Office Space

It was a less than ideal situation. When Jeffrey Keefe left his job as a financial advisor with Ameriprise to start his own Portsmouth, New Hampshire-based firm two years ago, he decided he'd just stay put in the office he shared with several other colleagues. Eventually, however, they all left for different positions, and Keefe began renting the space from a mortgage company that took over the lease.

It was a less than ideal situation. When Jeffrey Keefe left his job as a financial advisor with Ameriprise to start his own Portsmouth, New Hampshire-based firm two years ago, he decided he'd just stay put in the office he shared with several other colleagues. Eventually, however, they all left for different positions, and Keefe began renting the space from a mortgage company that took over the lease.

And therein lay the problem. Keefe's digs were in the back of the 3,000-square-foot space, while his receptionist was at the other end of a long hall. As a result, clients, in effect, had to walk through the offices of another company to reach him. According to Keefe, it didn't make the best impression on clients, especially because the other employees on the floor tended to be louder than he would have liked. “Clients would often make remarks about some of the conversations going on in the background,” says Keefe, who has about $15 million in assets under management. “I know they found it really distracting.”

Finally, last June, after a three-month search, Keefe and his assistant moved to a new location, a 700-square-foot office in an old Colonial house overlooking a park. He's a lot happier — and so are his clients.

As Keefe discovered, your office is more than just the place you hang your hat every day. It's a three-dimensional advertisement for your practice; it makes a statement about who you are, and the type of clients you serve. The right office can also be a recruiting tool for employees. What's more, rent (or a mortgage) on the space most likely accounts for a significant portion of your overhead. About 4 percent of the typical advisor's revenues go to rent, according to Moss Adams. The upshot: Looking for the perfect office is an important business decision — one you need to tend to carefully. That may be particularly true these days, thanks to the tumultuous state of the housing market. Here's how to do it.

Welcome To My Neighborhood

The first question to consider, of course, is location. But deciding where to stick your office involves a lot more than just finding the right neighborhood. For one thing, there's the matter of how often your clients actually visit the office. If they come to you frequently, you'll need a building that's easy for them to get to. For example, last March, Renato Jarnett, branch manager and vice president of Raymond James & Associates, moved to a new office in Dearborn, Mich., partly because it was closer to Ford Motor headquarters, where he has a lot of clients. You'll also need to think about such issues as visitor parking, nearby restaurants and proximity to the highway or main roads. Last year, when Bingham, Osborn & Scarborough, a San Francisco-based firm with $2 billion in assets, moved its satellite office to Palo Alto from Menlo Park, Bill Urban, one of the principals, spent several weekends driving around the area to see just how easy it would be for clients to locate the building, park their cars and find the office. “You have to look at it through the eyes of the client,” he says.

On the other hand, if you usually see your clients offsite, then you won't have to worry about such considerations — and you may be able to get a better deal. Joseph Birkofer, who runs Legacy Asset Management in Houston, moved to his current building 10 years ago. He chose the place despite the fact that it had a narrow garage with few parking spaces for visitors. The reason: Because his clientele are spread throughout the Houston area, he usually goes to visit them. As a result, the parking issue wasn't important. What's more, it has given him added negotiating power with his landlord. For example, three years into the lease, when Birkofer learned that a neighbor was moving out of an office almost twice the size of his current space, he approached the landlord with a proposal: Let him switch offices, if he signed on for another five-year lease. According to Birkofer, thanks to the building's lack of attractive parking, it's not as in demand as some other places. “That gives us more leverage,” he says. He was able to not only move offices, but negotiate other amenities, like keeping the same suite number.

Still, Birkofer's space is in what's known as a class-A building — high-rent offices in prestigious neighborhoods with extras such as a fancy lobby and plush furniture. Indeed, like many advisors, he's decided it's important to use his office address as a way of broadcasting the type of clientele he serves and his firm's general gravitas. “From the beginning, one of my partners said, if we're going to tell people we're here to stay, we've got to look like we're here to stay,” he says. “It really helped with the credibility factor.” The bottom line: If you're trying to attract high-net-worth clients, you might have to bite the bullet and pay for top-of-the-line space.

