Recently I had a new client who was looking to open a niche activity center say to me “I didn’t know this was going to be so hard. I thought all one needed to lease space was money and an idea.”  That is a good start, but there is a lot more to think about.

   The first thing we try to help people understand when looking to lease space is that
Landlords do not get into the business of being a landlord to give money away. They
have spent long hours figuring out how to squeeze every dime out of their tenants.  As a buyer/tenant rep I have the blessing and the curse of being able to tell people I work
only for them and can guarantee I will work to save time and money.  I will work as hard as
I can to get you a fair deal at or below market rent, but supply & demand sets the market and taxes are taxes.  You have to pay to play.

   The client I referenced above had been eyeing a recently vacated 47,000 square foot retail building. Their budget was $7,000 per month.  At the market retail rate of $14.00/SF NNN, this lease would cost $54,833 per month BASE RENT. This is not including another $7,050 on top paid monthly in common area maintenance fees. My client almost fell over.

   I wear a lot of hats as a buyer/tenant representative ( Business Development, Project Manager, Construction Manager, oh and Real Estate Broker… ).  Sometimes I forget that I have to put on my professors cap and help clients new to leasing understand the basics.
So here we go!

   Most folks see us as bird dogs for commercial space, but site identification only accounts for about 10% of the total work and guidance that we provide for your next acquisition.  Before you begin it is important to consider Ideal Demographics of customers or employees, property type and zoning, desired size, maximum budget and accessibility,
leverage, rate negotiations, tenant improvements, indemnification risks, parking
designations, ingress/egress and CAM expenses are just a few of the things that will need to be negotiated in the lease or purchase.  The digital revolution as created access to CRE information via Loopnet, CityFeet, 42 Floors, CoStar, Excelligent, CREXI and a host of other providers around the world who produce listing and broker generated data 24/7.  Market info is much easier for the average person to find than ever before.  The real work starts after the site has been identified.

   The whole process will take longer than you think it should. A fast lease negotiation takes
6 weeks to complete after the site has been identified.  Beginning the process of identifying and submitting offers to lease 6 - 12 months prior to your ideal opening date will help keep your timeline on track.  Unless you have $500K in the bank or strong credit as a national tenant, the landlord is going to ask you to sign a personal guarantee.  It’s hard to get around this one.  Landlords want to make sure they are taking the least amount of risk possible.  When they ask you to sign a contract they want to get paid.  It’s imperative that you do your homework and produce a business plan that you are confident will last 3-5 years.  Be ready to open up the books!  The landlord is going to want to do their homework before signing you as a tenant as well.  Your P&L's, balance sheets, tax returns and business plan will likely be requested, all in an effort to vet you as a tenant.

   There are going to be unexpected costs.  Anytime you open up a new business there are going to be costs that jump up and slap you in the face. Things like permits, engineering/architecture, construction, insurance and licensing are just a few of the expenses that will need to be taken care of before you open up shop.

   Scared yet?  Don’t be.  With any business transaction I believe it’s important to manage expectations up front.  Millions of people lease commercial property and run successful businesses.  Being informed and educated about the process from the beginning will make securing a great lease much less painless and surprising.  Of course, 9 times out of 10 buying is a better option than leasing.  We’ll get into that next time!

Codi Jordan
Commercial Property Acquisition Specialist

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