HQ2 could eventually employ in excess of 50,000 employees, and spanning over 8 million square feet by 2027, and costing over $5 billion.

Already, Baltimore, Chicago, Philadelphia, Dallas, Houston, New York, Toronto, Sacramento, and of course San Diego are among the municipalities expected to submit bids.

via San Diego to bid for Amazon’s HQ2 second headquarters location – The San Diego Union-Tribune

via As Amazon seeks a second headquarters, how Greater Washington might factor in – Washington Business Journal

via Amazon plans to build second, ‘equal’ headquarters outside Seattle | The Seattle Times

via Amazon to build second HQ in North America, seeks proposals from cities for $5B campus with up to 50K jobs, ‘full equal’ to Seattle operations – GeekWire

via Amazon Outgrows Seattle: Opens Search for Second HQ City in North America – CoStar Group

via Amazon Plans Second Headquarters, Opening a Bidding War Among Cities – The New York Times

Four items every tenant should pay attention to before signing a lease.

28722364Landlords and their counsel craft lease language very carefully so they can be creative with respect to which items can be included in the “Operating Expenses”.  It happens all the time. Don’t accept the response that these are industry standard – they aren’t.

“How can we better control operating expense pass-throughs and reduce occupancy costs when negotiating our new lease document?” you ask?   The four items below will provide a little color into some of the pitfalls that unrepresented or under-represented tenants often fall into.

Know Your History

A careful review of the historical operating expenses for the property reaching back at least three years will enable a tenant to compare the operating expenses and their annual increases to comparable buildings to determine whether or not they are reasonable.  This will also help to provide an estimate of what the charges might be in future years so that there are no surprises.

Cover Your Bases

Particular attention must be given to the definition of the base year in any operating expense provision that requires the tenant to pay its pro-rata share of the building/property’s expenses incurred over a base year. We make certain that the tenant has no obligation to pay for expenses during the base year and that the base year variable expenses are subject to a “gross up” to reflect the full amount of operating expenses that would have been incurred had the building/property been at least 95% occupied.

Exclude and Limit

The Operating Expense provision should be negotiated so that only legitimate charges are included and items such as certain capital improvements and compliance with laws are excluded. Landlords typically provide few, if any, operating expense exclusions or limitations in the initial draft of a lease document, so the operating expense provision often becomes one of the hotly contested provisions of the lease document.

Reserve the Right to Audit

Watch out for any provision that makes the landlord’s determination of operating expense charges final. The tenant should reserve the right to audit the landlord’s expenses and to review the landlord’s calculations on a annual basis.

Knowing what is and what is not standard in the industry is half of the battle.  Having a reputable tenant representation specialist who deals with these issues on a day-to-day basis and is continually developing innovative pro-tenant provisions will ensure a careful and thorough review of your lease document.