Tenant Representation: Hurricane Sandy - A tenant's perspective to protect business and reduce risks

We are again in the midst of hurricane season. It was a short few months ago that hurricane Sandy exposed the vulnerabilities of commercial tenants. How can a business protect and prepare itself from natural and manmade disasters to insure business continuity, reduce risks and increase its competitiveness? How does your relationship with your landlord affect your exposure and risk? In this article, we look at these issues and define the steps needed to minimize your risks. What is the threat? Super Storm Sandy's damage was caused by the ocean surge and high winds even though it was not a category 1 hurricane when it made landfall. Imagine the potential problems if it were more powerful. The property damage that resulted included flooding of basements where electrical switchgear, heating systems, elevator controls and telecommunications are commonly installed. It inevitably damaged all the equipment, corrupted fuel tanks, overflowed sewage systems and caused mold. The high winds downed trees which created havoc throughout the suburbs with loss of power, communication and transportation. Other cataclysmic events could produce fire, building collapses or the undermining of structures, loss of access and transportation to your facilities or data destruction through cyber attacks. Asymmetric Nature of Damage Even more painful for a business is the asymmetric nature of the damage. Some businesses are unscathed and others are wiped out. In Sandy, some companies were closed down due to physical damage, inaccessibility, loss of power, loss of elevator service and loss of heat while their clients and competitors operated. In New York, if you were north of 39th St. you never lost power. If you were below 39th St., you waited a week or more before power and heat (i.e. ConEd steam) returned. This created major advantages for some companies. Having a good continuity plan provides a competitive advantage and assures clients of your resilience. Preparation is the new norm The best way for a business to determine its vulnerabilities to threats is to perform a Business Impact Analysis (BIA). A BIA identifies the most common and critical perils, along with operational vulnerabilities, and provides the basis for the creation of a Disaster Recovery - Business Continuity Plan (DRBCP). The basic issues addressed by a BIA study may include an assessment of communication, transportation, facilities, financial resources, client service delivery and priorities, key vendor support, IT /data protection processes and analysis of recovery phases. Of course, greater organizational complexity requires a more detailed plan. Communication and Transportation Plan In a disaster, communication and transportation are the first to fail. The restoration period for these may be unpredictable, however we must impose some staged or phased recovery goals and provide the process with the means to achieve them. In both cases, the most basic solution is to avail ourselves of as much redundancy and diversity available as we can afford. For communications, choose a building that has multiple carriers, and utilize diverse forms of communication media (i.e. wireless, fiber, copper, microwave, etc.), along with diverse cabling routes both to and within the building. We recommend that your lease provide access to building risers leading to the basement and roof. This infrastructure investment is a function of the revenue, production and distribution value your organization generates and/or manages within the assets you seek to protect, both short and long term. Clearly, the more critical these are, the more redundancy, diversity and expense needed to sustain them. All personnel should have uniform, policy based, access to company contact information, within a defined escalating communication path to, colleagues, decision makers, the landlord, building management and customers, in order to authorize actions, issue and receive instructions, as well as maintaining normal business operations. Communication is vital to know where to report to, that the building is open, accessible, elevators are available, and steps to recovery are underway or completed once you arrive at your destination. Transportation is similar to communication in that alternate travel routes and diverse forms of transportation are essential. Depending on the nature of the business, and sensitivity to downtime, pre-positioning or pre-staging multiple shifts of personnel, to manage or mitigate activities is a critical component of your plan. This is especially critical during the initial recovery phase of an event. Vendor/Customer/Landlord Vulnerabilities Knowing that your critical vendors and customers have a plan in case of an emergency is essential to your own planning. Redundancy and diversity in our vendors provide options at critical times. One major vendor is your landlord. Although, diversity is not feasible, does the building management have its own DRBCP plan? Have they protected their most obvious vulnerabilities? For example, many buildings have moved critical equipment to the second floor for protection from flooding. These are critical issues that tenants now regularly evaluate prior to leasing space. Alternative Facilities Access to an alternative on-demand, temporary, facility at away from potential transportation choke points for critical personnel to work should be a major consideration when creating an action plan. This facility should be available, accessible and either pre-staged with, or ready to receive, essential equipment and materials. Your vendors (and customers) should be made aware of this resource and capability with specific instructions, should it become necessary to activate this option. Some landlords may own properties outside the immediate impacted area which may be available during an event. Several landlords in lower Manhattan had buildings unaffected by Sandy and allowed their tenants from other buildings to use the available space. Data Protection All critical company equipment, information or data, along with related IT systems should have some or all of the following features and routine practices: 1. An up to date inventory of all equipment. 2. IT Systems located in a secure, controlled power environment that provides a satisfactory back-up power source. 3. Redundant and diverse telecommunications. 4. Regular and frequent system and data backed up locally and off-site with relatively quick restore capabilities. 5. Frequent testing of all back up data. 6. An actual physical or "cloud" based failover alternative to primary critical IT Systems or applications that are either up and running part or full time, or can be activated on demand. 7. Frequent testing of all backup IT Systems. No matter how simple or complex, we must test our DRBCP, as this will demonstrate the efficacy of our plans. Landlords can support these efforts by designing their property with redundancy, making sure critical equipment is not vulnerable, and having their own data back-up plan. Insurance Once all the elements, components and parameters of the plan are documented, acquire relevant insurance to mitigate any potential losses. For tenants, insurance clauses in leases are getting much more scrutiny than ever before. Negotiating an appropriate insurance clause is essential. Landlords are looking to transfer more risk and costs onto tenants. In response, tenants need to define the expectations, responsibilities and exposures that a landlord will have in case of a destructive event. Conclusion Identify, and prepare in advance, employing the best IT, real estate and legal counsel that understands your critical business' needs and processes, to implement alternatives should a component of your best laid plans be foiled. For a tenant, there is no substitute for a comprehensive Disaster Recovery -Business Continuity Plan. Integrating critical terms into your lease negotiation provides an understanding for your landlord to support your plan which is now a blueprint for the preparation, response, and recovery of your business. George Grace is managing broker of Mohr Partners, New York, N.Y., and Frederick Cannone is director, sales & marketing of TELEHOUSE America, Staten Island, N.Y.