Stan Voelkel, CEO of Voelkel Commercial Advisors, talks to us about commercial real estate.
Please excuse any typos in this hasty transcript.
Matt Register: Welcome back to the show, Texas Business Radio, texasbusinessradio.com is the website. We’re talking about real estate, commercial real estate. Wherever you operate your business, this is going to affect you. We have some really smart guys in here talking about what the market is doing, and what the … things you need to know as you get ready to perhaps expand, get some more space. Things you need to know to be able to do that smartly. I’m your host, Matt Register. Jay Curry is the co-host sitting over there in the co-host chair. What do you think, Jay?
Jay Curry: Absolutely, this is an interesting topic and it’s one … it’s going to be interesting to see how much technology and other things have changed this, but with the weather and all the things that’s been going on, and Exxon coming in for example to Houston, and the impact, you’ve just got to stay on top of this stuff.
Matt Register: Yeah, no doubt about that. Stan Voelkel is the President of Voelkel Commercial Advisors, which is a Houston-based commercial real estate firm. Stan, welcome to the show, sir.
Stan Voelkel: Thanks for having me.
Matt Register: Talk to me a little bit about Voelkel Commercial Advisors. What do you do? Who do you do it to? As I ask.
Stan Voelkel: Sure. What I do is I do represent tenants or users of real estate, and it’s mostly office or industrial flex space, and some medical, but they’re generally the type of client that I work with. I’m not one that works for the landlord, they’ve get their representatives.
Matt Register: Sure.
Stan Voelkel: I’m an advocate and representative of the actual tenant or user of the space.
Matt Register: Whenever you sign commercial lease space, right, that’s a complex transaction. There’s a lot of things, a lot of moving parts in it, but you’re the guy that can help you figure out the most efficient way to get in there. To keep an eye, look through the documents, make sure they know exactly what they’re signing and where they’re going to be stuck, and make sure that they maximize the value of that opportunity. Is that accurate?
Stan Voelkel: Absolutely, absolutely, absolutely.
Matt Register: There’s a couple things going on in Houston right now, as I’m sure you’re very well aware, right? We have the economy’s dependence on energy and oil and the craziness that’s going on in that business, and the changes going on in that business. And we also have some weather that’s been going on.
Stan Voelkel: Yeah, just a little of that.
Matt Register: So what in the world are we looking at in Houston, Texas with commercial office real estate right now?
Stan Voelkel: Right. Right now you’re looking at historic vacancies. You’ve got the overall vacancy is probably 20% across all classes of commercial real estate, office space. You’ve get some markets that have been really just devastated by the oil and gas industry. You’ve got downtown that’s 20% vacancy, the energy quarter which is where you have all of the big oil companies, 30%, 30% plus.
Matt Register: Wow.
Stan Voelkel: And then you’ve got [inaudible 00:03:08] which you had Exxon move out of there. That’s probably … that’s at about 50% vacancies. So you’ve got some real problems all across the city as far as vacancies.
Matt Register: This happens when the market is good, right, and when oil is hot, and everybody is getting all the space they can get. There’s a mad rush to build.
Stan Voelkel: Yeah.
Matt Register: And they end up over-building, is that accurate?
Stan Voelkel: That’s true, that’s true.
Matt Register: So how do we avoid this boom and bust cycle? I mean, it’s somewhat self-inflicted, right?
Stan Voelkel: Yup, absolutely, absolutely. Let me clarify something, when I talk about there being a problem, it’s actually great for tenants in the marketplace, when vacancies are high.
Jay Curry: Sure, this is the time.
Stan Voelkel: This is the time, if you have a lease that’s going to expire in two years or three years, now is the time to be in the market because there a lot of opportunities. A lot of sublease space, there’s a lot of good deals. But overall from the ownership, they’re having real problems with high vacancy, but it’s a great opportunity for tenants.
Jay Curry: That’s a good point.
Matt Register: So what are the easy… what’s the low-hanging fruit? Say I’m looking for some lease space right now, and I get quoted the retail price, what they’re advertising. What are some of the low-hanging fruit, because of the vacancies that are going on now, that I should maybe expect or hope to get out of that transaction?
Stan Voelkel: Right, that’s a great question. What landlords really want to do is they want to keep the value, the valuation of their building, up. They do that by having high net rental rates. So what they’re often able to do is to give you free things, concessions, we call them concessions. Its free rent, lots of free rent, a lot of bigger TI packages so you don’t have to spend as much, if any, on building out your space. Maybe it’s free parking, free overtime air, things like that. They try … you’re going to get a better rental rate just because the rates have been coming down a little bit, but they really want to keep the value of the building and they’re able to do that by giving you all these other concessions which reduce your overall occupancy cost.
Matt Register: That’s exactly why to bring a commercial real estate guy in, right? Because you’re going to understand everything that they can give you that doesn’t work against what they’re trying … So any time they can give you something that doesn’t really cost them anything, is certainly a benefit, right?
