Global office Occupier Guide 2011

Transcription

1 Global office Occupier Guide 2011 CB RICHARD ELLIS Global research and consulting By George Relyea Nick Axford Richard Holberton Andrew Ness Kevin Stanley Raymond Wong

2 Global office Occupier Guide 2011 CB RICHARD ELLIS Global research and consulting US$ 495

3 FOREWORD February 11, 2011 We are pleased to bring to our clients the 2011 edition of the CBRE Global Office Occupier Guide. Real estate leasing practices can differ significantly from country to country, and individual leases can be challenging to understand, negotiate and execute. We have prepared this reference guide on worldwide leasing practices to help mitigate that complexity. Preparing such a guide on a global scale was originally the brainchild of George Relyea, and we are thankful for his dedication to this project and for the diligence of his work. The Global Office Occupier Guide would not be feasible, however, without the efforts of many CBRE professionals worldwide, who provide us with the important details of leasing practices in their respective markets. Also crucial to the guide is the leadership and project management of the regional Research heads. Our sincere gratitude to our Global Research team Richard Holberton (EMEA), Nick Axford and Andrew Ness (Asia), Kevin Stanley (Pacific) and Raymond Wong (Americas) and their respective colleagues. Finally, we ask clients and CBRE professionals to contact us if we can assist you in any way. We welcome suggestions for improvements and thoughts for other reference documents as we aim to meet the needs of our clients around the world. Raymond Torto, CRE, Ph.D. Global Chief Economist Karen Ellzey Executive Managing Director Global Corporate Services

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5 Americas Canada & USA Canada... 3 United States... 8 Manhattan...15 Latin America Argentina...18 Brazil...22 Chile...26 Colombia...30 Mexico...35 Panama...38 Peru...42 Venezuela...47 EMEA Austria...52 Bahrain...56 Belgium...59 Czech Republic...63 Denmark...67 Finland...71 France...75 Germany...81 Ghana...86 Greece...90 Hungary...95 Ireland...99 Israel Italy Kazakhstan Luxembourg Morocco Netherlands Norway Poland Portugal Romania Russia Serbia Slovakia Spain Sweden Switzerland Turkey Ukraine United Arab Emirates United Kingdom Asia Pacific Australia New Zealand China Hong Kong India Japan Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam CB Richard Ellis, Inc.

6 Americas Canada & USA Canada... 3 United States... 8 Manhattan Latin America Argentina Brazil Chile Colombia Mexico Panama Peru Venezuela CB Richard Ellis, Inc.

7 Canada GREENLAND CBRE OFFICES Calgary Saint John s Americas Edmonton Toronto North Halifax Toronto West London Vancouver Vancouver Edmonton Calgary U. S. A. CANADA Winnipeg Kitchener London Ottawa Toronto Oakville Windsor St. John Montreal Halifax St. John s Montréal Oakville Ottawa Saint John Waterloo Region Windsor Winnipeg LEASE LENGTH Term The lease term is negotiable and can be for any length. A term of 5 10 years is most common. Large tenants often negotiate terms of years with specific rights for renewals, for expansion, and for input on specific operating issues. Termination No right to terminate (break) or extend exists unless included in the lease. Termination options are not typical. When included they often provide for a penalty payment or termination payment if exercised. Renewal An option to extend usually includes a provision for determining fair market value, which may be subject to arbitration in the event of a disagreement. SPACE MEASUREMENT Definitions While Canada is officially a metric country, office space is measured in square feet, except for government leases. 1 square foot = square meters; 1 square meter = square feet. Rentable Area: Landlords usually quote rentable square feet, with washrooms and other common areas allocated to each space leased, so that the rentable square footage exceeds the usable square feet. Usable Area: Most landlords measure usable area using the BOMA (Building Owners and Managers Association) Method. Carpetable Area: Space planners normally measure the net usable area, sometimes called carpetable area, which is the floor area of space occupied exclusively by the tenant. It excludes primary circulation (space between elevators and tenant space) and excludes space occupied by washrooms, exterior walls, and convectors. 3 CB Richard Ellis, Inc.

