9 Things to Know About the 2018 Legal Job Market

By Ashley Jackson, Robert Half

 Robert Half logo

Thinking of changing jobs or making a new hire in the months ahead? It’s critical to keep a close eye on hiring and compensation trends in the legal field. Here are 9 trends to watch:

1. Hiring is predicted to remain active in the months ahead.

So far this year, we’ve seen steady hiring activity in the legal field — and that is expected to continue for the remainder of 2018. In a recent survey conducted by our company, more than one in five attorneys said they plan to add to their existing teams during the coming months. Succession planning has become a key factor in hiring decisions.

2. Turnover rates are rising.

This is driving hiring managers to work harder to determine whether a candidate is a good fit for the organization’s workplace culture and a strong match for the available position. That means that law firms are hiring more strategically. In today’s competitive marketplace for legal services, firms are focusing on emerging business opportunities and making targeted hires that will better allow their teams to expand into lucrative practice areas, such as commercial law, intellectual property and litigation.

3. Experienced legal professionals are in demand,

a reality that is driving the continued growth of the lateral job market for lawyers and legal staff support members. In fact, nearly seven in 10 lawyers recently surveyed by Robert Half Legal said it is challenging for their firm or company to find skilled legal professionals in the U.S. today.

4. Heightened focus on high-growth practice areas.

Litigation and general business/commercial law are anticipated to be generate the greatest number of legal jobs in the next two years. Growth is also projected in the real estate, regulatory/compliance and healthcare practice areas.

5. Highly skilled candidates are being hired quickly; multiple offers are more common.

Finding someone who exactly matches a position’s requirements can be difficult. When hiring managers do identify strong candidates, they need to act quickly to extend a job offer or risk losing them to other firms. Multiple job offers and counteroffers have become more common.

6. Candidates with specialized skills are in demand.

Law firms and legal departments are seeking lawyers who possess not only superior legal skills but business and financial knowledge as well. Advanced technical capabilities are also increasingly important — for legal support staff and lawyers alike.

7. Hybrid roles are more prevalent.

In a recent survey we conducted, two-thirds of lawyers interviewed said blended or hybrid paralegal and legal secretary positions have become more prevalent in the last two years, and 15 percent said their organization plans to increase hiring for these roles in the next 12 months. Our research also found that 50 percent of the legal support jobs at law firms or companies today are hybrid positions. Tech-savvy and versatile legal assistants, especially those with three or more years of experience in a high-demand specialty, are highly marketable.

8. Salaries are increasing along with expectations of staff members.

Billable hour and business development requirements are rising, and many organizations are linking compensation to performance. To stay competitive, legal organizations are using additional compensation strategies to attract and retain top talent.

9. Employers are enhancing benefits packages.

Many recognize that while salary continues to rank among the top criteria legal professionals consider important in their jobs, other factors also contribute to employees’ job satisfaction. Many are increasingly offering an expanded range of benefits, incentives and perks that employees value, including flexible work schedules, telecommuting, performance-based bonuses, training and education, paid parking and more.

It’s important that legal employers continue to monitor hiring and compensation trends to both attract top-tier candidates and retain exceptional staff members. And legal professionals, whether currently employed or on the legal job hunt, should also keep current on new developments that can help guide their career decisions and success.

You’ll find additional details and information in Robert Half Legal’s 2018 Salary Guide:

  • The guide features in-depth analysis of national salary ranges using detailed percentiles versus just low and high ranges.
  • It includes detailed salary information for nearly 50 legal positions based on national averages. It also offers regional variance information for numerous cities across North America to help employers adjust salaries to their local markets.
  • And it provides more details on popular benefits, incentives and perks, other compensation strategies and more.

In addition to our Salary Guide, we also offer an online Salary Calculator at roberthalflegal.com/salary-center, where you can quickly look up a salary range for an individual position customized to your location.


Ashley Jackson is the Seattle based branch manager for Robert Half Legal, a premier legal staffing service specializing in the placement of attorneys, paralegals, legal administrators and other legal professionals with law firms and corporate legal departments. For more information, visit roberthalf.com.

Marjorie Goldfarb
New PSALA Website Goes Live

The PSALA is proud to announce the official launch of our new website. Our newly designed website offers quick and easy access to essential information, a more professional look and features a more-detailed description of our association and all that our chapter has to offer.

New features:

  • A newly designed chapter brochure
  • Member and business partner directories are now searchable
  • An automated application process
  • A mobile-friendly design

Although our website is now public, for privacy reasons we have password protected the Member Directory. (If you are a PSALA member, you should already have received password protection information.)

This new site will open the door to visitors and potential new members, giving them access to more information than ever before while at the same time giving our organization the ability to continue to grow our presence within the community.

Although the look and feel of our site has changed, the address has not. You can still find us www.psala.org.

Marjorie Goldfarb
In Honor and Recognition of April Campbell
 April Campbell becomes 2018/19 ALA President

This week at the Association of Legal Administrators (ALA) Annual Conference & Expo in National Harbor, MD, the ALA inducted its Board of Directors for the 2018-19 year. Leading the association and serving as president is our very own April Campbell. April's vision, ability to communicate and love of ALA have taken her the highest level of governance within our association.

It is our delight and honor to recognize April and this outstanding achievement.

 

Marjorie Goldfarb
Struggling to Staff Open Jobs? Answer These 3 Questions

By Robert Half

 Staffing Open Jobs

It’s a tight hiring market, to be sure. However, if your company has persistent difficulty securing talent for open roles, a shortage of skilled candidates may not be the only reason.

Ongoing hiring challenges are not only frustrating but also detrimental to your business. If you can’t secure the talent you need to meet your strategic objectives, you may not be able to achieve growth targets. You are also at risk of overloading your core staff — a situation that could, in time, drive those workers to seek new opportunities elsewhere.

The inability to find skilled candidates has become an all-too-familiar situation for many employers. However, it might not just be a supply-and-demand issue. To identify other factors that could be hindering your ability to secure the talent your business needs, consider the following three questions:

1. How is your company perceived by potential hires?

What is your business doing to raise its visibility with in-demand candidates, other than placing job ads online? Unless your company is a household name like Google or Apple that attracts candidates based on name recognition alone, you need to take steps to build buzz around your firm. For instance:

  • Do you use social media — including outlets widely used by millennials, like Snapchat and Instagram — to give potential hires insight into what it’s like to work at your firm?
  • Are you sponsoring events, like hackathons or Meetups, geared toward the types of professionals you are trying to hire?
  • Are you enlisting help from your current staff to generate interest in your business through their professional networks and the industry events they attend?
  • Are you, or other members of your management team, helping to elevate the public profile of the company by blogging or speaking publicly about important topics and trends in your industry?

These are just a few strategies for grabbing the attention of potential hires. They can also help you build a pipeline of talent, which can make it easier to staff open jobs in the future. Of course, it takes time and effort to build a reputation as an employer of choice. But in a highly competitive hiring market, you can’t afford not to be engaged in your industry and actively promoting what is awesome about your company.

2. Is your company’s location a factor?

Exactly where a person is expected to work matters, even in a digital world that makes it easier to collaborate across countries and time zones. For instance, if your headquarters is near one of the top cities in the country to work, it could naturally lead more candidates to apply for a job with your firm. Conversely, if your business is located in the suburbs, long commutes could prevent professionals who are worried about maintaining work-life balance from considering your company.

If you sense location may be an issue, consider offering flexible schedules or setting up remote work opportunities to help expand the candidate pool beyond your firm’s immediate vicinity. Providing other compelling perks, like wellness programs or on-site childcare services, can also help employees worry less about a long commute and allow them to achieve the level of work-life balance they seek.

3. Is your hiring process too long?

In a Robert Half survey, 39 percent of professionals said a lengthy hiring process would lead them to lose interest in a job and pursue other opportunities. About half of respondents (46 percent) said they were willing to wait just a week or two following an interview to find out about a hiring decision — after that, all bets are off and you may find that your top candidate has already been hired by another firm.