Take Bill Urban. While his firm's main office was in a ritzy building in San Francisco, the branch office was located in a less-premium site in Menlo Park. While that was okay for a while, Urban and his partners eventually decided they needed to house their satellite office in a place that was equally as classy as the headquarters, and would, therefore, appeal to the firm's target clients, individuals with $2 million and above in investable assets. What's more, they figured the move was important for recruiting the kind of top-level advisors they wanted to hire. “The kinds of people we need to keep growing will demand a more-professional environment,” he says.

Of course, class-A space is less pricey in areas with a failing economy or housing market. Jarnett, who's located in hard-hit southeastern Michigan, found space that costs about 25 percent less per-square-foot than his previous site. Urban, on the other hand, is paying $1 to $2 more per square foot for the firm's new branch office than he was at the San Francisco office. The firm moved there four years ago, when the market was still in a post-Internet-bubble downturn.

Devil's In The Details

If you can't swing top-of-the-line real estate, then you need to be particularly careful about a few key elements. For one thing, there's the matter of the elevator. Clients should be able to find your office easily when they get off: You don't want them to have to wander around a maze of confusing hallways. So you want to find space as close to the elevator as possible. “You don't want your client getting lost in the building,” says James Scancarella, a principal with CRESAPartners, a commercial brokerage firm in Paramus, N.J. Parking is also important. A class B building without enough conveniently located parking spots will make an especially bad impression. And look for a building that's near easy-to-spot landmarks, such as a well-known shopping mall.

Of course, you need to balance these needs against your budget, which will dictate just what buildings or neighborhoods you can afford. Once you analyze your cash flow, you might find you can swing a more expensive building than you originally thought. On the other hand, you might have to nix some areas that are clearly out of your price range. Three years ago, when Josh Itzoe co-founded Greenspring Wealth Management, a Towson, Md., firm with $40 million in assets, he and his partner pinpointed three neighborhoods where they might want to set up offices. But after their real-estate broker divulged the per-square-foot cost for buildings in those areas, “we took one area off the table right away,” he says. They eventually found offices in one of the other locations they'd targeted.

How much space is enough space? A good rule of thumb is about 300 square feet per person, including common areas, according to Elliott Stern, senior vice president of Raymond James. But, that doesn't take into account room to grow. Should you rent an office that's too big for the moment, but offers the space you'll require as you expand? “You're better off taking a place you need and growing out of it,” says Jim Freeman, sales manager with Cantella & Co., a Boston-based b/d. He points to an advisor who moved into top-of-the-line digs in Boca Raton overlooking a golf course. It took up a half a floor, even though the entire staff was about five people. “You'd walk in the door and think, what happened here?” he says. “It looked like something had gone really wrong.”

A better approach is to try to negotiate with the landlord for the right to take over contiguous space if it becomes available. If you can't do that, then opt for a larger building where it's likely bigger offices will open up when you need them. You should also attempt to include in your contract the right to sub-lease. Your ultimate goal: to remain in the same building over time, since moving is usually an expensive proposition. Carol Benz, a principal with Bingham Osborn, for example, figures the branch move, including everything from the cost of transporting furniture to changing their letterhead, cost about $250,000.

Pinching Pennies

Fortunately, once you've signed the lease and are ready to move in, there are a host of ways to save money. For one thing, concentrate your decorating efforts on the public areas — the reception area and conference rooms. “The rest of the space can be somewhat plain vanilla,” says Scancarella. Itzoe and his partner ran the cable wiring themselves, saving about $2,000, and installed voice-over IP, which cost about $4,000 less than it would have had they used a conventional telephone system. For furniture, look for deals on Craigslist or Online auctions.

If you're really strapped for cash, another approach is not to move into your own office at all, but, instead, find temporary digs in an executive suite. You could rent space in a bank of offices on a monthly basis, and get everything from a receptionist to telephone lines. In addition, if you're affiliated with a b/d, the firm will probably be able to help you out. Cantella, for example, will provide financial support to reps who need it; in return, they'll reduce the advisor's payout to 85 percent from 90 percent for one to two years. “By then, [the investment] is usually recouped,” says Freeman.

You also might be able to negotiate favorable terms if you don't ask the landlord to do much in the way of renovations. Itzoe, for example, was able to get a three-year lease, instead of a five-year contract, for no extra charge, because he asked the landlord to do only a limited amount of work reconfiguring the office. When the lease expires, he's hoping to buy his own building. And that, according to real estate experts, is the best solution of all. Says Freeman: “If you can afford to buy, you probably should.”

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