8 Canada Gross-Up Factor: In Canada, the term gross-up factor has the same meaning as loss factor in the U.S. Rentable Area Usable Area Gross-Up Factor = - Rentable Area Efficiency Gross-up factors vary from location to location. Toronto: The gross up factor depends on which BOMA standard the landlord uses. Older buildings generally use BOMA New ones use BOMA The gross-up factor can vary from a low of 5% for a full floor tenant under BOMA 1980 to as high as 20% for a multi-tenant floor under BOMA Vancouver: 12 18% is typical. Calgary: 15 20% is typical. Montreal: 13% is typical. occupancy COSTS Definitions Gross occupancy cost = rent + operating costs + taxes + hydro. The term hydro means electricity used in the tenant s premises. The term gross rent is rarely used in Canada. When used, it has the same meaning as gross occupancy cost, but unlike in the U.S., it includes the cost of electricity. Rent Recent Rental Rates: Please visit CBRE s Global Knowledge Center: Rent Quoted: Landlords quote Base Rent in Canadian dollars (CAD) per rentable square foot per year. Net Rent: In most Canadian cities, rent is expressed as net, not gross, rent. Net rent excludes operating costs, real estate taxes, building insurance and utilities. Rent Payable: The tenant normally pays rent monthly in advance. Rent Increases: Leases may include negotiated increases over the lease term. Operating Costs The landlord estimates operating expenses at the start of each year. The tenant pays operating costs monthly, along with the rent, based upon these estimates. The landlord reconciles actual costs at year-end, then charges or credits the tenant based on final totals. The landlord typically amortizes capital improvements using generally accepted accounting practices. The tenant may have the right to review the landlord s summary statements and supporting documents. Taxes Property Taxes: The tenant typically pays a proportionate share of property taxes assessed against the building or development. If the assessed taxes are not final at the start of a lease year, the tenant pays them based upon the landlord s estimates, and the account is reconciled at year-end. Goods & Services Tax (GST): This is equivalent to VAT in other countries, and applies to all rental amounts payable to the landlord. GST is 5%, effective January Provincial Sales Tax (PST): Some provinces charge PST additionally. Harmonized Sales Tax (HST): A few provinces combine GST and PST into an HST. Utilities The tenant pays for electricity (known as hydro) and all other utilities to operate the premises. The landlord uses one of three methods to calculate the electricity charge: (1) Proportionate share: the landlord charges for electricity per rentable square foot. (2) Direct meter: the tenant pays the utility company directly, based on an electric meter. (3) Submeter: the landlord buys the electricity from the utility company. The tenant pays the landlord, without a mark-up, based on the landlord s meter. Some landlords provide suite/floor specific metering. 4 CB Richard Ellis, Inc.

9 Canada Tenant Improvements Landlord Work: The landlord normally pays for base building improvements such as suspended ceilings, ceiling lighting, HVAC distribution, sprinklers, and common washrooms. Tenant Improvements: The tenant pays for its own improvements including hard costs (construction) and soft costs (architect, engineers) for the tenant work. For small installations, the landlord usually handles the design and construction. For space not in move-in condition, the landlord normally provides an allowance. For larger installations, the tenant normally hires an architect or designer and a contractor. Landlords require pre-approval of the contractor and may direct the tenant to select from a short list of approved contractors. Landlords typically charge for the review of the design documents and require some supervisory rights over the improvement work. Tenant Improvement Costs: Costs in CAD per square foot for Class A or Prime buildings are as follows: In Toronto, Montreal, Ottawa, Halifax, and Winnipeg: tenant construction: CAD ; furniture: CAD 30 60, IT wiring: CAD 4 10, design and engineering: CAD In Calgary, Edmonton, and Vancouver: tenant construction: CAD 60 80; furniture CAD 30 60; IT wiring: CAD 3 20; design and engineering: CAD Americas Security Deposit and Guarantees Typically, a security deposit can be either cash or a letter of credit. A tenant with a strong credit rating may provide the equivalent of 0 2 months rent as security. A startup company may have to provide 3 6 months rent. When security is a cash deposit, either the landlord or the tenant receives the interest on it, as negotiated. Restoration Tenants often negotiate the restoration obligations. Specialized leasehold installations generally have specific restoration obligations. Incentives Incentives are negotiable, and may include one or more of a tenant improvement allowance, free rent, move allowance, takeover of rent at previous building, and allowance for furniture. A large tenant may negotiate the right to name the building. TRANSACTION COSTS Brokerage Commissions The landlord or sublessor pays the commission to the broker who represents the tenant and a listing fee to the broker who represents the landlord or sublandlord. In most Canadian cities, the landlord pays the tenant s broker a commission calculated as a flat fee per square foot per year at a rate determined by industry standard, which vary by city. Sometimes the commission is calculated as a percentage of the rental amount over the term of the lease. Commissions to the tenant s broker in larger cities range between CAD per square foot per annum. Legal Fees The landlord pays its lawyers to prepare and negotiate the lease. The tenant pays its lawyer to negotiate the terms. other LEASE PROVISIONS General Toronto and Vancouver: Standard tort and contract laws apply. Montreal: There are specific Articles in the Quebec Civil Code relating to real estate, starting at article Calgary: Alberta Real Estate Act applies. Standard Lease Contract Toronto and Vancouver: Each landlord has its own standard lease. Montreal: There are standard offers to lease, but landlords normally use their own leases. 5 CB Richard Ellis, Inc.

