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Law firms are being forced to reduce costs and improve their profitability to remain competitive in today’s legal environment. One of the largest costs that a law firm has is its office space. That’s why firms should spend time planning how best to deal with their office space needs. They should try, of course, to minimize the occupancy cost while maintaining the flexibility and image they desire. But how can firms assure their long-term profitability and viability in the search for, design, and construction of space? How can they negotiate flexible and advantageous leases? Every law firm has the same goal � to minimize real estate costs, while meeting the firm’s other objectives. The first step is to understand (and agree on) the firm’s quantitative and qualitative objectives as well as their importance in the decision-making process. Here are some considerations to help a firm focus on its objectives so that its search for space is successful: •� The historical and projected growth of the firm. While growth projections are admittedly difficult to predict, general assumptions about the size of the office, given the firm’s business plans, must be made. National firms have to consider how the firm’s overall plans for each office are taken into account. Too often we see law firms lease too much space, intending to expand that office, when in reality the firm’s business plan for that office may be little, if any, growth. Leasing excess space is inefficient and the firm must bear that cost throughout the term of its lease. •� The importance of image, flexibility, efficiency, and cost. Image, flexibility, and efficiency all come with a cost. These issues should be debated and decided by the firm’s real estate committee. The committee’s decisions should become the guiding principles in the search for space. •� The financial wherewithal of the building owner. Especially in tight markets where new development and major renovation projects are likely options for larger space requirements, the owner’s financial strength and investment future must be taken into consideration. Committing to a build-to-suit arrangement with an owner who might not begin construction and see the project through to completion can be disastrous � and a risk that no law firm can abide. The management and upkeep of the building is likewise of paramount importance for a law firm. Your partners will complain vehemently should the ownership or management of the site fall short. •� The importance of amenities in the area. Amenities such as access to public transportation, airports, trains, taxis, buses, Metrorail, and affordable housing are critical. Such amenities will affect the firm’s ability to recruit and retain employees, particularly nonlegal personnel, as well as impact the productivity of the firm’s employees. •� Consider the relative importance of amenities in the building. Amenities such as a concierge, fitness center, day care center, cafeteria, convenience store, bank branch, and a “white tablecloth” restaurant make an enormous difference in the quality of life the new space brings to the firm’s employees. DESIGNING AND CONSTRUCTING SPACE Once a law firm has defined its space needs, the firm should focus on how specific buildings can meet those needs. Some buildings are simply better suited to house a law firm than others, depending upon the efficiencies of the floor plan. That, of course, translates directly to cost. In addition, each building should be evaluated to determine both the ability of the building systems to meet a firm’s current and future needs, and its compliance with Occupational Safety and Health Administration, fire, safety, and handicap access laws. In light of these issues, law firms should look at designing, redesigning, and constructing their space to lower occupancy costs by considering the following factors: •�Whether a move, in whole or in part (i.e., just for the firm’s back office components or for a practice group that may work with clients in that area) to the suburbs or to less costly office space, can make sound business sense. Depending upon the city and size of the requirement, suburban space can be up to 50 percent less expensive, and the actual cost of doing business in the suburbs may be less as well. Relocating to a lesser class of building to house the administrative, litigation support, storage, or other functions could be less expensive than the typical Class A space law firms tend to occupy within city limits. •�If a move is desirable to a building not yet built or to a building that will be renovated so that the firm can lower the base building costs to meet the firm’s specific space requirements. Planning and modifying a development or renovation plan to meet a law firm’s unique needs can increase the efficiency of the space and save $10 per rentable square foot or more in construction costs. •�Whether the cost (dollars expended and productivity lost) versus the benefits (efficiency and cost savings) of an in-place renovation outweigh the costs and benefits of relocation. Leveraging a renewal against a potential relocation can often yield savings of 15 percent or more, as compared with a noncompetitive renewal of a lease. In addition, the cost of renovating, including any upgrade needed to the building systems, the structure, or common areas should be analyzed before the lease renewal negotiations begin. These costs can frequently be financed by the landlord as part of the renewal package. Otherwise, they should be properly budgeted for and analyzed within the context of the firm’s overall analysis of its space