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									           This article is sponsored by the SOCIETY OF INDUSTRIAL AND OFFICE REALTORS® Foundation.
                                             Enriching Our Community

   The SIOR Foundation’s mission is to promote and support initiatives that expand, educate, and enrich
  the commercial real estate community. Established in 1962 to publish the industry’s first graduate-level
    textbook on industrial real estate, the SIOR Foundation has maintained its dedication to expanding
                           understanding of the commercial real estate industry.

                    Managing Security
                               Terrorism Issues
                                       By Steve Bergsman

                                       How landlords handle terrorism            “New York City is the most
                                       and security issues in office and      cognizant city regarding terrorism-
                                       industrial buildings depends to a      type security activities with other
                                       certain extent, on the needs of the    U.S. markets more focused on nat-
                                       tenant and the location of the         ural disasters such as earthquakes,
                                       structure. Some tenants require        hurricanes, or flooding,” notes
Steve Bergsman is a financial jour-    high levels of security, some don’t;                     Lloyd Berry,
nalist whose articles appear in such   an inner-city office building in                         Director of
magazines as Barron’s, Wall Street     New York gets more security than                         Operations for
Journal Sunday, National Real Estate   a warehouse in an Iowa business                          Colliers Bennett
Investor, Urban Land, and Mortgage     park.                                                    & Kahnweiler in
Banker. He is based in Mesa,              Since the Oklahoma City                               Rosemont,
Arizona.                               bombing and the terrorist attacks                        Illinois. “Going
                                       on the World Trade Center, most        forward in Chicago, for example,
                                       landlords establish base levels of     any building of significance—
                                       security. Everything after that is     either in size or profile—will have
                                       negotiable. Security and terrorism     some sort of security plan that
                                       protection is a balancing act          will address the entire envelope of
                                       between what the tenants want          the building, which starts at the
                                       and what the landlord offers. The      property line and the skin of the
                                       leverage of the client and micro-      building and then going into entry
                                       location determine the outcome.        points to the property.”
   Prior to signing a lease, tenants usually ask          floors and even partial segments of a floor to be
about security at the building, and that obviously        fully controlled by the tenant from thermostats and
means more than just worrying about a terrorist           HVAC units in or adjacent to the leased space.
attack. Security covers a wide range of issues            “These demands were fully embraced by the devel-
including concerns about personal safety or theft.        opers who installed the new systems and created
                  Joseph J. Dvorak Jr., SIOR,             multiple entrances into parking and ground floors
                  Executive Vice President at             of buildings for use during core hours and off-
                  Colliers Bennett & Kahnweiler,          hours,” Fink says.
                  Chicago, Illinois, adds “In many
                  places, terrorism is not the issue.”    Financial Component
                  the issue is whether or not there is    The costs for security infrastructure and terrorism
                  camera surveillance on the parking      insurance are expensive and they generally get
lot, if employees can be protected working after          passed on to the tenant, which is why some com-
hours, if they can stroll safely to the parking lot, or   panies balk when there is perceived over-weighting
what level of building entry security is required.”       on security infrastructure.
                                                             Take terrorism insurance, as an example. The
Accommodating New Work Force                              owner or landlord, especially with a multi-tenant
Hours                                                     facility or business park with many companies in
Most office buildings completed before 1990 did           residence, must “control” the insurance issue,
not allow for simple 24/7/365 access. Tenants had                           stresses Richard Mallory, Esq., a
to access buildings during prescribed business                              founding partner with Allen
hours. Outside of those hours, tenants had to                               Matkins Leck Gamble Mallory &
make an appointment or access their space with                              Natsis, LLP, San Francisco,
the assistance of a guard or janitor stationed in the                       California.
building. The HVAC systems were highly central-                                “The landlord can’t allow one
ized making it difficult to control the climate in the                      tenant to control insurance
leased area when the building was not fully opera-        because there are other tenants that would be
tional outside of the core business hours.                affected,” Mallory explains. “The landlord buys
   Gradually, developers responded to the manner          the insurance and has to be responsible to the mar-
                in which people work and to ten-          ketplace. The cost that is passed through to tenants
                ant demands for open access.              is usually consistent with what an institutional
                Modern technology aided the               owner such as a real estate investment trust or life
                process, notes James R. Fink,             insurance company would require for that type of
                SIOR, General Manager of the              asset, for that market location, and for those build-
                Leasing Division, Colliers Halifax,       ing specs.”
                Tokyo, Japan.
   During the 1990s, most
buildings created the ability
for tenants to access the build-
ings with a key, card key, or
proximity card without mak-
ing a reservation or requiring
assistance. HVAC systems
became more sophisticated.
First they allowed for floor-by-
floor operation 24/7 from the
management office. More
recently, systems allow specific
   Jim Fink, who resides in Japan, recalls the evo-      key feature is security that can be customized via a
lution of security issues in regard to American          standard non-contact proximity card unique to
companies. After September 11, 2001, Tokyo had           each tenant and each employee. This can limit
numerous bomb threats and scares, particularly in        access at the ground floor lobby turnstile, access to
Grade A prime properties occupied by American            individual floors from the elevator cab, access from
financial institutions. American tenants (particul-      the common area on the specific leased floor, and
arly financial institutions) immediately demanded        access into individual doors/departments of a sin-
security restrictions including guards, checkpoints,     gle tenant on a single leased floor at the tenant’s
and the closing of some of the multiple entrances        discretion.”
provided.                                                   Situations do exist, however, where the prospec-
   The initial solution was to post security guards      tive tenant has justifiable demands for upgraded
at multiple locations, check identification, loosely     security and the landlord must be flexible.
inspect baggage, and lock some of the multiple
entry points. Landlords hated this solution because      Special Requirements for
they suddenly had to spend a great deal of money         Government Entities