10 Canada Right to Sublet Subletting (subleasing) is the most common way to dispose of unneeded space. Typically, the landlord agrees and sets forth in the lease agreement not to withhold or delay consent unreasonably. The landlord may retain some or all of the following rights: to approve the subtenant, to recapture the space, to impose conditions such as limiting the number of subtenants, exclude certain business uses, and impose financial and operational restrictions. Option to Expand This is a negotiable clause in the lease, especially for large tenants with long-term leases. Right of First Refusal This is a negotiable clause in the lease that provides the tenant the right to secure additional space that may come available during the term of the lease. Late Delivery by Landlord This is negotiable. In Montreal, a typical fee is one month of free rent for each day the landlord is overdue. Holdover by Tenant Negotiable. Signage and Naming of Building Exterior signage may be negotiable. Naming the building may be negotiable, especially for large long-term tenants. Other Lease Provisions Negotiable. OFFICE LEASING MARKETS General The Real Estate Business Brokers Act, with provincial governing councils and local real estate boards, regulates the real estate industry. Tenant representation is well developed in Canada. Tenants typically engage a broker for real estate transactions, including major renewals. Landlords utilize in-house staff or engage brokers to represent them. Large brokerage firms often have separate teams representing the tenant and the landlord. Following an unconditional acceptance of an offer to lease, the tenant delivers a security deposit (usually equivalent to two months rent), which may be applied to first rent due or the first month s rent, and the balance is held as a security deposit for the term of the lease. If the parties do not execute the lease, the security deposit is normally returned to the tenant, as most agents would provide for this. When the offer is complete, the landlord s real estate lawyer prepares the lease. In some markets, and with large corporate tenants, landlords negotiate with leases that the tenant provides. The tenant s real estate lawyer and the broker review and negotiate the final lease terms with the landlord. When both sides have agreed on all terms, the landlord s lawyer prepares execution copies for signature. An offer can be binding. The tenant engages a broker who negotiates the business terms with the landlord, and summarizes the terms in an Offer to Lease or a Proposal Letter. If both parties execute the offer, it is legally binding, unless the offer states that it is conditional upon subsequent negotiation of a lease and additional due diligence criteria. Transparency Lease and sales transaction data and other market information are available to tenants through leading brokerage firms like CBRE. Professional real estate providers generally know the deal terms and landlord concessions of recent completed deals, and are willing to share this information with clients they represent. Building Classification Class A: High-quality buildings with high-quality finishes, state-of-the-art systems, and excellent accessibility. The very best buildings are sometimes called trophy buildings. Class B: Average quality buildings with average rents. Building finishes are fair to good. Systems are adequate. Class C: Buildings of below-average quality and below-average rents. 6 CB Richard Ellis, Inc.

11 Canada FOR MORE INFORMATION CB Richard Ellis, Canada Kim Mercado National Director of Research kim.mercado@cbre.com Americas About CBRE Canada: For CBRE Canada Research: 7 CB Richard Ellis, Inc.

12 UNITED STATES Seattle Bellevue Kent Tacoma Spokane CANADA Portland Portland Sacramento Fresno Reno Oakland San Francisco Stockton Palo Alto Pleasanton San Jose Bakersfield Las Vegas Los Angeles Commerce Ontario Anaheim Corona Newport Beach Temecula San Diego Indian Wells Salt Lake City Phoenix Tucson Denver Albuquerque U.S.A Manchester Minneapolis Appleton Grand Rochester Syracuse Albany Boston Rapids Buffalo Milwaukee Hartford Providence Madison Lansing Portsmouth Detroit Bannockburn Stamford New Haven Chicago Toledo Saddle Brook Des Moines Schaumburg Edwardsburg Cleveland Oak Brook Harrisburg Goshen Omaha Akron Pittsburgh Fort Wayne Columbus Tysons Corner Baltimore Indianapolis Cincinnati Washington D.C. Charleston Bethesda Kansas City Louisville St. Louis Richmond Norfolk Oklahoma City Dallas Tulsa La Porte Memphis South Bend Warsaw Nashville Atlanta Greensboro Charlotte Columbia Raleigh Charleston Long Island New York East Brunswick Philadelphia El Paso ALASKA Austin Houston Jacksonville Orlando Maui Honolulu HAWAII MEXICO San Antonio Clearwater Tampa Palm Beach Boca Raton Fort Myers Fort Lauderdale Naples Miami Atlanta Dallas MAJOR CBRE OFFICES Houston New York Boston Denver Los Angeles San Francisco Chicago Detroit Miami Washington, DC LEASE LENGTH Term A lease can be of any length. Five to ten years is most common. Three years is common for small transactions, especially when the tenant requires minimal renovation to a previously built space. Large transactions are often for 15 years or more, especially when a tenant requires substantial fit-out (build-out). Tenants with long-term leases often protect themselves with expansion, extension, and even contraction rights in the lease documentation. 8 CB Richard Ellis, Inc.

13 United States Termination The tenant has a right (option) to terminate (break) a lease only if included in the lease. Termination options usually provide that if the tenant exercises its option to terminate, the tenant will reimburse the landlord unamortized costs, including fit-out, incentives, and fees, and sometimes pay additional financial penalties. Renewal An option to extend or renew may be negotiable. A renewal option usually provides for a revised base rent, such as 95% of fair market rent. Most leases specify how to resolve disagreements as to market rents. Americas SPACE MEASUREMENT Definitions Rentable Area (Rentable Square Feet, RSF): The landlord quotes the amount of space on a rentable square foot basis. One square foot equals square meters. The rentable area typically includes the usable area within the tenant s premises plus an allocation of common areas of the building. Usable Area (Usable Square Feet, USF): The usable area is the amount of space that the premises occupy, although measurement results depend on the measurement method used. Landlords in most U.S. cities use the BOMA (Building Owners Management Association) method of measurement to determine the usable and rentable areas. In New York City, landlords use the Real Estate Board of New York (REBNY) method of measurement to determine the usable area. Net Usable Area (Carpetable Area): Space planners often refer to the net usable area (carpetable area), which is the floor area of space occupied exclusively by the tenant, excluding required washrooms, excluding the area occupied by exterior walls and convectors along windows, and excluding primary circulation, i.e., the corridor and elevator lobbies outside of the tenant s space. Load Factor: A pro-rata space allocation for building common areas, lobbies, hallways, washrooms, vertical penetrations, etc. Rentable Area Usable Area Load Factor = AddOn Factor = Core Factor = - Usable Area Loss Factor: The percent of the rentable area that is not usable. A loss factor of 20% means that 20% of the rentable area is not usable area, or in other words, the usable area is 80% of the rentable area. Rentable Area Usable Area Loss Factor = - Rentable Area Efficiency Load and loss factors depend upon floor size, amount of common areas within a building, floor configuration, and measurement method. Multi-tenanted floors may have higher loss or load factors than single-tenanted floors. In most of the U.S., load factors are generally in the 12 15% range. Manhattan load factors are at least 25% for full floor tenants, and are usually higher in newer buildings. In San Francisco, 12 15% is common, but buildings built prior to1967 and after 2000 tend to have higher factors of 18 25%. 9 CB Richard Ellis, Inc.

