Real estate for advisory firm owners: ‘Everything is negotiable’

Financial advisers around the United States are taking advantage of the depressed corporate-real- estate market to move into bigger or more impressive office space that they couldn’t have afforded before prices dipped.

Kelly Campbell, chief executive of Campbell Wealth Management Inc., moved his firm 10 miles closer to Washington increased his space by 25%, and designed an office to his specifications with custom floors and flat screens. For the next three years, he will spend less on the rent than he was paying at his old location.

Over the six-year lease, Mr. Campbell will spend the same amount he did for a smaller amount of outdated office space spread over two floors, he said.

“Everything was negotiable in the lease, whereas five years ago in this area, nothing was negotiable,” Mr. Campbell said.

The tenant incentives that were part of the lease also helped seal the deal, including a build-out budget equal to about a year’s rent and the right of first refusal for additional space next door.

The 3,500-square-foot space in Alexandria, Va., allows Campbell Wealth Management to serve clients better and supports Mr. Campbell’s goal of doubling client assets from $300 million and boosting its eight-person staff by three.

Charter Capital Management LLC of Destin, Fla., will move into its new offices in two weeks. The firm is moving across the hall to a space five times larger than what it currently has at about the same cost.

Although the firm has just two advisers right now, the partners intend to hire administrative and marketing help to double its $278 million in assets under management. Charter Capital adviser John Player said the space is currently being built out to its specifications.

“We wanted to grow the firm, and pricing is so good now,” Mr. Player said. “With the prospect of inflation coming down the road, it’s silly to wait. “

TIME TO UPGRADE

“A number of firms over the last year have been able to upgrade their space because rents are down,” said George Tamer, director of strategic relationships at TD Ameritrade Institutional.

He regularly works with firms such as Bedell Investment Counselling LLC in Walnut Creek, Calif., to take advantage of the market. Bedell has $300 million in client assets.

Owner Mike Frazier moved the firm last year to the finest space in its building, added 275 square feet and remodeled the office to his needs, including building a trading pit that he had always wanted. He is paying 40% less in rent for his “penthouse” offices than he was on the floor below.

“We saw an opportunity to upgrade and enhance our office space, while simultaneously cutting rent,” Mr. Frazier said.

Negotiations were very different last year, compared with 2005, the last time that the firm signed a lease, Mr. Frazier said.

In 2005, Bedell was hoping for more-favorable terms as the longest-standing tenant. When he approached the building’s owners with discussions about how the firm saw its future there, they didn’t listen.

“Five years later, they were talking about how much they value our partnership,” Mr. Bedell said.

In fact, the market for buying and leasing office properties was going strong until late 2007, said Robert Bach, chief economist for commercial-real-estate advisory firm Grubb & Ellis Co.

Purchase prices started to fall when the recession hit in 2008, and continued to fall until property values landed about 40% lower than the 2007 peak. Prices have stopped sliding, and the newest and best office buildings have bounced back to nearly where they were before the decline.

Office rents fell 15% to 20% from the 2007 level and began inching their way back only at the beginning of the year, Mr. Bach said.

TENANTS’ MARKET

It is a good time to do a deal, probably better than next year, “unless we drop back into another recession,” he said, adding, however, that there isn’t a great deal of pressure to move too quickly, as vacancy rates remain high.

“Tenants are not stampeding to new lease space,” Mr. Bach said. “It’s still a tenants’ market.”

The better buildings in markets such as New York, Washington and parts of the San Francisco area where technology companies are growing again are seeing a quicker rebound in rents, Mr. Bach said.

Meanwhile, the markets with the greatest rent depressions include Las Vegas, Phoenix, Detroit and parts of Florida.

Financial adviser Casey Mahan had been looking to move his firm, StoneCrest Wealth Management Inc., for five years before deciding to leave downtown Phoenix and buy 2,400 square feet in a building in Chandler, Ariz. He is paying half as much as another owner who purchased similar space in 2007.

Availability in the buildings that Mr. Mahan considered in 2006 and 2007 was limited and very expensive, he said. The firm, which has $70 million in assets, moved into its new building in October.

“Thank goodness we didn’t move earlier,” Mr. Mahan said. “Now it’s almost like if you don’t do it, you feel like you’re going to miss out.”

In addition to boosting square footage by 50%, the space was constructed for the firm with upgraded technology throughout, including a 55-inch monitor in the conference room.

Beacon Financial Partners LLC in Beachwood, Ohio, moved into striking first-floor space in December, saving 15% per square foot, with five months in free rent and other tenant improvements managing partner Gregory Randall thinks wouldn’t have been included before the market softened.

The firm, which has $500 million in assets, had been in its offices for just over three years in 2010 when he asked the owner about expanding.

Beacon ended up picking up about 60% more space, and its executives were thrilled to be on the first floor because it is easier for elderly clients to enter from the parking lot. The firm also appreciates the prominent signage.

“Even if someone isn’t coming to see Beacon, you’re going to see Beacon,” Mr. Randall said.

E-mail Liz Skinner at [email protected].