One way to consolidate your hiring timeline is to be prepared to make a verbal offer to a promising candidate promptly after completing the interview process. Make clear to the candidate that the verbal offer is contingent on a satisfactory reference check and/or background check. Also, be prepared to negotiate salary and perks — and set a start date — right away.

Don’t hold out for a unicorn

Finally, I recommend that companies facing significant hiring challenges consider whether they have unrealistic expectations. I frequently caution employers about holding out for a candidate who simply may not exist. As these hiring managers wait for a unicorn — that perfect candidate with a one-in-a-million skill set — to materialize, they allow other talented people to slip away.

Think about what qualifications a candidate absolutely must have to perform the job well. When evaluating applicants, focus on true job requirements versus nice-to-haves. And always be willing to consider promising professionals who may not meet all your criteria but could still meet your firm’s needs with just a small investment in training and some extra ramp-up time.


 Paul McDonald

Paul McDonald
Paul McDonald is senior executive director at Robert Half. He writes and speaks frequently on hiring, workplace and career management topics. Over the course of more than 30 years in the recruiting field, McDonald has advised thousands of company leaders and job seekers on how to hire and get hired.

McDonald joined Robert Half in 1984 as a recruiter for financial and accounting professionals in Boston, following a public accounting career with Price Waterhouse. In the 1990s, he became president of the Western United States overseeing all of the company’s operations in the region. McDonald become senior executive director of Robert Half Management Resources in 2000, and assumed his current role in 2012. He earned a bachelor's degree in business administration with a concentration in accounting from St. Bonaventure University in New York.


This blog post is courtesy of Robert Half, the world's first and largest specialized staffing firm. The company places professionals on a temporary and full-time basis in the accounting/finance, technology, legal, creative and administrative fields. For more information, visit roberthalf.com. See the original post.

Marjorie Goldfarb
Community Service Project at the ALA Annual Conference - Assistance Needed!
 ALA National Conference at National Harbor

When you get ready for work each day, you likely don't give a second thought to the soap or toothpaste you use. But for many communities across the globe, such basic essentials for everyday health are hard to come by.  As a member of the 2018 Annual Conference Planning Committee, I am asking for your help in supporting World Vision, the charity that has been chosen to partner with at this year's annual conference, based upon their international mission of supporting basic hygiene needs for children.

For a donation of just $16, you can purchase a kit that includes essential hygiene items like soap, shampoo, toothbrush, toothpaste and more. Onsite at National Harbor, in the Exhibit Hall, attendees and exhibitors will work together to assemble the kits purchased, to be sent to a country in need.

If you are attending and have registered for the conference, you can log in and add a donation if you wish. For those not attending, consider this as a way you can participate with your ALA colleagues from around the world. Use the link below if you want to purchase a kit which will be assembled on-site by conference attendees or simply make a donation by clicking the Make a Donation or Int'l Hygiene Kit button at the bottom left of the screen.

http://www.alanet.org/events/save-the-date/2018-annual-conference/events/community-service

Thank you for your consideration.
Beth L. Fowler, CLM
Administrator - Robbins, Russell, Englert, Orseck Untereiner & Sauber LLP
bfowler@robbinsrussell.com

Marjorie Goldfarb
PSALA’s Spring Party – “The Frolic at the Frye”

By Kristal Tamburo, Naegeli Deposition and Trial

 Carmen Carillo and Kristal at the Frolic

A fine evening of supportive networking was enjoyed by all Wednesday, April 4th at the 2018 PSALA Spring social, aptly titled “Frolic at the Frye." Nestled in the bosom of Seattle’s First Hill at the historic Frye Museum, the Puget Sound Association of Legal Professionals hosted members and guests from around the region as they unwound from the day’s business.

Partygoers took in the sumptuous surroundings, stunning architecture and were treated to a fine array of tidbits and refreshments. All were in good spirits; it would have been difficult not to have been considering the refined atmospheric beauty, a cleverly distracting scavenger hunt designed to take guests deep into the Salon Gallery and the general merriment displayed by the dozens of colorful guests.

The Frye Museum, known for its resounding dedication to enhancing its environment and preserving its impressive collection was a gracious host, allowing patrons of the social to wander throughout the entire collection uninhibited while visiting and networking. It was an evening designed for politely professional conversations. Kudos must go to the organizers of this wonderful evening. What a fun night and charming place to hold an indelible event.

For more information about Naegeli Deposition & Trial, visit www.naegeliusa.com.

 Kristal during the scavenger hunt
 Cheryl from Naegeli with Robin Nussbaum and Carmen Carillo networking at the Frolic
 Cheryl from Naegeli with Sean Monahan, Anita Lyter, and Denny Krantz at the Frolic
Marjorie Goldfarb
New Challenges Employers Face under the ACA in 2018

By Liliana Salazar, Esq., Chief Compliance Officer, Western Region, HUB International

 HUB logo

As the Patient Protection and Affordable Care Act (‘ACA’) celebrates its eighth year of enactment, what new challenges will law firms face under the ACA in 2018?

In 2018, firms in both the small group (less than 50 employees in most states, or less than 100 employees in CA, CO, CT, NY, and VT) and the large group markets should anticipate an increase to their health insurance premiums ranging from single-digits to low double-digits. Part of the increase is attributed to the health insurance tax (“HIT”) tax, which will be reintroduced for all insured plans renewing in 2018. The HIT tax will result in an increase in premiums ranging from 1% to 3.5%, depending on the insurance carrier’s market share. Other factors influencing healthcare insurance trends include: rising pharmacy costs; consolidation in the number of insurance carriers, pharmacies, and provider networks available regionally and nationwide; and, uncertainty as to the viability of the ACA and its mandates. Although increases in group insurance premiums are not expected to vary greatly from 2017, employers will still struggle in 2018 with the rising cost of health insurance. According to the Kaiser Family Foundation 2017 Employer Health Benefits Survey, the average family premium has increased 55% since 2007 and 19% since 2012*.

In 2018, firms that are Applicable Large Employers (‘ALEs’) – defined as employers with 50 full-time (FT) and full-time equivalent (FTE) employees – will face new challenges under the Employer Shared Responsibility Provision (‘ESRP’), or “Play-or-Pay Mandate” of the ACA. Under the ESRP,ALEs are required to: 1) offer minimum essential coverage to 95% of their full-time employees; 2) offer coverage that is minimum value (60% actuarial value); and, 3) offer coverage that is affordable under one of the three IRS’ affordability safe harbors (rate of pay, box 1 of the W-2, or 100% of the Federal Poverty Level).

For the first time since 2014, the affordability safe harbor (the amount an employee is required to pay for employee-only coverage for the lowest cost plan that is minimum value) will decrease from 9.69% (2017) to 9.56% (2018). This reduction in the affordability safe harbor may require employers to increase their contribution towards employee-only coverage if they want their plan(s) to be affordable in 2018. For example, in 2017, an employer that used the rate of pay safe harbor to assess affordability of coverage could require an employee making $12 an hour to pay $151.16 per month ($12 times 130 times 9.69%) for employee-only coverage for the lowest cost plan that was minimum value. However, in 2018, that same employee earning $12 per hour cannot be asked to pay more than $149.13 ($12 times 130 times 9.56%) per month. As the ACA does not rely on the percentage of premium an employer pays in assessing the affordability of coverage, employers will face two increases in 2018: one predicated on their medical plan’s renewal trend increase, and the second based on a decrease in the affordability safe harbor.

Lastly, firms that are ALEs must be prepared to respond to IRS Letter 226J. Letter 226J notifies an ALE that a penalty may be assessed against them by the IRS for violation of the ESRP (IRC §4980H(a) or IRC §4980H(b)). The IRS commenced enforcement action of the ESRP for the 2015 calendar year in November 2017. A Letter 226J is issued if one or more of the ALE’s full-time employees received a premium tax credit when they purchased insurance coverage from the marketplace or state exchange. Employers that are ALEs should carefully review their Forms 1094-C and 1095-C to identify filing errors that may trigger the issuance of Letter 226J, as well as ensure that they have retained records of the type of coverage that was offered to employees, employees’ elections (including waivers) and the cost of coverage.