14 United States OCCUPANCY COSTS Definitions Rent Quoted: Rent is usually quoted in U.S. dollars per rentable square foot per year; however, in several Pacific Coast markets, rent is quoted in U.S. dollars per rentable square foot per month. Gross Rent: The tenant normally pays rent on a gross basis. Gross rent includes a tenant s proportionate share of base year operating costs (common area utilities and cleaning, management fees, etc.), real estate taxes and property insurance. The tenant pays its proportionate share of any increases each year. Net Rent: Occasionally, the tenant pays rent on a net basis, also known as triple net rent. Net rent excludes operating costs, real estate taxes, and property insurance. The landlord bills these costs to the tenant in addition to the net rent. Generally, single tenant office buildings charge net rent. Rent Recent Rental Rates: Please visit CBRE s Global Knowledge Center: Rent Payable: The tenant normally pays rent monthly in advance. Fixed Increases: Also called bumps or rent escalations. Parties often agree to some form of base rent increase annually or at specified future dates. Free Rent: Landlords in many markets offer free rent as an incentive to a new tenant or to a creditworthy renewing tenant. Free rent is taken at the start of the lease, or as agreed over the course of the lease. The amount of free rent varies depends on the lease term, the rent, other incentives provided, and current market conditions. Operating Costs When a tenant pays gross rent, the landlord pays the base year operating costs of the building. The tenant pays its proportionate share of increases in operating costs for subsequent years, sometimes with a negotiated maximum, or cap. Common methods that landlords use to recoup operating cost increases are: Direct Operating: The tenant pays a proportionate share of increases to actual operating costs. Operating costs normally exclude the cost of amortized capital improvements and building management salaries. The landlord normally estimates the operating costs for the ensuing year and averages such costs over a twelve-month period. At the end of each year, the landlord provides an accounting of the actual costs and credits the tenant for any overages, or invoices tenant for any underpayments. Tenants with leases that provide for direct operating increases should obtain the right to audit the landlord s financial records and cure any discrepancies. Consumer Price Index (CPI): Rent rises with inflation based on a consumer price index, typically a local index published by the U.S. Department of Labor, Bureau of Labor Statistics. Fixed Increases: In some cases, the landlord pays all operating cost increases, and the tenant pays a fixed percentage increase in base rent, typically 2 3.5% per year. When a tenant pays net rent, then the tenant pays its pro-rata share of the full operating costs. Taxes If a tenant pays gross rent, the landlord pays base year real estate taxes (property taxes), and the tenant pays its proportionate share of tax increases in subsequent years. The base year is normally the fiscal or calendar year closest to the first year of the lease term or the initial twelve months of the lease term. In most cases, the landlord provides an estimate of the real estate taxes for the ensuing year and averages such costs over a 12-month period. At the end of each year, the landlord provides an accounting of the actual costs and either credits the tenant for any overages or invoices the tenant for any underpayments. If a tenant pays net rent, the tenant pays its full pro-rata share of the real estate taxes. Neither value added tax (VAT) nor Goods and Services Tax (GST) applies in the US. Utilities The tenant generally pays for electricity used in the premises, in one of the following ways: 10 CB Richard Ellis, Inc.

