Corporate Facilities“CFO’s Perspective”

Dean Newman and Jamie Grossman

Why Real Estate is Importantto Financial Executives

Top Expense Item After HR

Large Financial and Term Commitment

Impact on Employee Attraction,Productivity, Development andRetention

Agenda

Metrics

Trends

Pitfalls and Avoidance

Landlord vs Tenant Perspective

1

2

3

4

Measuring Success

How do you measure success?

How Do You Measure Success?

Traditional KPI’s

Annual Changein

Real Estate Spend

Rent Per SFPer FTE

Rentas a % ofRevenue

Rentas a % of

Total Expenses

How Do You Measure Success?

Or Is It This?

Useable AreaRentable Area

Year / YearProductivity

Gain

UtilizationRate

Absentee RateYear / Year

Years to FillVacancy

(based on AverageAnnual Employee

Growth)

Vacant OfficesTotal Offices

A Team Sport

CEO /OWNER

HR IT

CFO

Space Utilization

DECREASING SPACE PER EMPLOYEE

1,000 Square Feet

2000 2020 (Projected)

Generational Demographics

Multiple Priorities

Utilization/Efficiency

Issues & Trends

Wellness

ROI/Performance

Attraction &Retention

Collaboration

Brand/Culture

SustainabilityTechnology

Generations

Ergonomics

AlternativeWorkplace

Current Utilization

A Range of Spaces Support Different Modes of Work

FOCUSINGCOLLABORATINGLEARNINGSOCIALIZING

Source: Steelcase Applied Research

Cost Driven Model v. Human Resources Driven Model

Sustainability

� LEED becoming the standard for corporate office buildings

� New energy standards are part of OBC

� Premium between .5% to 4%. Depends on where you start andwhere you want to end up.

� Increased productivity difficult to quantify - estimated at 5%.

� Where is most significant impact?

Utilities Rent HR$3.00 PSF $30.00 PSF $300.00 PSF$0.15 $1.50 $15.00

5%Productivity

Gain

Pitfalls

Space Measurement

Improvement Costs

Lack of Time and Process

Viewing Real Estate as a One Time Event

Conflict of Interest

1

2

3

4

5

The Most Expensive Space

THE SPACE YOUDON’T USE!!

Workspaces35%

Functional Space- 20%

CirculationSpace - 30%

Gross-Up- 15%

Rentable Area - 100%

BOMA Measurement

If you Need 10,000 SF Useable -What Do You Pay For?

BUILDING A

BOMA 1980

Gross Up 10%

11,000 SF Rentable

Gross Up 18%

11,800 SF Rentable

BUILDING A

BOMA 1996

+ 7.2%!

Landlord vs Tenant Work

TypicalTenant Inducement

$30.00 - $40.00 PSF

TypicalTotal Cost

$50.00 - $60.00 PSF

Plus, Plus

Construction

Communications Cabling

Design & Engineering

Project Management

Relocation

Landlord Fees

Permits

$40 PSF

Other Costs = $20 PSF

Mismanaging Time & Process

NeedsProgrammingDemographicsAmenitiesLocationVoice/DataBudgetImage

CLARITY OF VISION

Market StudyToursFeasibility PlanningLandlord RFP’sFinancial AnalysisOffer NegotiationLease Negotiation

PlansPermits

ConstructionScheduleBudgetConsultantsVendorsVoice/DataContractor

Move In

LEASE EXECUTION CREATE THE ENVIRONMENT

STRATEGICFACILITIES PLAN

TRANSACTIONMANAGEMENT

PROJECT MANAGEMENT /DESIGN/RELOCATION

Concept Occupancy

TypicalFocus

Timeline

Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

PHASE 1Needs Analysis

Phase II -Site Selection

Phase II -TransactionManagement

3 - 4 Months

3 - 4 Months

3 - 4 Months

Phase III -Project Management

4 - 6 Months

Total Time Required: 12 - 18 Months

Conceptual Alternatives

Strategic

Active

ConstrainedBegin now to assessneeds and evaluate

options

1 - 2 YearsFrom Expiry

Less than1 Year

From Expiry

Broker Conflict

Office Square Footage

Millions represented by brokersfor landlords in GTA

How Do You Measure the Best Deal?

Cost of Stayingvs Moving

Net EffectiveRent

The Landlord’sOpportunityCost

Landlord Net Effective Rent Calculation

DEAL A DEAL B

Face Rate (psf) $25.00 $25.00

Additional Rent (psf) $20.00 $20.00

TI Allowance (psf) NIL (“As Is”) $35.00

Other Inducements(Free Rent) NIL 6 Months Gross Free Rent

Gross Rent (psf) $45.00 $45.00

Landlord NER $25.00 $16.51

Landlord Indifference

=

NPV = $897,229 NPV = $897,229

SCENARIO A - TENANT RELOCATES AT EXPIRY

Area: 10,000 SFTerm: 10 YearsLease Rate: $25.00 PSFLandlord Vacancy Loss: 14 Months

(85% of Add’l Rent)Improvement Allowance: $35.00 PSF

SCENARIO B - TENANT RENEGOTIATES AND EXTENDS

Area: 10,000 SFTerm: 10 YearsLease Rate: $13.34 PSFLandlord Vacancy Loss: $0

Improvement Allowance: $0

Tenant Value Versus Landlord Profit

LeaseFlexibility

OperatingExpenseExclusions

Right SizeThe Space

Energy

Insurance

TenantImprovements

Rent

Real EstateStrategy

ConstructionManagement

Fee

BaseBuildingCase

TaxationStorage /

Documentation

CreativityInnovation

AWS

ValueEngineering

&Integration

BusinessPlan

Summary

Measure Your Success - KPI

Beware of Trends - No One Solution Fits All

Disciplined Option Analysis

Don’t Wait Until Lease Expiry

USE A TENANT ADVISOR!

Contact Us

Dean NewmanPrincipalBroker of Record

T 416.862.2666 Ext. 226E dnewman@cresa.com

Jamie GrossmanManaging PrincipalBroker

T 416.862.2666 Ext. 233E jgrossman@cresa.com