In 2018, firms should evaluate alternative plan designs and contributions that will allow them to remain competitive, while providing a valuable benefits program to employees and partners. The ACA will continue to create challenges and opportunities for firms and their employees, especially as the Trump Administration and Congress attempt to unravel some of the less popular provisions of the ACA.


*The Kaiser Family Foundation and Health Research & Educational Trust 2017 Employer Health Benefits Annual Survey, page 4.


For further information please contact:
Steven Colson
Vice President | Professional Liability Practice Leader
HUB International
T:  206-838-1090
E:  steven.colson@hubinternational.com
Or
Scott Andrews
Senior Vice President | Professional Liability Practice Leader
HUB International
T:  425-368-1262
E:  scott.andrews@hubinternational.com

Marjorie Goldfarb
Tax Withholding Updates for 2018

By Kathryn Aldape, Paylocity

At the close of February, the IRS released an updated tax withholding calculator on IRS.gov and issued a new Form W-4, Employee's Withholding Allowance Certificate. You can use the online calculator to check your 2018 tax withholding following passage of the Tax Cuts and Jobs Act in December, and then use that information to help you decide if you wish to choose to adjust your withholding/filing status/exemptions.

Below is an illustration of the changes between the 2017 and updated 2018 version.

 IRS tax forms for 2017 and 2018

The major changes to the worksheet reflect required updates to income thresholds for the Child Tax Credit as well as additional steps to determine how to adjust dependent exemptions based on projected annual income.

The IRS plans to release a new version of Form W-4 for 2019 that will contain further changes involving withholding.

If individuals have questions about the tax updates for 2018, we would advise them to reach out to a tax attorney regarding interpretation of the law.


Kathryn Aldape, Paylocity
service@paylocity.com
888-873-8205

Marjorie Goldfarb
“Adapting Law Firms for a Buyer’s Market”

Highlights from Jordan Furlong’s Presentation to the PSALA on March 8, 2018

By Leslie Meagley, Meagley Strategic Marketing LLC

 Law is a Buyer's Market by Jordan Furlong

Jordan Furlong’s recent presentation to the PSALA provided a dizzying walk through the forces of change that our law firms are facing and how to respond. Despite his sobering predictions, he is chock full of optimism and practical recommendations for firms that are embracing the forces determining our future.

3 CHALLENGES – THE SHIFT OF POWER TO THE BUYERS

Jordan’s talk and the first third of his newest book focuses on explaining how “the priorities of the buyer are now emerging as the dominant force in the legal market” challenging our point of view, how we provide services and the structure of our law firms.

A.    CLIENTS have a new purchasing mindset. With access to data about billing rates and deliverables from other firms and colleagues, clients have become more assertive. Procurement and legal operations specialists are increasingly involved in purchasing legal services, and that’s changing how we need to think about delivering value.

B.    Clients have new CHOICES to solve their legal problems. Low level legal work is increasingly moving away from law firms thanks to a) a significant rise in legal process outsourcing firms like Elevate, Axiom, UnitedLex; b) new technologies that simplify, streamline and automate traditional in-house tasks and that offer online solutions for individuals, and c) competition from other service providers like the “Big 4” accounting firms.

C.    These pressures are challenging the COHESION of the traditional law firm business model. The imminent retirement of significant numbers of partners is catalyzing transition issues. Millennials are challenging traditional assumptions about how we work. And, at the macro level, it is increasingly difficult for laterals to transport a book of business to a new firm.

6 RESPONSES 

It’s naïve to think that anyone trying to introduce new ideas into a law firm won’t face significant pushback. Vision is key. (As Jordan pointed out, “Once we have a vision, we can create it.”) But, the immediate challenge is helping our attorneys and staff understand and embrace the opportunities ahead of us. Which makes small wins so important. Here are 6 groups of ideas to create those small victories.

1.    Restructure our practices around our clients. We need to understand our clients’ point of view. While larger firms can form industry-focused groups or multidisciplinary client teams to become informed about our clients, even small firms can ask for feedback and make simple changes that upgrade their experiences with our firms.

2.    Optimize our operations. We need to operate with the efficiency and productivity that clients now expect. We need to standardize and streamline, beginning with the critical question, “If we weren’t already doing something this way, would we continue to do so?”

3.    “Compete to dominate” in select areas. Firms don’t have the resources or time to be “best in class” in every practice area. If we want to be doing the best work for high profile clients and getting premium rates, we need select and then double down on a few targeted areas.

4.    Run our firms like the businesses they are. We need to reframe how we look at billable hours to consider value in our mix. We need to invest in the R&D to understand how we can create initiatives—even small ones—that will delight our clients. And, we need to boost incentives that reward the marketing, management and professional development that are critical to the long-term health of our enterprises.

5.    Diversify our personnel and include “non-lawyers” into client service delivery. Countless studies have demonstrated that diverse teams—teams that include professionals at multiple levels, as well as women and people of color—deliver better solutions- and more value to clients.

6.    Most importantly, our firms need to strengthen our enterprises. Rather than simply hiring the best lawyers, we need to build strong organizations with cultures that live up to our values and purpose.

Law firms face a bright future, provided we understand the forces we face and embrace the opportunities to deliver higher value to clients and improve the satisfaction of our lawyers and staff. Jordan provides insightful analysis and excellent ideas for anyone ready to work toward that vision.


Meagley Strategic Marketing LLC
Leslie F. Meagley, Principal
leslie@meagleymarketing.com
linkedin.com/in/lesliemeagley
Phone:  206.963.2756
www.meagleymarketing.com

 

Marjorie Goldfarb
Passing of the Gavel 2018
 Sean Monahan passes the gavel to Tara Ghannam Binge

At PSALA's Passing of the Gavel on March 8, outgoing President Sean Monahan handed over his position to incoming President Tara Ghannam Binge.

Attendees were treated to a presentation by Jordan Furlong on "Tomorrow's Law Firm - Today." This informative session focused on the impact of changing market conditions on lawyers and law firms, as "Tomorrow's Law Firm - Today" Law is becoming a buyer's market.

Clients have taken the upper hand with outside counsel, as law firms grapple with competition from technology companies and alternative legal services providers while coping with shrinking retainers and internal succession crises. In the coming years, law firms will generate revenue from a diverse range of sources - including technology-driven products and the contributions of skilled "non-lawyers" - rather than from the billable efforts of lawyers alone.

Yesterday's law firm model can't cope with these new market realities -- we need tomorrow's law firm, and we need it now.

Jordan Furlong, a leading analyst of the global legal market and forecaster of its future development, explained the forces that are remaking the legal services marketplace and recommended six strategic responses that law firms can make to remain competitive in a time of great upheaval.

A Fellow of the College of Law Practice Management, co-director of the advisory board of Suffolk University Law School's Institute on Legal Innovation and Technology, and a member of the Advisory Board of the American Bar Association's Center for Innovation, Jordan Furlong has given dozens of presentations to audiences in the US, Canada, Europe and Australia over the past several years. He is the author of Law Is A Buyer's Market: Building a Client-First Law Firm, and he writes regularly about the changing legal market at his website, law21.ca.

Marjorie Goldfarb
Leaning Into Your Strengths for Motivation and Success

By Darien Fleming

 I'MPossible logo

Individuals who lean into their strengths every day are 8 times more productive, 6 times as likely to be engaged in their work, and 3 times as likely to report having an excellent quality of life(1).  Do you know what you do best?  If you cannot easily speak to your own natural abilities, ask yourself the following questions:

  • What kinds of activities are you looking forward to doing at work soon?
  • What kinds of activities are you drawn to? Do you pick up quickly?
  • In what activities do you seem to automatically know the steps to be taken?
  • What activities give you a kick, either while doing them or immediately after finishing them and you think: “When can I do that again?”

Your answers to these questions are a clue to what your strengths are.  If you cannot answer these questions and want help identifying your strengths, consider taking the Clifton StrengthsFinder Assessment(2).