15 United States Direct Meter: The tenant pays the utility company directly, based on an electric meter. Submeter: The landlord buys electricity from the utility company and installs a meter to measure the tenant s usage. The tenant pays the landlord based on the meter, sometimes with a negotiable mark-up for the landlord. Rent Inclusion: The tenant pays dollar amount per rentable square foot, sometimes called the electric rental inclusion factor (ERIF), which may be negotiable and may be subject to inspection of usage by an electrical engineer. The ERIF may be subject to future increases if electric rates charged to the landlord increases or the tenant s usage increases. Charges for above-standard electricity use, such as for data center space or for after hours HVAC use, may be billed separately. In 2010, a typical ERIF for normal office use ranged from USD per square foot. Americas Security Deposits and Guarantees The tenant normally provides security either as a cash deposit or letter of credit. Tenants often negotiate with the landlord to keep the cash deposit in an escrow account. Interest on the cash security deposit may accrue to the landlord or to the tenant, as negotiated. Typically, interest does not accrue to the tenant in small leases. The amount of the security is negotiable, and depends upon the landlord s assessment of tenant s creditworthiness, the amount of the landlord s outlay for tenant improvements, free rent, commissions, local market practices, etc. A strong creditworthy tenant may pay 0 2 months rent as security. A startup company may pay 6 12 months rent or more. Parties often agree to a burn-down, which is a reduction over time of the amount of security the landlord holds, if the tenant fulfils certain obligations of its lease. Tenant Improvements Landlord Work: Landlords may deliver new space in a raw or shell condition, generally with a main lobby area, finished restrooms on each floor, ceilings, air conditioning equipment, and sometimes interior partitions. Landlords sometimes build out small spaces speculatively, as pre-builts, newly painted, carpeted, and ready to occupy, although typically without furniture or telecom wiring. Tenant Work: For office installations over 10,000 sq. ft. and for smaller, specialized installations, the tenant usually hires the architect and contractors, with the landlord s reasonable approval. Some landlords require pre-approved contractors and engineers. Landlords typically charge a fee to review design documents, but tenants can often negotiate exclusions or limitation of these charges, especially for a standard or for an initial installation. Landlords often contribute to the fit-out in some of the following ways: Tenant Improvement Allowance: Landlords can provide an allowance, typically expressed in USD per rentable square foot. The tenant is responsible to pay tenant improvement costs that exceed the landlord allowance. Tenant improvement allowances are often usable for design fees, but generally not for furniture and fixtures. If actual costs exceed the amount of the allowance, the tenant pays the balance, or the landlord pays for all or part of this overage, and amortizes the amount over the term of the lease at a predetermined interest rate. Workletter: For a small tenant, a landlord may offer a workletter, which is a written scope of work detailing the tenant improvements that the landlord will construct and pay for. Build-to-Suit: Many landlords will design and construct the premises to the specific needs of the tenant, especially for smaller installations. Tenant Work Costs: Fit-out costs for Class A buildings in major cities normally range from USD per square foot, including design, engineering, construction, data cabling, furniture, and other move-related expenses. Construction costs and design fees are highest in New York, followed by Boston and San Francisco, slightly lower in Chicago and Washington, and still lower in southern cities like Atlanta and Miami. Suburban areas normally have lower construction costs than nearby urban centers. Restoration Restoration of the premises is negotiable, and may be limited to specific items such as tenant-installed internal stairways or to non-standard build-out. 11 CB Richard Ellis, Inc.

16 United States TRANSACTION COSTS Brokerage Commissions Tenants in the market will routinely engage a real estate service provider (broker) to represent them in site selection and negotiations. Landlords (or sublandlords) typically pay leasing commissions to both their representative and the tenant s (or subtenant s) broker. Leases Methods of Calculation: A brokerage commission can be (1) A fixed percent of the total rent payable; as is common throughout the US. (2) Based on a sliding scale with a higher rate paid on rent in the earlier years than on subsequent years, the method used in Manhattan. (3) Based on the area leased. In San Francisco, Chicago, Colorado, and Massachusetts, the commission calculation is based on the area leased, and typically ranges from USD per square foot per year. Payment Schedule: The owner may pay the entire commission immediately after the lease is fully executed, or in installments, such as 50% at lease execution and 50% at lease commencement. Subleases: Sublease commissions and formulas vary from market to market. Legal Fees The landlord s lawyer typically prepares a first draft of the lease and negotiates legal terms with the tenant s lawyer. Some large corporate users and government entities require the use of their standard lease document, and provide the first draft of the lease. Each party pays its own legal fees. Because leases in the U.S. can be complex, legal fees tend to be higher than elsewhere. other LEASE PROVISIONS General Except in Washington, DC, laws that affect leases generally provide limited protection to commercial tenants; therefore, tenants rights must be addressed in the lease document. Incentives are negotiable. They may include free rent, tenant improvement (fit-out) allowance, moving allowance, assumption of tenant s rent obligation in its prior lease, allowance for furniture, fixtures, etc. A large tenant may negotiate for signage rights or the right to name a building. Standard Lease Document Standard (off-the-shelf) lease documents are rarely used. Landlords typically use their own lease documents. Large corporate tenants frequently request use of their own commercial office lease form, which often lengthens the review of the lease agreement between the parties and their lawyers. Right to Sublet Subletting (subleasing) is the most common way for a tenant to dispose of unneeded space. Sublets have advantages and disadvantages when compared with direct leases: Advantages Rent is generally lower than rent for direct space offered by the landlord. Sublets can often include furniture, telephone systems, and cabling at no extra cost. Disadvantages Most sublets have fixed terms, i.e., the remaining term of the current tenant s lease. However, some sublessors offer flexibility in the term, especially if they sublet a portion of the space they occupy, with the intention of occupying the sublet space in the future. Subleases are riskier than direct leases because the sublandlord (also called overtenant or sublessor) may default on rent payments, possibly giving the landlord the power to terminate the original lease and cancel the sublease. The master lease, i.e., the lease between the landlord and tenant, often allows the landlord to recapture the space prior to approving the sublease. Conditions: The master lease provides for conditions under which a tenant may sublet. 12 CB Richard Ellis, Inc.

