Hopefully your business is slowly starting to get healthy again. While you continue to work hard, take a few minutes in thinking about your space and what it could be doing for you that it is not already.

Now if the perfect time to start making those plans as the market is still soft. Property owners are thinking creatively like never before. Consider the possibilities for the future!

This months issue is has some great tips and ideas to consider  as you start to make those plans. 

Click Here for the entire issue!

Best regards

Rob Cassam

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There is No Such Thing As The Perfect Space

On November 24, 2010, in Tenant Tips, by Rob

Once you have decided you need a new space for your business, your work really is just beginning.   Here is what to do.

First conduct extensive market research intensive enough to do the detective work thoroughly investigating all alternatives and leaving no opportunity uncovered.

Make sure your search covers the following areas: vacancies, rental rates (current), effective rates (long-term), building expenses, leasehold improvement costs and demographic information (if applicable).

If you do this correctly, this process should include:
• Develop availability study of buildings.
• Visit the different local market and conduct examination.
• Examine public domain information, such as: Office guides, market research reports, trade publications, chamber of commerce material, on-line databases, economic development committee analyses.
• Gain market intelligence from wide variety of sources, including: Local brokers, developers, lenders, corporate real estate executives, business leaders, industry trade groups.
• Evaluate all facilities that are consistent with your requirements, as well as “hidden opportunities”.
• Catalog fact sheets on buildings, photographs, floor plans, location map, transportation accessibility and competitors in market.
• Make sure you have information on demographics, traffic patterns and location analyses(if applicable to your business).

While you are looking, keep one thing in mind:
THERE IS NO SUCH THING AS THE “PERFECT” SPACE!
You certainly want to make sure that the space that you lease meets your needs, but you will drive yourself crazy if you go through dozens and dozens of properties searching for the “perfect” space.

Make a list that includes your price range, all the items you must have in your facility, along with the items you don’t want. Take it with you whenever you look at homes, so you don’t get sidetracked.

You will want to thoroughly research the different offerings in your target area. You need to know what people are asking for their lease rates, and most importantly, what they are getting for it as well as their total lease structure. You want to be on the lookout for and avoid problem properties.

Although you certainly don’t have to use one, the services of a good real estate tenant rep broker can be quite valuable during this stage. They can help you with this part of the process.

Once you have a list of spaces that you are interested in, you need to find out more information. There are several questions that you must ask the landlord before you start any negotiations. You need to know as much as possible about the landlord’s position and motivation.
This is done in a formal process with a “RFP” or request for proposal.

This documents asks and gets answers to important questions like:
Who owns the building?
How is the size calculated and how what will the rates be based upon?
Who handles utilities?
Who handles maintenance?
Who handles common area costs?
What about taxes and insurance?
What about the ADA act?
What about tenant improvement allowances?
What about all those legal lease terms like exclusivity, assignment and termination?
When you have answers to these questions, you will have a good feel for the overall terms of the lease. You’ll be in a position to decide if you want to move forward with this space or not.

ANALIZE THE VALUE
If everything looks good, you may want to proceed in the process. The next step is to make sure you understand how the complete offering will work.

This is where the information you learned from the RFP can be quite useful.

There are many different strategies for negotiating, but the one that I have seen produce the best results is not all that difficult. It starts by studying the market data to determine what the fair market value is for the space.

Your objective is to make your offer at a price that is lower than what the landlord has in their mind as their “bottom line”, but is close enough that they say, “Oh, I guess we will go ahead and take it”.
Keep in mind the three basic options that a seller has when presented with an offer:
1) Accept the offer.
2) Reject the offer.
3) Make a counter offer.
This process goes back and forth typically.

The rate is always the focal point of the offer, but there are lots of additional areas that you need to address and pay close attention to also. In your offer, be as specific as possible about every aspect of the transaction. Details that are not clear or are left out can lead to big problems down the road.

Spelling out every detail can save lots of confusion and misunderstandings, and keep you out of a costly court battle!
One area where you need to be especially careful is termination provisions and duties. These are things that must or must not happen in order for you to exit the lease.

Determining the total cost of the lease and comparing it to the other targeted proposals allows you to make an apples to apples decision. Keep one important fact in mind: There is always another space- so long as you have time to find it!

If you start to feel pressured or uncomfortable, step back and review your goals. Don’t let yourself be bullied around. Remember that the landlord usually needs to lease that property a lot more than you need to lease it!

NEGOTIATING THE CONTRACT
After all of the terms and conditions of the contract have been mutually agreed upon by both you and the landlord, you still need to stay on your toes. Many people tend to relax and end up dropping the ball. There are at least a hundred things that can go wrong and foul up the transaction.

This is where you take what was agreed upon informally and transferred to the lease, that is the lease you will be signing to “close” the transaction.

You will want to make sure that all of the terms of the lease have been met, including the build out (renovation) agreement.
All of your preparation and planning will pay off handsomely when you move into your new space!

Once the lease has been signed and the build out has been completed, you are ready to really move! WAIT, what about the move?
That is the subject of another discussion. Pre-move planning should be take place when you are deciding to move or stay. Again, a good tenant rep broker can help you with the pre-planning move and the actual implementation of that move as well as other important items like phones and data lines. DON’T FORGET THIS!!

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 Imagine negotiating and moving into the perfect property for your business today and buying it several years from now! This can be possible using a lease agreement with the option to purchase the property in the future.  A purchase option is a unilateral agreement that one has with the owner of a property where the tenant (in this case) has the right but not the obligation of purchasing the property.  This can be a great situation for several reasons. Here are some of the benefits.

1.Very Low Down Payment (aka option fee) (1% to 2% vs. 10% to 30%).
2.No Loan Qualification Necessary Up-front.
3.Rent Money Is Working For You (in the form of a Rent Credit).
4.Option Consideration Is often Credited towards the Purchase-100%.
5.Price Is Usually Locked In Up-front.
6.Profits From Any Appreciation (good down market strategy).
7.Time To Check Out The Property (and make sure the roof really doesn’t leak).
8.Time to Check Out the Area and Employment Base
9.Time To Obtain the Best Financing (No pressure, no rush, no bank financing up-front).
10.No Real Estate Taxes To Pay.
11.Buys Time To Develop Credit or Develop Needed Down Payment
12.Quick Move In Time (No Lengthy Closings or Mortgage Approvals. )
14.Rents are Negotiable
15.Tenants/Buyers May be Able to Sell Their Option In the Future!

Owners of property like the idea of a tenant who is making a commitment to buy the property. They like knowing that they will have a cash flow for a time under the lease, and get their equity out at the end when the tenant exercises their option.  However, do not expect to get the option for free. Many owners will want non refundable option consideration in order to give you all of these benefits.

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