Gallup’s research has found that when people learn how to consciously apply their strengths to their goals and tasks, their ability to perform with excellence increases substantially.  The better you can apply your natural talents and abilities to your work, the greater your potential to consistently act with more confidence, direction and engagement.  If you want to build more joy, excitement and motivation into your work, be more of who you are already and do more of what you do best.

Click here to download a simple worksheet to help you identify the tasks and responsibilities that keep you busy, what’s most important to your work, and where your strengths lie.  This worksheet will also help you identify places where partnerships would be of value.   There is real power in partnering with others, particularly with people who have different strengths than you.  Reflect on other administrators in your firm who you know that might be strong where you are weak and consider helping each other out!


(1) http://www.gallup.com/businessjournal/186044/employees-strengths-outperform-don.aspx
(2) https://www.gallupstrengthscenter.com/


Darien Fleming, Executive + Career Coach and Trainer
Darien@IMpossible.guru •617.823.7794 • www.IMpossible.guru

 

Marjorie Goldfarb
Only So Many Times

By Paul Purdue

 Paul Purdue

I have two great kids - Katie and Spencer. I was chatting with my son, and he reminded me of a life lesson I shared with my children when they were just little kids. Funny thing is, it took twenty years for me to realize the full teaching myself.

Little kids love repetition. Once something is familiar and recognizable, it’s easy for them to digest. Think about how much of what we learn in kindergarten is taught in a song or rhyme. Kids like to feel included and participate in patterns.

And there are tons of toys that take advantage of this. Toys have buttons a child can press to get the same character's catch phrase thrown back to them, which the child, much to their joy, can repeat out loud. Satisfied with themselves, they press the button again. Same catchphrase, repeated again by the child. And again. And again, and again…

… You’d think with the way my kids played with the same toys over and over, I’d remember the character and the sounds that haunted my early days as a dad. Maybe I had to block them out. Either way, my children loved to do the same things, make the same sounds, and repeat the same processes with their toys. And while they loved the repetition, it got to be too much on Dad’s ears.

But you can’t just ask your child to stop playing with their favorite toy. Not only does that make you a Grinch, it puts you at odds with your kids over something small. So, what was I to do about my kids and their toys? Suck it up and deal with the annoying sounds? 

Oh no, clever as I could be, I disguised my dismay in this bit of wisdom: “You know,” I told Katie and Spencer, “you can only do that with your toy so many times until it breaks.”

I thought I had them. It’s logical - you don’t want your toy to break because you love playing with it. So, maybe if you don’t press the same button 47 times in ten minutes, then your toy will last longer. A perfectly sound argument.

Well, my kids hated that, and they kept on playing. But, I have to give it to them, I’m pretty sure they still enjoyed those toys long after the sound features wore out.

Now, both my children are grown, and the lesson grew up with them. Just the other day, I saw my son working on his laptop. It’s an older machine - one he just uses for particular applications. He’s got a desktop and a tablet, but still loves this laptop for certain things. Seeing him clicking away, I joked “You know you can only do that so many times until it breaks, right?”

We laughed and reminisced about him and his sister playing together and whether they intended on annoying dear old dad or not. It was during that trip down memory lane that I started to think more about those words. While this statement was true on the material level, it’s actually the exact opposite for the intangible.

All inanimate objects will eventually fail. Even the best made products have a life cycle. When you use something frequently - especially an object with a repetitious function or a mechanical element - the product life cycle speeds up.

It’s not just objects, either. All things will eventually stop working or die. In most cases, exhaustive usage will lead to faster depletion. For example, think about picking wild flowers. Take one or two from the field for yourself and that’s okay. They will live and wilt for your personal pleasure. Pick an entire field dry, and there will be nothing to pollinate and proliferate in the springtime.

So, while this statement makes sense for anything physical, the paradox is true for the things you can’t touch. Your ideas become stronger with more research, debate and challenge. Habits are formed as the result of repeating the same thing until it’s second nature. All things ethereal and undefined - like the way you solve problems or mentally navigate stress - only get better with practice. They won’t break the more you use them.

Think about the last new thing you learned. This can be anything from programming to cooking. At first, you probably had to do a lot of research. Constantly double checking your process and second guessing yourself, you wanted to be sure you were doing things right. 

Now, think about how well you execute this new activity. If you’ve continued to practice this thing, chances are you no longer check cookbooks or coding hot sheets - you just know your process. The knowledge is engrained in you. Your understanding is deeper and better because you practiced.

Mental habits can only be created with repetition. Don’t run from the upfront pains you will face. It’s okay to be intimidated by a new challenge, but that’s not a reason to run away. Too many people don’t try something new because they are afraid to fail. Let me tell you something that will make you feel better - you’re going to fail. A bunch. And that’s okay! You can’t learn something new if you’re not ready to make mistakes. Your errors are what allow you to evolve.

To achieve perfection in any personal or business process, it takes repetition. It takes legwork, effort and failure. But unlike the temporary material objects in our world, your repeated efforts won’t make you break. They will make you stronger. 

Seek out experiences that bring you closer to what you desire. With practice, you will form habits. With tenacity, you will continue to improve your mental and business game..


Paul Purdue is a principal at Attorney Computer Systems. He's a self-proclaimed "infrastructure nerd." Check out Paul's growing library of legal technology articles and videos on Attorney Computer Systems' web site.
Contact Paul:
(800) 475-8104    
paul.purdue@attorneycomputersystems.com
www.attorneycomputersystems.com

Marjorie Goldfarb
Professional Services and the New 20% Pass-Thru Deduction

By Matt Spencer, Peterson Sullivan LLP

 Matt Spencer

This article provides information on the new 20% pass-thru deduction as it applies to professional services businesses, including the fields of law, architecture, engineering, insurance, financial services, consulting, health, etc.

Effective January 1, 2018 the new tax legislation, called the Tax Cut and Jobs Act, creates a deduction equal to 20% of “qualified business income” earned from pass-thru entities.  For those eligible, the deduction will be claimed on individual owners’ tax return Form 1040.
The new deduction is codified into federal law as Internal Revenue Code Section 199A.  You may see the following terms used to describe the deduction, each meaning the same thing:

  • 20% qualified business income (QBI) deduction
  • 20% pass-thru deduction
  • Section 199A deduction

The deduction is subject to a host of caveats and limitations.  Please continue reading to learn more, and give your tax advisor a call to discuss your specific situation.

We note that because of the complexity and lack of existing authoritative guidance on this new law, what follows is subject to change.

If I am eligible, will I see the 20% deduction on my 2017 tax return?

No. The 20% deduction is effective January 1, 2018.  Those who claim the deduction will first see it on their 2018 tax returns, filed in 2019.  

What is “qualified business income” (QBI)?

Generally, QBI is business net income (not revenue) from ownership in pass-thru entities, including partnerships and S-corporations, as well as sole proprietorships. 

Other restrictions aside, your business income is eligible if the company is structured as a:

  • Partnership (files tax return Form 1065)
  • S-corporation (Form 1120S)
  • Sole proprietorship (Form 1040 Schedule C)

Other entity types may qualify as well.  These are the main three.

Business income from C-corporations (Form 1120) is not eligible for the 20% deduction.  

Can you provide a brief example of how the 20% deduction generally works?

Ignoring other limitations, if QBI equals $100,000, a $20,000 (20% x $100,000) deduction may be claimed on the owner’s personal tax return.  Assuming the highest 2018 individual tax rate of 37%, a $20,000 deduction results in $7,400 tax savings (37% x $20,000).

The deduction reduces personal taxable income, which is your adjusted gross income MINUS deductions (standard or itemized).  It does not directly reduce adjusted gross income.  
It is not necessary to itemize to claim the deduction.  That is, eligible taxpayers may claim the 20% deduction even if they also take the standard deduction.


What are the 2018 taxable income thresholds?

Because we are going to reference “applicable taxable income thresholds” frequently in this article, it is good to review them up front.

 Table of services and deductions

How do I know what my taxable income is?