17 United States Typically, the landlord agrees not to unreasonably withhold or delay consent and allows the tenant to choose its own broker to act as the sublease agent. The landlord usually retains the right to approve a subtenant, especially if the proposed subtenant is a company unrelated to the tenant. The lease may limit the number of subtenants that can occupy the space. The lease may exclude some or all of the following: specific types of businesses, existing tenants, and tenants that recently negotiated with the landlord directly. The landlord and the tenant negotiate as to which party will keep any profits over and above the original rental rate. The landlord and the tenant often agree to share any such profits based on an agreed formula, often on a basis. Profits are normally calculated typically net of subleasing costs. Profits are rare except in strong markets. Americas Option to Expand and Right of First Refusal An option to expand or a right of first refusal may be negotiable, especially for large tenants. A right of first refusal gives the tenant the right to secure additional space that may come available during the term of the lease before it is offered to a third party. Late Delivery by Landlord The lease may require the landlord to pay penalties. It may specify a date at which the tenant may terminate the lease if the landlord does not deliver on time and in the condition agreed upon in the lease. Holdover by Tenant Holding over is the condition when the tenant s lease has expired and the tenant remains in the space or has not met its restoration obligations. This is a negotiable clause in the lease, which may require the tenant to (1) a premium holdover rent, such as % of the base rent during any holdover period, and (2) indemnify the landlord against losses to the landlord due to the holdover. Signage and Name of Building Exterior signage may be negotiable. Naming the building may be negotiable, especially for large long-term tenants. OFFICE LEASING MARKETS General Brokers and Agents: Tenants typically engage a tenant representative broker to represent their interests in site selection and negotiations of a new real estate transaction and for most renewals. Landlords use in-house employees or outside brokerage firms to market their space and represent them in negotiations. Dual Agency: In some markets, large brokerage firms, like CBRE, may represent both the tenant and the landlord in a transaction, with different individual brokers or brokerage teams representing each party, and with proper disclosure. State real estate codes and laws usually stipulate the appropriate disclosure requirements. Negotiating Negotiation of Business Terms: The tenant s broker negotiates the business terms of the transaction with the landlord s agent. When both parties agree on the business terms, the tenant s broker prepares a non-binding term sheet, also known as a letter of intent, which outlines the business terms. Negotiation of Legal Terms: The landlord s lawyer typically produces a draft lease agreement, which includes agreed business terms, as outlined in the letter of intent, plus additional terms, known as legal terms. The tenant s lawyer negotiates the legal terms with the landlord s lawyer. Lease Execution and Delivery of Documents: When both sides agree on all terms, the landlord s lawyer prepares execution copies of the lease agreement for signature by the parties. The tenant signs the lease, and the tenant s lawyer delivers it to the landlord s lawyer along with a check for the first month s rent and the agreed upon security deposit. The landlord countersigns the lease and returns a copy to the tenant. 13 CB Richard Ellis, Inc.

18 United States If a Sublease: The subtenant and sublandlord follow the steps outlined above. In addition, the landlord reviews the sublease documents and prepares a consent document for signature by subtenant, sublandlord, and landlord. Transparency Lease and sales transaction data and other market information are available to tenants through leading brokerage firms like CBRE. Professional real estate providers generally know the deal terms and landlord concessions of recent completed deals, and are willing to share this information with clients they represent. Building Classification Class A: High-quality buildings with high-quality finishes, state-of-the-art systems, and excellent accessibility. The very best buildings are sometimes called A+ buildings or trophy buildings. Class B: Average quality buildings with average rents. Building finishes are fair to good. Systems are adequate. Class C: Buildings of below-average quality and below-average rents. FOR MORE INFORMATION CB Richard Ellis, USA George Relyea First Vice President george.relyea@cbre.com About CBRE USA: For CBRE USA Research: 14 CB Richard Ellis, Inc.

19 Manhattan LODI TEANECK CBRE OFFICES Midtown Americas TETERBORO BRONX Downtown CARLSTADT RIDGEFIELD NORTH BERGEN MANHATTAN SECAUCUS HOBOKEN Midtown JERSEY CITY Downtown QUEENS Real estate practices are similar to practices elsewhere in the U.S., with exceptions outlined below. SPACE MEASUREMENT Definitions Usable Area: Manhattan landlords use the Real Estate Board of New York (REBNY) method, not the BOMA method, to calculate usable area. Like other methods of measuring the usable area, the REBNY method excludes penetrations such as shafts and exit stairs. However, the REBNY usable area measurements extend to the outside of exterior building walls, and therefore include some un-usable space. The REBNY method can be confusing to tenants, because standard restrooms are considered usable space when they are on single-tenant floors, but not when on multi-tenant floors. Rentable Area: Manhattan landlords generally calculate the rentable area by adding a percentage, the add-on factor, to the usable area measured, and so the rentable area cannot be verified by direct measurement. Over the years, Manhattan landlords have repeatedly re-measured their buildings to increase rentable areas, simply by increasing the add-on factor. Add-on factors vary slightly from one building to another. New buildings tend to have slightly higher add-on factors and therefore higher loss factors than older buildings. Loss Factors Landlords agents sometimes quote loss factors between the REBNY usable area and the rentable area. Such loss factors are typically at least 25% for full floor tenants, higher for divided floors. Loss factors are usually higher on newer buildings than on older buildings. occupancy COSTS Rents Rent Quoted: Landlords quote gross rents in U.S. dollars (USD) per rentable square foot per year. Manhattan rents are generally the highest rents in the U.S. Rent Payment: The tenant pays the first month s rent at lease or sublease execution, and subsequent rent payments monthly in advance. 15 CB Richard Ellis, Inc.

