Managing Office Expense in a Turbulent Economy

By: Scott Stone, Aegis Realty Partners, Inc.

Our economy is in arguably the most challenging time since the Great Depression. Each day the newspapers bring more bad news. Companies as large as GM or AIG to as small as the local florist or neighborhood restaurant are being affected and are having to make adjustments to survive this downturn. Law firms are making dramatic changes as well. Layoffs, salary changes and in some cases departure of the firm completely are commonplace.

Sometimes with despair comes opportunity. After salaries, office rent is more than likely the next largest expense item on a law firm's books. I am hoping to shed some light on the opportunities that exist in today's commercial real estate market for law firms hoping to trim their overhead without trimming staff or attorneys.

First, as a matter of background, I have been an active tenant representation commercial real estate broker in the East Bay for the past twelve years.

I have worked with dozens of law firms on lease renewals, physical relocations and renegotiations. I have worked through a similar downturn after the dot com crash and I feel there are some significant parallels and opportunities that can be related to today's market.

'Numbers don't lie'

Vacancy for Class A office space in San Francisco, Oakland and Walnut Creek/Pleasanton currently range between 13%-16%. These vacancy rates have risen year-to-year at least 15%. The outlook moving forward is more than likely less dramatic, potentially increasing another 5% or so. However, activity and net absorption in the market is off significantly. In time, this will result in rental rates declining. Some premier downtown locations have held their rates fairly firm (5%-10% year-to-year decrease). However, the outlining markets have been hit the hardest (20%-30% decrease).

Our forecast for the remainder of 2009 and moving into 2010 is that aggressively priced sublease space will continue to drive the market's activity and that landlord's will progressively lower their rents and negotiate more flexible deal terms to meet the demand.

'Flexibility'

In order to keep up with a falling economy, landlords are 'stretching' to make, or renegotiate deals. Many law firms have been successful in renegotiating leases with substantial term remaining. Outside of rent, firms have been able to negotiate a reduction in square feet leased, an adjustment in expenses passed through, and additional tenant improvement dollars. The success of these types of renegotiations is largely tied to term remaining on the current lease. Our experience has shown that tremendous flexibility can be achieved up to eighteen to twenty-four months prior to lease expiration.

'Relocation'

The most aggressive deals in the market are being made with tenants that are willing to relocate. There is an abundance of sublease space on the market that often offers a tenant both a private office intensive build-out and might also include phone systems, office furniture and computer wiring. Typically, furniture, fixtures and equipment are at a tenant's expense, but in the case of these subleases, these are often included in the deal, making it a truly "plug and play ". Free rent has also become a highly effective negotiating too. It is not unusual to see six to twelve months of rent free occupancy included in deals that are five years or greater in term. Recently, we have negotiated parking in downtown office buildings at either a large discount or in some cases, free. All of these factors add up to significant overhead savings for the typical law firm.

The commercial real estate market ebbs and flows with supply and demand. The office market is currently in the low point of a cycle and it looks like this low could stretch for at least the next eighteen to twenty-four months. The specific data points to any one deal are uniquely relevant to each tenant's situation, creating fantastic opportunities for law firms to capitalize on this timing. It is prudent to understand where your firm currently stands in relation to the rest of the market, and to explore the possibilities, whether the ultimate goal is to stay and renegotiate, move to a new location or to re-evaluate current lease terms.

Scott Stone is a Director with AEGIS Realty Partners in Oakland, California. AEGIS is a comprehensive real estate services firm that provides a full range of brokerage and advisory services.

Aegis Realty Partners, Inc.
Scott Stone
130 Webster Street, Suite 200
Oakland, CA 94607
(510) 273-2003
scott@aegisrealty.com

President's Message

With every April comes change… The days get longer with the onset of daylight savings time, the flowers begin to bloom – along with the dreaded allergies–and a new EBALA Board of Directors begins its term for the 2009-10 year.

After joining EBALA in 2006, I remember attending my first EBALA event –- Morning in the East Bay – where one of the speakers was our own Region 6 Director, Judith Hissong. Following her upbeat and motivating presentation, I couldn’t help but be enthusiastic about the many professional and educational opportunities that ALA and, more specifically, EBALA, presented to their members and I found myself volunteering to become a Member-at-Large before I could even get out of the parking lot! Never did I imagine that only three years later, I would be asked to serve as President and help guide your Board of Directors and the entire membership during such challenging times. Although there may still be more difficult days ahead, I am confident that your new Board has the knowledge, energy and persistence to assist me in providing the necessary professional and educational tools to help support our members and furnish them with an opportunity to excel in their profession.

The following members have committed their time and energy to provide support during 2009-10: Margot Canapa, President-Elect, Trina O’Brien, Secretary; Elizabeth Kohlman, Treasurer; Annette Neuhart, Membership; Alice Wiley, Vendor Relations; Stacey Bales and Nancy Baker, Program Co-Chairs; Terri Tully Puryear, Newsletter; Mary Balistreri and Lorie Gehrke, Web/Communication Co-Chairs; Lorie Gehrke, Past President; Sheila Garvey, Past President’s Council and our Members-At-Large, Gloria Kennard, Patricia Cooper, Kathryn McCarthy and Rachel Estes.

Your Board members are already hard at work brain- storming and planning our educational programs for the year as well as putting the final touches on our new web-site that includes an “E-group” feature which allows all members to “network” and exchange ideas regarding day-to-day issues and possible solutions.