Your taxable income can be found on your Form 1040.  For example, on your 2016 Form 1040 it is page 2 line 43.  Taxable income includes all income and deductions, including wages, capital gains, interest, dividends, retirement income, income and losses from all businesses, spouse’s income, itemized deductions, etc.  It does not include tax credits.

Some professional service income is eligible for the 20% deduction regardless of taxable income, and some is only eligible under the taxable income thresholds.  Can you explain?

In short, architects and engineers are eligible regardless of personal taxable income amount.  Most other professional services income is ineligible when the owner’s taxable income is above the applicable thresholds (for 2018 $415,000 married / $207,500 single).

The new law is less generous to professional service trades or businesses than to other industries.   Many professional service activities are excluded from the definition of businesses that generate qualified business income. Those excluded will not be eligible to claim the 20% deduction unless personal taxable income is below applicable thresholds.

These ineligible businesses are defined in the new law as specified service trades or businesses:

“Any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees or owners; or any trade or business which involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.”

Is there any type of professional services income that is eligible for the 20% deduction when taxable income is above applicable thresholds?

Yes.  Architects and engineers. 

The new legislation explicitly exempts architects and engineers from the definition of a specified service trade or business.  Architectural and engineering income is therefore eligible for the 20% deduction regardless of personal taxable income level, but still subject to other limitations.

What is the W-2 wage limit?

When taxable income is above the applicable thresholds, your 20% deduction is subject to a W-2 wage limit, which is the GREATER of:

(i)    50% of your allocable share of the firm’s W-2 wages, OR
(ii)    25% of your share of the firm’s W-2 wages PLUS 2.5% of your share of the firm’s unadjusted basis (i.e. cost) of all qualified property.

For most professional services, W-2 wages far exceed qualified property (building, furniture, equipment, etc.).  Therefore, for most professionals we expect (i) the 50% W-2 wage limit to apply, not (ii) above.

For example, if you own half of a firm that pays $200,000 in total W-2 wages, your 20% deduction is limited to $50,000 (1/2 firm x 50% x $200,000 wages).  This assumes the business has insufficient qualified property, and therefore limit (i) above applies.

How does the W-2 wage limit apply when personal taxable income is BELOW $315,000 married ($157,500 single) for 2018?

When 2018 personal taxable income is below $315,000 married ($157,500 single), no taxpayer is subject to the W-2 limit.  This includes the specified service businesses like doctors, lawyers, etc., in addition to architects and engineers.  Therefore, below these taxable income thresholds, professional services pass-thru income is generally eligible for the 20% deduction regardless of industry.

How does the W-2 wage limit apply when personal taxable income is BETWEEN $315,000-$415,000 married ($157,500-$207,500 single) for 2018?

When in these taxable income ranges, the limitations are different whether you are or are not in a specified service business.

For those who are NOT in a specified service business (e.g. architects and engineers):

  • Your 20% deduction is subject to a phase-in of the W-2 limit when personal taxable income is in the above range.  However, if your firm allocates to you sufficient W-2 wages, generally you will still be eligible for the full 20% deduction.

For specified service businesses (e.g. lawyers, accountants, financial service providers, etc.):

  • Your 20% deduction is subject to two limitations when personal taxable income is in the above range:
  1. First, your 20% deduction is subject to an income based phase-out.  This means the closer your income is to the top of the range ($415,000 married / $207,500 single), the less your 20% deduction will be.  At the top of the range, your 20% deduction will be $0 regardless of W-2 wages the firm allocates to you.
  2. Second, your 20% deduction is also subject to a phased-in limit based on W-2 wages allocated to you.

Are there other limitations to be aware of? 

Yes.  The 20% deduction cannot exceed 20% of the net of personal taxable income MINUS net capital gains.  This applies to all taxpayers regardless of industry.

For example, if your personal taxable income is $200,000 and your net capital gain is $150,000, then your 20% deduction is limited to $10,000 [20% x ($200,000-$150,000)] regardless of your QBI amount.

This limit has the effect of reducing the deduction for taxpayers who claim significant itemized deductions, losses from other activities, or for whom taxable income is made up largely of capital gains.  

What income is NOT eligible for the 20% deduction? 

Examples include:

  • Specified service trade or business income in which the owner reports 2018 taxable income MORE than $415,000 married ($207,500 single).  See the above definition of specified service trades or businesses.  Again, architects and engineers are excluded.
  • All W-2 employee compensation.  Includes S-corporation shareholder W-2 compensation.
  • Partner guaranteed payments from a partnership
  • Capital gains, interest, and dividends
  • Retirement account withdrawals

What pass-thru income IS eligible for the 20% deduction?

Examples include:

  • Architectural and engineering
  • Manufacturing
  • Construction
  • Retail
  • Wholesale
  • Restaurant

And

  • Specified service trade or business income in which the individual owner reports 2018 taxable income LESS than $415,000 married ($207,500 single).  Includes lawyers, accountants, doctors, investment managers, etc.

If I am unable to claim the new 20% deduction in 2018, will my taxes go up?

While every situation must be reviewed separately, we expect many professional service providers nonetheless to see a reduced tax bill—assuming equivalent income, etc.—despite not benefiting from the pass-thru deduction.  The main reason is that individual tax rates generally are pushed down starting in 2018. 

However, some may see a tax increase, potentially those who rely on itemized deductions that have been removed or limited by the new tax legislation.  For example, the deduction for state and local taxes is limited to $10,000 starting in 2018.  Also, personal exemptions will no longer be allowed.

Is the 20% deduction permanent?

No.  As the law is currently written, every change discussed here is set to expire December 31, 2025.  Of course it is impossible to predict how future congressional action may alter this outlook.  The permanent provisions of the new law mostly apply to C-corporations, which are not eligible entities.

I am a partner in a partnership, and I am paid a guaranteed payment.  Are guaranteed payments eligible for the 20% deduction? 

No.  Guaranteed payments (as well as S-corporation wages) are not considered qualified business income eligible for the 20% deduction.  Professionals otherwise in a position to claim the deduction who receive substantial guaranteed payments (or S-corporation wages) should consider re-evaluating their compensation plan.  However, other factors must be considered when deciding on changes to compensation structure.

If you are not sure if you receive guaranteed payments, check your partnership 2016 K-1 (from Form 1065) box 4.

I am eligible for the 20% deduction, but my pass-thru company will report a loss.  Can I still benefit from the deduction?

No. Unfortunately, not only will you be ineligible for the 20% deduction in the loss year, the loss will carry forward to reduce your 20% deduction in future years.  

I am an owner of a partnership or S-corporation.  How will the information needed to calculate my 20% deduction be reported to me?

Starting with the 2018 tax year, your K-1s will include the necessary information.  It will include your qualified business income, as well as your allocable share of your firm’s W-2 wages and qualified property.

Any other aspects of the new 20% deduction to be aware of?

The following types of income are also relevant with respect to the 20% deduction.  For simplification, this article disregards these items.

  • REIT dividends
  • Co-op dividends
  • Publicly traded partnership income

I expect to receive no benefit from the 20% deduction under my current business structure.  Are there other strategies I can consider?

Depending on your situation, certain tax planning strategies may be available.  

Please call your tax advisor to discuss your situation. 


Matt Spencer
CPA, Tax Senior
(206) 971-8446
mspencer@pscpa.com

Matt has three years experience as a tax professional in public accounting, all with Peterson Sullivan, and two years in private accounting with a Seattle law firm.  He serves a broad client base, specializing in tax compliance and planning for high-net-worth individuals, professional services firms, and real estate investments. Matt has a BA in Philosophy from Santa Clara University and an MBA from Seattle University. He is a member of the American Institute of Certified Public Accountants and Washington Society of Certified Public Accountants.

Marjorie Goldfarb
How to Use Photography on Your Firm’s Website to Enhance and Elevate Your Firm’s Brand and Perceived Expertise

By Jeff Lantz

 Jeff Lantz

Happy New Year!  The New Year presents an opportunity to engage in an annual time- honored tradition important to all of us … taking a moment to reflect on our law firm’s website.  Specifically, how our website can be improved to make it into a super-powered, revenue-producing machine for the upcoming year.

