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 and 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 2008. 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 activity. 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 insurance; 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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