Right after that, Crain’s Chicago Business ran a story about the exodus of several major tenants from the Sears Tower. Several major tenants are looking at different options and the only way they may stay is if they’re given some major concessions on their leases. This will cause the whole Chicago market to question their leases and what they’re paying for them.

Ernst & Young is paying about $35 a foot on its Sears Tower lease of several 100,000 feet of space. Desperate to keep a tenant in a building that’s starting to see major tenant erosion, how far will U.S. Equities go to keep them? After that, other tenants both at the Sears Tower and other class “A” buildings will ask: “Hey! Where’s mine?” Property management firms will not be able to hold the line.

Harder questions will be asked about intelligent amenities and broadband connectivity to buildings that might look good but are technologically obsolete. They have stagecoach-era speeds from the central office as well as in their riser systems. These were the same issues more than 20 years ago when traditional amenities like marble entranceways and elevators were secondary to connectivity and security.

More than 20 years ago? Yes, some corporate tenants at that time as well as the more progressive real estate companies were concerned about the network infrastructure in buildings and the abandoned cabling in riser systems. Most of the traditional market was still focused on the buying and selling of the real estate commodity of space. Today, these issues are more apparent and more critical across the board.

Some real estate and property management firms have had more than two decades to understand the importance of technology and intelligent amenities within their buildings and parks and how they affect their marketability. Instead, they have lollygagged behind. They have figured that technology and connectivity were only fads and the traditional real estate amenities were the ones to target.

Some of them are now trying to scramble for answers in a different world. You still have leasing agents parading around telling corporate clients “location, location, location” when the corporate clients are already extremely sensitive to “location, location, connectivity” in their globally competitive markets.

As for real estate certifications, they don’t certify any understanding of this and are grossly in need of an overhaul. One of my friends decided to go for a real estate license as well as a broker’s license. His assessment of the environment was that it was a cross between a multi-level marketing scheme and a Tupperware party. There needs to be a review of what needs to be understood in order to sell high-tech real estate.

Property Values Are Sliding in Great Britain

Just as some commercial properties are sliding in value in the U.S., there’s a warning that in Great Britain there’s a substantial amount of properties losing value.

A steep decline in United Kingdom commercial property values has raised probability of loan defaults, which could pose a threat to profits at Britain’s most active real estate lenders, the Bank of England said [on May 1, 2008].

The Bank of England said the rapid property correction had led to a number of loan-to-value covenant breaches but it was yet to see an increase in loan default rates.

Some real estate “experts” would argue that that’s England and this is a totally different market. I disagree. With so many elements of the economy intertwined to what’s going on internationally, if a major market starts to sputter there’s always a question about a ripple effect. Just look at the stock markets. If something goes wrong at one major exchange, there is an effect on the others.

There are many financial elements that are mirrored when you throw in multi-national companies leasing in major markets from multi-national leasing and property management companies. If there are issues tied to instability in New York, Chicago and London, you can bet that it’s more than just a fluke within one major market.

What Are We Paying For?

More and more corporate tenants are going to be asking this. Many property management firms are going to stutter and give traditional amenity answers to intelligent amenities-based questions. Property management people, leasing agents and even property owners have to be as comfortable asking “how smart a building do you want?” as they are asking the traditional “how much space do you want to lease?”

Property management firms and building owners are also going to have to make some investments to upgrade buildings to attract and maintain first-class tenants or turn their buildings into storage lofts. Maybe with all the condo buildings downtown a building that turned into a “storage locker skyscraper” might make sense as many who live in condos are always looking for more storage space.

In order to fill the condos, though, you have to have a lot of companies downtown that have good-paying jobs. Companies aren’t going to locate in buildings that can’t support their technology and connectivity needs.

Carlinism: When you put the cart before the horse in a space shuttle world, things just don’t mesh up.