20 Manhattan Free rent: The landlord normally grants free rent to the tenant in the first year of the lease, starting in the second month because the tenant pays the first month s rent on lease execution. Free rent can apply to any month or months during the entire term of the lease, as agreed, and as stipulated in the lease. Porters Wage Escalation Formula: In addition to the methods used elsewhere (direct operating, CPI, annual fixed increases or percentage increases), some Manhattan leases use a porter s wage formula, which is unique to New York City. Porter s wage formulas calculate escalations using published hourly wage rate increases, negotiated every three years, as part of the Commercial Building Agreement, negotiated by the Realty Advisory Board on Labor Relations in New York City and the union that represents building employees. This agreement establishes minimum wage rates for various categories of building employees in commercial buildings, including a category defined as Other and informally known as porters. Common variations of this method are: Porters Wage Penny-for-Penny without Fringes: For every cent (USD.01) added to the published hourly wage, a cent is added to the per-square-foot rent. Porters Wage Penny-for-Penny with Fringes: Same as above, but the wage used in this calculation includes fringe benefits, which vary from building to building, and generally produces a steeper rent increase rate than when calculated without fringe benefits. Porters Wage 3/4 Penny-for-Penny Without Fringes: With this formula, 3/4 of a cent is added to the rental rate for each cent added to the hourly wage. Occupancy Tax Tenants that pay rent in excess of USD 249,999 per year may be subject to New York City Commercial Rent or Occupancy Tax, based on the rent paid. Exemptions and credits may apply, depending on the rental rate and building location. Car Parking Most Manhattan office buildings have no parking spaces. Manhattan office occupiers generally commute using an excellent public transportation system of commuter trains, subways, and buses. Others use taxis, which cruise the streets, day and night, looking for riders, and can stop to pick up passengers on almost any street. Those who commute by car face high parking costs and heavy rush-hour traffic. When available in office buildings, parking spaces may be included in rent, or rented separately. Most drivers to Manhattan park in separate parking garages, or occasionally outdoor parking lots that are available throughout Manhattan. Fit-Out Costs Fit-out costs for Class A or Prime buildings normally range from USD per sq. ft. including construction, furniture, wiring, design fees, etc. Most Class A buildings in Manhattan require union labor, which is significantly more expensive than non-union labor. Tenants, especially small tenants, often reuse some or all of a previous tenant s installation. Other Occcupancy Costs Some buildings charge extra for building security. Many office buildings are in Building Improvement Districts (BIDs) which provide, and charge for, extra services, beyond those provided by the municipal government. Landlords normally pass on Building Improvement District (BID) charges to tenants. TRANSACTION COSTS Brokerage Fees If a transaction takes place, the landlord or sublandlord typically pays a full brokerage commission to the tenant s or subtenant s broker. The landlord typically pays its broker one-half commission or less (called an override.) Brokers who represent sublandlords normally receive an override of one-half commission. Brokers that represent tenants and subtenants normally sign a commission agreement, provided by the landlord s or sublandlord s broker, which establishes the conditions for payment, the terms, and the rates. 16 CB Richard Ellis, Inc.

21 Manhattan New Leases and Subleases: A typical full commission is 5% of the first year s rent plus 4% of the second and third year s rents, plus a lower percentage for subsequent years. Commission rates vary slightly among landlords and brokerage firms. The landlord or sublandlord sets the rates, which the tenant s broker normally accepts without negotiation. Lease Renewal: Most established landlords pay the tenant s broker a full commission to represent their tenant in negotiations. This reduces the possible incentive for a broker to try to move the tenant to another building. Some landlords pay the tenant s broker a reduced commission for a renewal. The commission rates for renewals are negotiable between the landlord and the tenant s broker. Americas other LEASE PROVISIONS Holdover by Tenant Leases typically require the tenant to pay 2 3 times the rent payable at the end of the lease, and sometimes, monetary damages to a landlord caused by holdover. Signage and Naming Some landlords regulate tenant signs on multi-tenant floors through a signage program. Large tenants can sometimes negotiate naming rights for buildings. OFFICE LEASING MARKETS General Manhattan office buildings tend to be older than elsewhere in the U.S. and many are renovated. Very little firstgeneration space is available. Virtually all new office buildings in Manhattan are Class A buildings, because the high cost of land and construction makes it uneconomical to develop lower grade office buildings. Building Classification Class A: Full-service buildings, typically over 200,000 sq. ft. Most Class A buildings were built after World War II. In these buildings, the landlord provides cleaning of the tenant s premises; an attended lobby 24 hours a day, seven days a week; and central air conditioning in warm months during business hours. Some buildings are air conditioned for a half day on Saturdays. A few Class A buildings provide central air conditioning 24 hours a day, seven days a week. Most Class A buildings have high security, including card-key access, visitor sign-in, and tenant notification before visitors may enter into elevators, etc. Class B: Generally built before World War II, and before central air conditioning became available. Class B buildings typically have package air conditioning units that serve a single tenant. They have attended lobbies. Cleaning is usually not included in rent. Class C: Usually small pre-war buildings. Most have attended lobbies in which tenants share cost of a uniformed guard. Cleaning is not included in rent. FOR MORE INFORMATION CB Richard Ellis New York George Relyea First Vice President george.relyea@cbre.com About CBRE New York: For CBRE Research: 17 CB Richard Ellis, Inc.