options. •�Whether the building’s systems are adequate for the firm’s long-term technological needs. Changes in the use of technology have dramatically increased the systems requirements for a modern law firm. System upgrades that are not accounted for in the initial build-out can total between 10 percent and 25 percent of a renovation budget. However, if the costs are identified upfront, they may be negotiated as part of the landlord’s obligations. Given the long-term nature of many law firm leases, it is imperative that the firm has the right to get the requisite power and HVAC to operate its business in the future. Law firms are still grappling with issues of flexibility and technology. How new technology will affect space and the location and distribution of support services is not yet clear. However, at the moment, firms are generally trying to redistribute space, not reduce it. That’s why firms should spend more time structuring flexibility into the design or redesign of their offices. Here are some suggestions: •�Design “flex space,” which is generically planned interior space that can house any number of support functions, by using movable walls and modular case goods. While modular furniture will initially cost more, the payback for this additional cost should be two to five years for firms that will need frequent changes. •�Standardize office sizes to make the space adaptable to a number of uses and subleasable to a diverse set of possible users. Standardizing office sizes has the added benefit of eliminating ongoing office-move politics. •�Design partner offices that can be used by either one partner, two associates, or as a small conference room. •�Group modules of three or so associate-sized offices that can be converted, at minimal cost, into two or so partner-sized offices or one smaller conference room. •�Use moveable walls, divider partitions, and reconfigurable seating and tables to make large conference rooms and multipurpose rooms adaptable. •�Standardize office furniture in the attorneys’ offices as much as possible, to eliminate the cost of having to move furniture every time you move people. •�Large firms should consider centralizing conference functions in a conference center located away from attorney offices and adjacent to telephones, copy and fax equipment, food service (if on-site), storage rooms for excess furniture, video conferencing equipment, and caucus rooms. This centralization reduces cost into a small area and enhances security. As to the actual construction of space, law firms should rely upon the advice of their own consultants and not on the advice of the landlord or the landlord’s consultants. Too often, firms rely upon the landlord’s construction manager to ensure that the contractor builds out the firm’s space as required. The landlord’s internal construction manager, no matter how cooperative or competent, is not being paid to save your firm money. Furthermore, we think that while the landlord has every right to oversee construction within his own building, he should do so at his cost. A good construction consultant will not only save your administrative staff time and headaches in dealing with third-party vendors, but will also save you up to 20 percent or more on the cost of your build-out. Once your team has identified its best alternatives, it should address lease provisions with the landlord that may be critical to the firm’s site selection and business strategy. Such provisions might include: •�Whether the building and landlord will be able to accommodate the firm’s long-term growth in the area of expansion rights and rights of first offer and refusal. While growth is often difficult to predict, the firm’s real estate plan must match its business plan for the duration of the initial lease term, and beyond. •�Engaging the landlord in a dialogue early on about the need for contraction or termination rights and liberal assignment and subletting provisions. Law firms in particular should keenly consider their exit strategies, especially in today’s climate where mergers and acquisitions have become commonplace. Moreover, the financial benefit to a firm of being able to “right size” its space, restructure its lease, or relocate in a market favorable to tenants through an early termination right can be of great value. •�Increased institutional ownership and generous concession packages have made lease securitization an issue for nearly all law firms that are relocating. While partner liability is not typically an issue, the firm will likely have to negotiate provisions for letters of credit that burn down over the lease term and threshold tests for putting up such letters of credit. •�Flexibility in both the firm’s use of landlord allowance funds and in construction of the firm’s space should also be negotiated upfront. You must have a clear understanding of what the allowance can be used for, and when, how, and over what period of time the allowance must be used. In addition, the delivery condition of the space, as well as who will construct the space and the landlord’s involvement in that process, must be negotiated. In summary, law firms, like other businesses, need to pay close attention to one of their largest costs � their real estate. With good planning, law firms can manage their long-term real estate costs and stay strong and healthy at the same time. Elizabeth Cooper and Robert O. Copito are in charge of the law firm practice group for the Staubach Co. (www.staubach.com), a real estate consulting and services firm with offices in 185 cities worldwide, including Washington, D.C.

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