While significant time is often spent creating website content and organizational structure, much less time is typically spent considering website photography and imagery, even though these elements play a critical role in determining whether a firm will be perceived as a leading, high-quality firm with top-notch attorneys or an average firm.  Here’s how your firm can use high quality photography to significantly enhance its perceived expertise.

What Types of Photography Look Good (and What Types of Photography Should be Eliminated)

What looks good:

  • Large images, especially on attorney profile pages.
  • Non-traditional photography.  Shoot images outdoors.  Even on a busy street.  Have lawyers in non-traditional poses, such as sitting on the corner of a desk.  Make your photography visually interesting.

What should be avoided:

  • Small attorney headshots.  Small attorney headshots with white or neutral backgrounds are great for LinkedIn, but should be avoided for a website profile page.   Your firm’s attorneys, and how they serve clients, are the focus of your firm. Small attorney images on web pages suggest the opposite – that the attorneys are not a critical part of the firm.  
  • The lawyer line-up. These are the images of one or more attorneys lined up in front of law books.  A professional photographer with an artistic sense can make these images look good, but the “quick photo” line up pictures (usually taken on camera phones) used on many law firm websites usually don’t look professional.  
  • Typical attorney imagery.  Scales of justice, court rooms, etc.

What About Stock Photos – Should We Use Them?

High quality stock photos can be helpful, but only if combined with high quality firm photography.  Even good stock photos cannot overcome otherwise poor firm photography.

How to Get Great Firm Photography

To get great firm photography, here’s what you can do (and what you can discuss with your photographer):

  • Use Different Combinations of Attorneys, Rather Than Only Large Group Shots.  Large group pictures seem to have a Sports Illustrated cover-like curse – soon after they are added to a website, someone in the group will leave.  Inevitably, that person will be in the middle of a great picture, where they can’t be cropped or airbrushed out.  Use different combinations of attorneys, different positioning, etc., to try to avoid this potential issue.
     
  • Show that Your Firm is a Team.  An important attribute of most law firms is projecting the synergies that flow from having multiple lawyers, especially with respect to cross-functional selling.  Take pictures with members of different practice areas together to better promote cross-functionality.
     
  • Shoot Images with a Large Width-to-Height Perspective (Perhaps 4:1 Aspect).  Consider the top images shown on many website home pages (sometimes referred to as “hero” images).  These images are much wider than traditional photos, which might be more in a 4:3 aspect.  If an image is not in a “wide” format, it may be unusable.  
     
  • Allow for Plenty of Space on the Sides of the Subjects.  This is a corollary to the point above. Sometimes photographers (particularly those who often shoot weddings), shoot pictures thinking about how they will look in picture frames. The unfortunate result is pictures that are don’t have enough room on the sides for a particular website placement.  
     
  • Don’t Center Attorneys in the Middle of Profile Pictures.  Often, website profile images feature text, such as the attorney’s name and/or contact information.  Profile pictures should be shot with the attorney to the left and right of center to accommodate for the website design.  It is also more visually appealing when the subject is not centered (which is part of the “rule of thirds” in photography).
     
  • Use a Shallow Depth of Focus.  With a shallow depth of focus, a person may be may be in focus, but the background (or foreground) is artistically blurred.  As an example, some attorneys at a conference table may be in focus, while others (either nearer to or farther from the camera) may be somewhat blurred.  Or, an attorney may be in focus while standing in their office, while their shelves and background items are blurred.  These images place a strong emphasis on the attorney, while minimizing the other image elements that may be distracting. Shallow depth of focus images also work great for attorney profile pages and for images that will have text.  
     
  • Action Photography.  Action shots are often more effective than images of attorneys posing for the camera.  Action shots might include attorneys walking down the hall discussing a case, or even working on a matter in a conference room or on the phone.  When discussing a case in the conference room, hand gestures that people often use when making a point can be effective (instead of simply posing for the camera).  Remember – clients want to picture their attorney hard at work for them – make your firm look active.

Hiring a Photographer

  • Cost.  Hiring a good photographer does not need to be super-expensive.  Check out photography websites, and also consider posting a job on a site like www.thumbtack.com (which is free).  Thumbtack allows multiple professionals to bid on projects, and job posters can see reviews for the professionals that may be considered.  
  • Define the Scope of Work.  Who will be photographed?  How many group shots will there be? Will the photographer “touch up” the raw images?  These and other scope of work matters should be discussed at the outset of a project.
  • Negotiate full ownership of the finished work.  Ideally, you will hire a photographer, they will take the pictures, your firm will own the completed work, and your firm will be able to do whatever they want with the images (including altering the images).  Make sure you are not locked into a contract that is going to cost a lot of extra money after the shoot.

Best of luck for a successful 2018!


Jeff Lantz is an attorney and the CEO of Esquire Interactive LLC (www.EsquireInteractive.com), a leading provider of website development, branding, Internet marketing, video, and social media services for attorneys and law firms.  He is also the author of the ABA book Internet Branding for Lawyers: Creating The Client-Centered Website, and the book The Essential Attorney Handbook for Internet Marketing, Search Engine Optimization, and Website Development Management.  

 

Marjorie Goldfarb
It Takes Two (Types of Thinking)

By Paul Purdue

 Paul Purdue

The other night, I was having a conversation with my wife, Barb. She’s a retired first grade school teacher. She keeps busy and makes extra cash working part-time in the deli at Cabela’s, a popular sporting goods and outdoor retailer.

Barb told me about her day and how they went from slow to super busy. Two busloads of teenagers came into the store – and they all wanted special sandwiches.

She described the next hour or so as a whirlwind of breads, vegetables and cold cuts - all coming together as beautiful sandwiches. Meals went out, cash came in, and the customers got what they wanted.

It’s a small deli, with just my wife and one other employee on duty. The pressure was on - and Barb stepped up. She moved from station to station to making sure all her guest’s deli needs were met.

When the dust finally settled, and my wife and her coworker caught their breath, the store manager approached them - not the person in charge of the deli, but the General Manager of the store.

He came over specifically to compliment Barb. He saw the way she handled the rush - multitasking efficiently and working through the weeds. He concluded his praise with the rhetorical question:

“You do everything around here, huh?”

Being the big thinker I am, I couldn’t just accept the heart-felt compliment the GM gave my wife. I know he meant it, that wasn’t the issue… Moreover, I was curious:

What is it about my wife that makes her able to ‘do everything?’ How is she able to perform at her best in hectic moments? What makes her do well in times where others would flounder?

I asked Barb if it was part of her job’s responsibilities to perform all of the deli functions during a rush.

She said no, she hasn’t been designated to do these extra jobs.

Next, I inquired if this was part of her training. Had they covered with her what to do during a rush? Was this standard operating procedure?

Again, she said no, she hasn’t been trained to deal with situations like these.

She enjoys her job, and her co-workers, so I asked her if she did this extra work in order to be noticed. Did she work more so she’d receive praise like from her superiors?

And again, my wife said no.

With no speculation left, I just had to ask her outright, “OK, then why do you think you stepped up like that?”

Barb thought about it for a few moments. Then, she simply speculated, “I guess it’s because I can.”

And that straightforward answer showed me the obvious answer I’d been staring at the whole time. When it comes to getting things done and making it happen - Some People Can Just Do That!

It’s the clutch basketball player that scores the game winning three pointer in the last moments of the game. Or Tom Brady in the 4th quarter.

It’s the critical thinkers that get their best thinking done right before the final deadline. Some people do their best work in chaos.

The conversation made me think of Mary Jo, and how she’s like Barb in some ways. Mary Jo is great at tackling problems we haven’t seen before. She is ready to think on her feet and get outside the box. Mary Jo is not afraid to take chances and make mistakes - not if it means finding the best solution.