22 ARGENTINA BOLIVIA PARAGUAY BRAZIL CBRE OFFICE Buenos Aires CHILE ARGENTINA Buenos Aires URUGUAY LEASE LENGTH Term Three to five years is typical today for Class A space. Termination Tenants may terminate a lease unilaterally at any time with a 90-day notice, but landlords may not terminate during the lease term. This situation causes landlords to prefer short leases and causes tenants to re-negotiate their leases on a regular basis. A tenant that terminates within the first year of the lease must pay the landlord 1½ months rent. A tenant that terminates after the first year pays one month s rent. These rights to terminate are in the law, and parties cannot waive them. Renewal A tenant s option, including the renewal rent, is negotiable, not automatic. SPACE MEASUREMENT Net Lettable Area Net lettable area is measured and quoted in square meters. The net lettable area generally includes carpetable area, bathrooms, and common areas of exclusive use. Efficiency A typical ratio of carpetable area to net lettable area in a Class A building in Buenos Aires is about 83%. occupancy COSTS Rent Rental Rates: Please visit CBRE s Global Knowledge Center: Rent Quoted: Parties quote rent in U.S. dollars (USD), and operating expenses in Argentine pesos (ARS). 18 CB Richard Ellis, Inc.

23 Argentina Rent Payable: The tenant pays monthly rent in advance; tenant pays operating expenses and property taxes monthly in arrears. VAT: The tenant pays 21% VAT on all rents, service charges, construction costs, furniture, and furnishings. Free Rent: Landlords generally grant up to two months free rent; none in tight markets. Rent Review: The lease typically specifies the rent review basis, usually an average of three market values provided by established real estate firms. Costs normally included in the rent are: Car Parking: typically one space per 100 sqm in Buenos Aires; sometimes additional spaces in the suburbs. Repairs and replacements to building systems. Capital improvements. Building Insurance. Americas Service Charges In a Class A building, the tenant typically pays a service charge of USD 5/sqm/month plus property tax. Items normally covered in the service charges are: Maintenance, repairs and cleaning of common areas. Building management and staff, including building security staff. Utilities for common areas. Ordinary expenses, such as operation and maintenance of the building and common areas. Structural repairs to the tenant s premises. Insurance for premises and its contents. Water is included in the service charges. Taxes The tenant pays property taxes, in addition to service charges. The property tax varies from USD /sqm/ month in 2010 in Buenos Aires, and may be slightly lower elsewhere. Utilities Tenants contract and pay electricity directly to the utility company, based on actual metered consumption. Water is included in the service charges. Fit-Out The landlord normally provides suspended ceilings, ceiling lighting and common area restrooms. The tenant normally pays for all other fit-out costs. The landlord approves the tenant s plans and specifications. Fit-out costs for Class A or Prime buildings in major cities normally range from USD per sqm including construction, furniture, wiring, design fees, etc. Restoration Restoration of premises to its original condition upon lease termination is usually not required. Tenants tend to lease properties in as-is condition, and return them in as-is condition. Security Deposit and Guarantees Upon execution of a lease contract, the tenant pays two months rent as a security deposit. With very few exceptions, the tenant pays this regardless of the tenant s size or origin. The landlord repays it upon lease expiration, usually without interest. TRANSACTION COSTS Agency Fees New Lease: 5% of the total value of the lease contract for the whole duration of the contract; 3% for years thereafter. When separate brokers represent landlord and tenant, typically each broker receives 50%. 19 CB Richard Ellis, Inc.

24 Argentina Sublease: 5% of total lease value; almost a non-existent transaction. When separate brokers represent landlord and tenant, typically each broker receives 50%. Lease Renewal: Tenant pays tenant s broker 4% of total rent for renewed term. Lease Termination: 20% of savings, but not less than one month of current lease, paid by the tenant. Special Conditions: All transaction fees are subject to VAT, general sales tax or similar, as applicable. VAT at 21% is additional to all agency fees. Other Transaction Costs Both parties split a one-time stamp duty of 0.5% of the total value of the lease. other LEASE PROVISIONS Standard Lease Contract No standard leases are used. Landlords provide the basic lease language which is negotiable. Right to Sublet Subleasing is rare, and the lease contract seldom covers it. It is occasionally possible to negotiate a right to sublease, subject to the landlord s prior written consent, and usually only to related parties. It makes more sense to terminate than to sublease, because of the tenant s right to terminate in Argentina. Options to Expand An option to expand is negotiable. A right of first refusal is rarely granted. Late Delivery by Landlord Contracts rarely provide for this in advance in contract, unless timing is of the essence. Holdover by Tenant Holdover is rare, and payment is negotiable if holdover occurs; therefore, the lease contract should address this. Signage and Naming of Building The right to name a building is negotiable in some buildings and can cost as much as the equivalent of the rental of the entire highest floor. Other Lease Provisions By law, a tenant is in default after only two months of non-payment. The eviction process can take six months or more, but is usually not a problem because of the lease termination rights. OFFICE LEASING MARKETS General About 50% of Class A buildings in Buenos Aires are condominiums. This has little effect on leasing, because most condominium ownership is by investors, not occupiers. Ownership by domestic or foreign office occupiers is rare. A non-binding letter of intent between the tenant and the landlord precedes a final contract. Transparency Comparables that identify tenants, square meters, rents and incentives for recent transactions are generally available for Buenos Aires. Building Classification Class A buildings generally have the latest standards of construction, raised floor, HVAC, safety and fire alarms, floor plates larger than 400 sqm, and are in prime locations. Class B buildings are older and do not comply with some requirements outlined above. Class C buildings are lesser-quality buildings. 20 CB Richard Ellis, Inc.