We are very excited about our plans for this year, but we need your help. Among many others, one of the most important goals I would like to accomplish during my tenure is to increase member involvement. Remember, the Board is just the “navigator” in this professional journey and you, the members, provide the “engine” to achieve our goals. I invite and encourage all of you to become involved and take advantage of the opportunities that your membership in EBALA offers.

I am excited to be your 2009-2010 EBALA President and look forward to a successful year. Remember, don’t be a stranger – everyone has something to offer!!

Linda Brady
EBALA President
Craddick, Candland & Conti

Ask EBALA: Members Helping Members

On March 25, 2009 member Cynthia Bates asked:

“Are any of you using a payroll software to produce payroll? If so, what software? If not, what payroll service are you using?”

Out of 22 responses, only one member is currently doing payroll in-house, using QuickBooks Pro with a payroll of 30.

The services used by the other 21 members are:

• ADP: 12 (One member also uses the EZ Labor of a time clock system from ADP to track time, attendance and paid time off)
• Paychex: 5 (One member also uses Paychex to administer their 401k and FSA Plans.)
• Payroll Systems 1
• E-Chex: 1
• Prime Pay: 1
• IBS: 1

# In general most people seemed pleased with their current services, although there was some dissatisfaction expressed by two members currently using ADP, and one who formerly used Paychex.

Member Spotlight: Elizabeth C. Kohlman

Elizabeth C. Kohlman
Firm Administrator
Shapiro Buchman Provine, LLP

I was born and raised in the Outer Mission area of San Francisco. My parents were born and raised in Nicaragua. My father was the only child (out of thirteen) that immigrated to the United States. My mother’s family, however, all immigrated to the United States. My mother has four sisters – all of them except one moved to San Francisco. My early childhood memories are filled with celebrations and parties galore. My parents have pictures of all the many celebrations for each significant event – and there were many! San Francisco will have my heart forever, but Alamo, CA is the beauty and sunny delight I never experienced growing up in the foggy depths of San Francisco. Who knew that there was sun all day long outside of our world in San Francisco?

I have been married for twenty one years and I have known my husband, Daniel for almost thirty years. Daniel and I were married in Sausalito and bought our first itsy bitsy Spanish Mediterranean home in Albany, CA. We had views from our bedroom balcony of San Francisco and were close enough to the bay to see the fog rolling into the East Bay. We left Albany ten years later with children in tow. We have two teenagers, Matthew, age 17 and Lauren, age 15. Both are attending San Ramon Valley High School in Danville. Matthew is our intellect in the family and Lauren is our sports fanatic. My husband, Daniel works at McKesson in San Francisco and has enjoyed working in corporate real estate most of his career.

I have been a Legal Administrator for almost twenty years for three small to mid-size law firms. I enjoy the challenges my multi disciplinary position provides and the diversity of people I interact with on a daily basis. I will be celebrating my ten year anniversary at Shapiro Buchman Provine this June and am grateful to be working with a caring group of individuals. I am pleased to now be a part of the EBALA family and look forward to working with a great group of professionals.

In my spare time (ha, ha), after being a Mother and a Legal Administrator, I enjoy working out, gardening, walking on the Iron Horse Trail and having friends over for a barbeque.

Community Challenge

ALA’s 11th annual Community Challenge Weekend dates are October 16-18, 2009!

Various organizations and communities are challenged on a daily basis - trying to obtain the resources they need to help people and further their cause. As we know, the un- fortunate are also challenged - they often lead a life that not many can relate to and it's a challenge for them to receive the emotional, physical and financial help they need to get through the day.

To help those in need tackle their every day challenges, ALA created its Community Challenge Weekend program in 1999 where it encourages ALA chapters, its members, firms, vendors, relatives and friends to come together to contribute time, energy and resources toward improving their own communities.

If you have any organization you would like to suggest for EBALA's Community Challenge this year or for future years, please contact any board member.

ALA's Job Bank

ALA Management Connections^SM is an online job bank that connects law firms, corporations, governmental agencies and similar professional service organizations with prospective candidates for nonlawyer positions. The job bank service offers two convenient ways to link employers to potential employees:

Employers can advertise position openings and search through online résumés to find qualified candidates.

Legal administrators and legal support staff can post their résumés online in either a public or confidential manner. Job Seekers also have the ability to search through job advertisements placed by employers.

Advertising Information

For advertising information, please contact:

Terry Tully-Puryear
510.625.9700

The EAST BAY VIEWS is published quarterly to provide information for the education and benefit of legal administrators, law office managers, managing partners of law firms and corporate law departments, and others interested in law firm management. The East Bay Chapter of the ALA is not engaged in rendering legal, financial or tax counseling through this publication. No statement in this newsletter should be interpreted as legal, financial or tax advice.

Any articles, letters or advertisements published in the EAST BAY VIEWS should not be considered an endorsement by the East Bay Chapter of the ALA of the opinions expressed therein or any product(s) advertised. Contributing authors are requested and expected to disclose financial and/or professional interests and affiliations which may influence their writing position. All advertising is subject to approval by the Editor. Advertisers assume liability of all content of advertisements printed and assume responsibility for any claims based upon subject matter.

Copyright © 2004 by East Bay Chapter of ALA International. “All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the Association of Legal Administrators.”

Requests for permission to reprint any part of the publication should be addressed to:

Permissions
Association of Legal Administrators
c/o Terry Tully Puryear
Beeson, Tayer & Bodine
1404 Franklin Street, Fifth Floor
Oakland, CA 94612