for additional security. Meanwhile, rents were in a      When the Federal Reserve Bank in Kansas City
deflationary cycle so tenants did not want to pick       needed to relocate to a new building within the
up the cost of the additional security, but they still   city, Zimmer Real Estate Services, a local company,
demanded it.                                             was chosen to help locate a new facility. Company
   In addition, smaller tenants, non-financial                            President David J. Zimmer, SIOR,
American tenants, and nearly all non-American                             noted that the Federal Reserve’s
tenants including European financial firms did not                        facility was a beautiful, classic
like the inconveniences created by the new security                       structure, but its location pre-
and general fear factor of these new measures.                            sented insurmountable problems.
Many of these firms wanted to avoid buildings                                Although the city fathers
with this new level of security or with American                          wanted to keep the Federal
firms as tenants.                                        Reserve in the urban core, new requirements for
                                                         the Federal Reserve include a 100-foot set-back
A High Tech, Limited-Access                              from any street, crash barriers, a blast- and bullet-
Approach                                                 resistant building design, and a structural design
“Over time,” says Fink, “Tokyo landlords have            that prevents progressive collapse (the kind of col-
taken several approaches to deal with their cost         lapse that occurred to the World Trade Towers).
issues and the requirements of tenants not seeking          The site the Federal Reserve eventually chose
a high level of security. In the newest buildings, a     was one mile south of the urban core in an area
                                                              called Crown Center on the 15-acre grounds
                                                              of a demolished hospital. Construction is cur-
                                                              rently underway and the Federal Reserve will
                                                              move into its new regional home in early
                                                                 Because the Federal Reserve demanded the
                                                              most up-to-date security systems, there were
                                                                               some interesting logistic prob-
                                                                               lems, notes Kirk Sherman,
                                                                               Zimmer’s project advisor for
                                                                               the Federal Reserve project.
                                                                               “You have to wait until the
                                                                               last minute to purchase those
                                                                               types of security systems
because they are evolving so quickly, he explains.”          • Review the lease to confirm that it includes
You don’t want to buy something yesterday but                  some kind of specific disclaimer to the effect
not have it installed for two years because it will            the landlord will not in any event be held
be out of date. So, we are constantly trying to push           responsible, in any capacity or to any extent
to the last minute to get the most updated security            for the admission of any person into the
features, but not delay construction.”                         building for any resulting criminal or terrorist
Evaluating Options and Concerns                              • Landlords of trophy buildings should review
With regard to security and terrorism, today’s                 leases to ensure they specifically address the
landlord has to juggle numerous factors. He must               elevated possibility of terrorist attacks and
decide on what and how much security infrastruc-               acts of war and how it will affect abatement
ture to include, keep a handle on costs, keep all              of rent.
tenants happy in multi-tenant buildings and parks,
and finally create a structure that will be financially      • Landlords must be able to preserve profit
beneficial to the owners/landlords.                            margin by passing on any increased “secu-
   Mallory, an expert on legal matters regarding               rity” cost to tenants.
building security, can sit down on the side of ten-          In addition, Mallory recommends that land-
ants or of owners. Speaking for owners, he                   lord/owners:
observes, the landlord should be wary of tenants’
                                                             • Use a highly-regarded insurance broker who
demand for increased “security” services, because
                                                               knows what the submarket and type of build-
when the landlord undertakes this journey he runs
                                                               ing construction requires in terms of
the risk that: 1) it will incur additional costs that
might not be properly passed on to the tenants by
virtue of the lease’s operating expense language; 2)         • Employ a reputable consultant to establish a
it will open itself to accusations that it has not ade-        “security” program that is commercially rea-
quately fulfilled its “security” obligations and has           sonable and expected of that type of asset;
therefore defaulted under the lease; and 3) it might
                                                             • Establish a thorough screening process for
be subject to claims of actual tort liability in the
                                                               tenants so that all tenants know that the
event that it fails to prevent or properly contain a
                                                               landlord is taking steps to minimize the possi-
criminal or terrorist incident.
                                                               bility that someone in the building may be
   Mallory offers several lease recommendations                involved in suspicious endeavors that would
for landlords:                                                 attract terrorism or would participate in ter-
                                                               rorist activities; and
    • Eliminate any reference in the lease to the
      provision of “security” services. Instead, have        • Effectively screen for those involved with
      the tenant agree that the landlord will pro-             building maintenance, as many of these jobs
      vide for “access control” consistent with the            are outsourced.
      level of such services in comparable buildings
                                                             One way to envision security is to break it down
      and that security systems are to be installed
                                                          into three sectors of concern, says Colliers Bennett
      on the tenants premises at the tenant’s own
                                                          & Kahnweiler’s Lloyd—protecting the physical
      expense. Also have building safety protocols
                                                          plant (which, of course, includes the building and
      incorporated into the lease.
                                                          property); safeguarding the people who work in
    • Use the term “building safety” not “security”       the buildings; and, finally, ensuring the welfare of
      in the lease.                                       people who visit, use the grounds, or are simply
                                                          passing by.
    • Reserve the right, in the building safety
      provision or accompanying exhibits, to prom-
      ulgate additional reasonable access control or
      building safety procedures.

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