Not me, I’m on the opposite end of the spectrum. I’m a methodical thinker. I ideate infrastructure. I come up with a plan for the future and analyze it from every angle. If you think I can talk, then just imagine the things I’m not saying. In short, I am the planner.

After reflecting on these styles of thinking and problem solving, I realized that how you think isn’t as important as understanding both approaches. In other words, there is a time and place for both styles of thought.

If there’s a new problem at ACS that needs a fast or unorthodox solution, Mary Jo may generate the best idea first. But that doesn’t mean she can’t appreciate long term thinking or plan a system well in advance.

I focus in on the long term / big picture and how we can build the right infrastructure to solve a problem. But when push comes to shove, I can think fast and produce solutions. It may not be my specialty, but I can do it.

The lesson here is to learn and appreciate both sides of fence. Learn how to think in either way.
It’s good to identify what thought pattern resonates with you most. Are you like me - able to create systems, previsualize infrastructure and see the big picture? Or are you more like Barb and Mary Jo - producing answers on the fly and thriving in the most stressful of circumstances?

Figure out your strength. Now, focus in on your weakness. As I’ve said earlier, it’s important you see the value in both ways of thinking. There is a time and a place for both.

How could you improve the way you think and approach a problem?

If you feel like you’re already good at planning, then focus on your reactionary thinking. What’s a problem that your business recently faced where time was a crucial factor? Or, think about a hypothetical disaster scenario for your company - what’s the first thing you would do to solve it?

Do you feel you’re better at jumping in on things as they’re happening? Then, it’s time to exercise your imagination and eye for logistics. Think about a larger problem in your business that immediate action can’t solve. Practice activities that stimulate long term thinking and patience.

Again, the most important thing is knowing the time and place for both ways of thinking. You’ll figure this out if you understand and recognize the value in the side opposite of yours.

By learning from opposite style thinkers, we can enrich our professional and personal lives. Maybe my wife’s fast-on-her-feet nature makes her the perfect counterpart to my big planning and dreams. Or maybe it’s just because she lets me talk so much.


Paul Purdue is a principal at Attorney Computer Systems. He's a self-proclaimed "infrastructure nerd." Check out Paul's growing library of legal technology articles and videos on Attorney Computer Systems' web site.
Contact Paul:
(800) 475-8104    
paul.purdue@attorneycomputersystems.com
www.attorneycomputersystems.com

Marjorie Goldfarb
Seattle Office Market Trends – Fourth Quarter 2017

By Brian Hayden, Flinn Ferguson

 Flinn Ferguson logo

To see the article as a pdf with property photos, please click here.

General Overview

Seattle’s office market saw a slight cool down in the end of 2017 with vacancy increasing to 7.6% in Q4 2017 up from 7.0% in Q3. Total net absorption for 2017 for the Downtown Seattle Office Market stands at 1,380,065 square feet. Despite this cooling, Seattle remains one of the hottest office markets in the country. Development in the downtown core continues to be at an all-time high with Amazon accounting for roughly 40% of the square feet added to the metro region from 2015-2017. There continues to be strong demand for Seattle commercial real estate investment product from investors globally. While the vacancy curve seems to be flattening, rental rates across all submarkets and building classes continue to increase while concessions decrease. Market fundamentals are expected to be in favor of landlords for the foreseeable future.

Economy

The Seattle/Bellevue/Everett area saw a slight uptick in unemployment with preliminary seasonally adjusted unemployment increasing from 3.7% in August of 2017 to 3.8 % in November according to The Washington State Employment Security Department. The Bureau of Labor Statistics is reporting a slightly higher rate of 4.1% for the Seattle/Bellevue/Tacoma area.

Proposed Development

This quarter many previously proposed developments have started construction, with only a handful of new developments being announced or completed:

AMAZON FOURTH HQ BLOCK - 8TH AVENUE & BELL/SEVENTH AVENUE & BLANCHARD
DEVELOPER: Graphite Design Group
COMMENTS: 835,000 total square foot project with two towers (24 story & 7 story). 100% leased to Amazon

FOURTH AND COLUMBIA - 701 4TH AVENUE
DEVELOPER: Crescent Heights
COMMENTS: 151,650 square feet of office, 1,200 residences, 150 hotel rooms, 15,500 square feet retail, 101 stories

BLOCK 18 - 2205 7TH AVENUE
DEVELOPER: Graphite Design Group
COMMENTS: 388,000 square feet of office.  100% leased to Amazon

FORMER FEDERAL RESERVE BUILDING - 1015 2ND AVENUE
DEVELOPER: Martin Selig
COMMENTS: 157,000 square feet of office, 223,000 square feet total, with no apartment units

701 DEXTER AVENUE NORTH
DEVELOPER: Unico Properties
COMMENTS: 60,000 square foot building with plans to add an additional 40,000 square feet for a total of 100,000+ square feet of office space

700 DEXTER AVENUE NORTH
DEVELOPER: BioMed Realty
COMMENTS: 350,000 square foot 2-tower office building with 14 stories, ground retail and 520 parking stalls

SLU STREETCAR BARN - 318 FAIRVIEW AVENUE NORTH
DEVELOPER: Skanska
COMMENTS: 11 story office tower built over a new streetcar barn. Size unknown.

Office Construction

While many projects such as Madison Centre and F5 Tower have delivered this year, Seattle continues to be at an all-time high construction boom with the
following developments all currently under construction:

AMAZON II & AMAZON PHASE VI, VII & VIII
DEVELOPER: Vulcan
COMMENTS: 2,094,000 square foot project, 100% leased to Amazon

TROY BLOCK NORTH & SOUTH- 307 FAIRVIEW
AVENUE NORTH
DEVELOPER: Touchstone Corporation
COMMENTS: 817,000 square foot project, 100% leased to Amazon

RAINIER SQUARE REDEVELOPMENT
DEVELOPER: Wright Runstad & Co.
COMMENTS: 762,800 square feet of office, 216 residences. 100% leased to Amazon

BLOCK 20 - 1234 WESTLAKE AVENUE
DEVELOPER: Seneca Real Estate Group
COMMENTS: 1,100,000 square foot project, 100% preleased to Amazon

2 & U - 1201 2ND AVENUE
DEVELOPER: Skanska Commerical Development
COMMENTS: 650,000 square feet of office

YALE & THOMAS BUILDING - FORMER PEMCO HQ
325 EASTLAKE AVENUE EAST
DEVELOPER: Unico
COMMENTS: 370,000 square foot project with 161,095 square feet existing, likely leased to Amazon

333 DEXTER- 333 DEXTER AVENUE NORTH
DEVELOPER: Kilroy Realty Corporation
COMMENTS: 650,000 square foot project

15TH & MARKET - 1448 NW MARKET STREET
DEVELOPER: Martin Selig
COMMENTS: 204,000 square foot office project
ARBOR BLOCKS EAST & WEST-300-333 8TH AVENUE NORTH
DEVELOPER: Vulcan
COMMENTS: 196,208 & 192,703 square foot projects

FIRESTONE TIRE CENTER - 400 WESTLAKE AVENUE NORTH
DEVELOPER: Martin Selig Real Estate
COMMENTS: 190,000 square feet of office and biotech space

AINSWORTH & DUNN BUILDING - 2815 ELLIOTT AVENUE
DEVELOPER: Meriwether Partners
COMMENTS: 32,377 square foot office building with 6 stories

9TH & THOMAS - 234 9TH AVENUE NORTH
DEVELOPER: 9th & Thomas Partners
COMMENTS: 168,094 square foot Class A office building

LAKE FRONT BLOCKS
DEVELOPER: Vulcan
COMMENTS: Several blocks set to be developed. Google has already leased Blocks 25 & 31 totalling 600,000+ square feet

THIRD & LENORA BUILDING - 2031 3RD AVENUE
DEVELOPER: Martin Selig
COMMENTS: 552,753 square foot 36 story tower with 365 residential units and 176,500 square feet of office space.