Stan Voelkel: Absolutely.
Jay Curry: The other thing that I think is you’re working on the side of the least educated. I mean, the landlords and their lawyers, they do this every day, that’s what they’re doing.
Stan Voelkel: Absolutely.
Jay Curry: You’re hooking onto the people who are going to lease it and they don’t do this every day.
Stan Voelkel: That’s true.
Jay Curry: They need the … what types of things specifically do you have to get into to really help them, that they’re just not into?
Stan Voelkel: The main thing is just for them to understand some process. There’s a lot of education involved, because like you said, tenants aren’t doing this every year.
Jay Curry: Sure, that’s right.
Stan Voelkel: They’re doing this every three years, five years, seven years, ten years. So it’s a very unusual event for them. So it’s really … you’ve just got to understand it’s a process, it takes time. One of the worst things a tenant can do for themselves is not start early in the process. So I’m working with a client right now that we’re a year out from his lease expiration, and we’re starting the process. It’s not a big deal, but if it were a really big deal, you’d want to start even earlier. Because the less time you have means the less leverage you have against a landlord or a group of landlords, that you may be trying to find a space for.
Matt Register: Sure, now talk to me about timeline a little bit, because say for instance I have a company, we have some lease space. I am contemplating either re-upping my current lease or moving somewhere else. What is the right time to call you? Is that a year out?
Stan Voelkel: I absolutely think it’s a year out. Even if you want to stay, because really what you want to do is even though you tell me, “100% I want to stay,” you want to actually go to the market.
Matt Register: And look at Plan B, right?
Stan Voelkel: You always want a Plan B, but you want to go to the market because you want to create leverage against your landlord. The landlord knows how expensive it is to replace you, but they also know if you don’t have any time to go and look, and find space and move-
Jay Curry: That’s to their advantage.
Stan Voelkel: They’ve got you.
Jay Curry: Yeah.
Stan Voelkel: So they’re not going to be as willing to give you a good deal. It’s the leverage that really creates the opportunity to get the best possible deal, and time is on your side, times is your friend.
Matt Register: Yeah, but … and a year is enough time to be able to do that, to be able find a couple of alternative options, then go your current landlord and … because there is a cost of moving, right?
Stan Voelkel: There is.
Matt Register: There is a cost associated with picking up and … if nothing else than just disruption, right?
Stan Voelkel: Yup.
Matt Register: But there is a point at which that to re-up the lease … the cost to re-up exceeds the cost to move.
Stan Voelkel: Right.
Matt Register: But you think a year is plenty of time to be able to get that information [crosstalk 00:08:09]?
Stan Voelkel: Once again, depending on size. If it’s probably a floor or less, a year is probably … I’d probably even start a little bit earlier than that, like maybe 18 months of something like that, but once you get to a year point, you’re really … things take time. They just take time. It takes time to go look for space. It takes time to have space test-fitted. Then trading paper with lawyers, it just takes a lot of time, so a year is really a good time if you’re not a huge company. If you’re big company, like I said, you want to start even earlier.
Jay Curry: If you could project even two or three years out, that would be even perfect. I’m not talking about just moving into some space, but if you wanted to do a building or get some land, to give you time to really go out there and search around-
Stan Voelkel: Right.
Jay Curry: The more time you have to do that, the better.
Stan Voelkel: Absolutely, yeah. If you’re talking about buying land and building a building, it’s a totally different timeline. So it’s much longer.
Jay Curry: Sure.
Stan Voelkel: So identifying property, making sure it suits your needs, and then you can build the right type of building on it, it takes time. So you want to start that process even earlier, but for a lease I’d say minimum of a year. It’s like I say, you run out of time, your landlord’s not going to be real friendly about it.
Matt Register: I tell you what, being on the side of the company doing the lease, of the company leasing some space, I’m telling you, this is a complex deal that if you’re not in that business, you have no business doing this by yourself.
Stan Voelkel: Absolutely.
Matt Register: Because they will have you tricked five different ways and you will have no idea until it’s …
Jay Curry: You need a professional.
Matt Register: That’s exactly right. Stan Voelkel is the President of Voelkel Commercial Real Estate. I want to thank you very much for joining us. Very quickly, what’s the website?
Stan Voelkel: Voelkelca.com, www.voelkelca.com.
Matt Register: Voelkelca.com, we’re going to have a link right there from Texas Business Radio. We do have to go take a break, we’ll be back right after this with more commercial real estate.
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In addition to hosting "Texas Business Radio," Matt is an investment banker and serial entrepreneur from Montgomery, Texas. He is the owner of RREA Media and Register Real Estate Advisors and a Managing Director and Principal at Corporate Finance Associates. He has a BS from the United States Military Academy at West Point and an MBA from Rice University in Houston. You can read more about Matt HERE.