HAWK TOWER
DEVELOPER: American Life
COMMENTS: 208,840 square foot project, 64% preleased to Avalara

Top Q4 2017 Office Sales

In general, building sale activity in Q4 2017 saw a decrease in activity from the third quarter:

 Building Sale Activity table

Notable Q2 2017 Leases

Office leasing in the fourth quarter remained relatively flat compared to Q3. Once again the technology sector fueled much of the activity:

Tenant: Amazon
Building: Macy’s
Address: 300 Pine Street
Square Feet: ~470,000

Tenant: Amazon
Building: Yale & Thomas
Address: 325 Eastlake Avenue E
Square Feet: ~159,334

Tenant: Oracle
Building: Russell Investments Center
Address: 1301 2nd Avenue
Square Feet: ~167,000

Tenant: Oracle
Building: Century Square
Address: 1501 4th Avenue
Square Feet: ~10,000

Tenant: Spaces (Regus)
Building: 450 Alaskan
Address: 450 Alaskan Way
Square Feet: ~60,000

Tenant: Coupang
Building: 8th + Olive
Address: 720 Olive Way
Square Feet: ~47,000

Tenant: Cascadian Therapeutics
Building: 3101 Western
Address: 3101 Western Avenue
Square Feet: ~44,000

Tenant: Privateer Holdings
Building: 2701 Eastlake
Address: 2701 Eastlake Avenue E
Square Feet: ~34,800

Tenant: Thinkspace
Building: Lake Union Building
Address: 1700 Westlake Avenue N
Square Feet: ~20,000

Tenant: Lyft
Building: 83 King
Address: 83 S King Street
Square Feet: ~19,000

Market Data

To summarize, below is a table providing information for the major submarkets of Seattle:

Office Market Q4 17 Word Doc - table2.jpg

The total vacancy rate for Seattle is approximately 7.6%.

 Submarket Snapshot

To see the entire article as a pdf with photos, please click here.

 Brian Hayden

Brian Hayden, Principal
brian@flinnferguson.com, 206.626.0891 direct
Since 2003 Brian has exclusively represented commercial tenants with space acquisition and lease negotiations. He provides his customers with comprehensive, diligent and professional representation with in-depth market knowledge and customized negotiation strategies. Brian has extensive experience with facility relocations, lease renewals, space expansions, subleases and lease portfolio representation services.

Brian’s intense work ethic and dedication to his clients earned him Flinn Ferguson’s Top Producer Award in 2011 and 2012 and he became a principal at Flinn Ferguson in 2013.     

Profitability Accounting

By Jay Erdman, CPA, Principal of Rippe & Kingston

 Jay Erdman

What is it?

Over the years, the term ‘Profitability Analysis’ has meant different things to different people.    For example, some refer to ‘Billing Realization or Collection Realization’ as the ‘metric’ for measuring Profitability in the Law Firm environment.

 Rippe & Kingston

We believe that a different and better measurement can be derived from the traditional ‘cost accounting‘ methodology that evolved in the accounting function in the manufacturing world. In that approach, the cost accountant would produce standard ‘cost models’ allocating direct labor and overhead absorbed to determine the standard cost of a product’s production. From that analysis, companies would price their products appropriately so that a proper gross margin was realized to meet the company’s overall financial goals.

In the service business, the production of ‘products’ is not so clearly defined, so the approach must be different. In a Law Firm, the Profitability accounting analysis is a costing methodology which determines the cost of a revenue stream. The analysis computes the series of direct and indirect rates per hour of the service provider and allocates those costs to the service provider’s (timekeeper) revenue to measure gross and net contribution to Firm profits.

What’s the process?

First, you must identify the revenue method you are measuring:

  1. Full Accrual – time worked
  2. Modified Accrual – time billed
  3. Cash Basis – time collected

Each method has its pros and cons. #1 and #2 may never turn into cash (due to write offs or non-payment) and the client might look profitable under those methods – when the client never paid their bills!! The management committee will quickly lose faith in the profitability analysis as a useful too if this occurs. We prefer #3, as the cash has been received – and the profitability measurement is – ‘what did it cost us to create that revenue stream’?

Second, you must identify what profit you are measuring.

Is the Firm’s profit to be measured:

  1. Zero, and all of the equity Partner’s compensation is considered part of their direct cost?
    a.    Note - some equity Partners will have timekeeper costs greater than their billing rate creating a ‘loss’ for everything they work on.
  2. The equity Partner’s compensation and none of their compensation is considered part of their direct cost? 
    a.    Note - the equity Partners will have no compensation cost and will look very profitable
  3. The amount distributed over the base monthly draws.
    a.    Note – this is a generally acceptable approach, as the monthly draw is deemed to be the Equity Partners compensation

When a Non-equity Partner, Associate or Paralegal’s direct cost is calculated, their W-2 compensation is the value used for their salary.    But for Equity Partners, whose compensation is more than just their ‘attorney’ salary because it includes their share of the Firm’s profits, there is no industry standard for identifying their ‘attorney’ cost for delivering legal services.    Many Firms end up assigning the Equity Partners a (culturally acceptable) ‘salary’ for their direct cost for being an attorney and then use the difference of their total compensation as the profit to be measured.

Third, the direct expenses must be identified for each timekeeper. These typically include salary (see above for equity Partners), bonus, taxes, medical, benefits, parking, etc. – those costs that come and go with the timekeeper. Included in this calculation should be their proportional share of their secretary or administrative assistant (also with their respective direct costs calculated in the same manner)

Fourth, we must calculate the indirect costs.    Simply take the total revenue, subtract the net profit to be measured, subtract the allocated direct costs and the rest must then be the indirect amount.

Generally the indirect pool is allocated to each timekeeper based upon a weighting average that properly distributes the cost as it is perceived to be utilized. For example:

Partners a 100% weighting factor
Associates – a 50% to 75% weighting factor
Paralegals – a 0% to 33% weighting factor

Each timekeeper would then be allocated their indirect cost amount.

The direct and indirect costs are then allocated on an hourly basis by dividing each individual’s direct and indirect total costs by their collected hours. The end result is the direct rate per timekeeper per hour and the indirect rate per timekeeper per hour.

Note – all of the steps identified above and the assumption made for each must gain acceptance by the user (for example, the Management of Finance committee) of the analysis, so that the Profitability process and reporting gains acceptance by the user as both fair and objective.

Presentation

Depending on the system you employ (Excel sheets with a pivot table or a full blown profitability product), you should be able to arrange the Profitability report with the following elements:

  • Collected Hours
  • Collected Fees
  • Direct Cost Partners
  • Direct Cost Non-Partners
  • Gross Profit
  • Gross Profit %
  • Indirect Cost Absorbed
  • Net Profit $
  • Net Profit %
  • Non-Partner Leverage %
  • Revenue Per Hour
  • Cost Per Hour
  • Difference Per Hour


Additionally, this information should be easily sorted (or pivoted in Excel) to provide statistics by:

  • Originating Attorney
  • Billing Attorney
  • Responsible Attorney
  • Working Attorney
  • Client
  • Matter
  • Area of Law
  • Practice Group

This information will then allow you to analyze the Firm’s profitability from a number of perspectives.

Use it to your Firm’s advantage

Performing the Profitability analysis will be an education process for the Firm. With the information above, the Firm can better improve its profits due to a better understanding of its Revenue Streams, Cost Structures, Pricing Points, Relevant Volumes, and Profitability Logistics. Every Firm needs to have a solid understanding of its Profitability components – the Products (Areas of Law), the Clients (those who buy the products), and the Attorneys (those who sell the products, manage the products, and create the products)!

 Rippe & Kingston

Jay Erdman, CPA, a Principal in Rippe & Kingston, LLC, consults with a large number of Law Firms across the country on a range of topics including Partner development and Financial Management issues. He has spoken at local, regional, and national ALA events.

Jay earned his degree in Accounting and Management from the University of Cincinnati and now has over thirty-five years of accounting experience and Law Firm specialization.

Rippe & Kingston was a pioneer in developing the Profitability Accounting Methodology for Law Firms, which began in 1989. Over the years, R&K has been involved in over 130 Profitability studies.
 

Marjorie Goldfarb