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!!
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.
Saving money on small items that I once would have never considered, has made a difference. I can say that the real estate boom caused me to be somewhat wasteful.
In this issue, there are some tips to consider in saving a few dollars here and there. These few dollars have a tendency to add up over time. If nothing else, it helps you with your business mindset in avoiding making wasteful decisions on the bigger decisions where more money is as stake.
I challenge you to watch your pennies for a whole month and see the difference it makes with your thinking on the big decisions! And as always, if you are facing a leasing or purchasing decision, please call me. I may be able to help you avoid costly mistakes!
I hope you enjoy this issue of the Tenant-Buyers Bottom Line Secret!
Best regards
Rob Cassam
Remember when the electric bill was referred to as the light bill? Those were the days when electricity was used mainly for lighting. There were few appliances to guzzle energy. You could say those were the good old days but few of us would want to do without the luxury and convenience of the appliances we rely on today.
The price we pay for this luxury comes high in the form of an electric bill that seems to get higher each month. Just look around and you’ll quickly see why. The number one energy user is the central air conditioning unit, especially if it handles the double duty of both cooling and heating. In warm regions, the AC accounts for more than half of the electric bill.
You could install window units and cool only the used areas of your home, and this is not a bad idea. But, if you’re determined to keep the central unit there are things you can do. If your unit is over 15 years old, consider getting a new one. Today’s models use up to 50% less energy.
If a new model is in your future, make sure it’s sized properly. Consult an air conditioning expert because a unit that’s too big or too small can continue to work inefficiently. Check the energy ratings – the higher the better.
Buy a unit with a programmable thermostat that has a built-in timer. With the timer, you can turn off the AC when you’re gone and set it to restart just before you return. Studies have revealed that it’s cheaper to do this than to have it recycle on and off while you’re not even at home.
Another electric guzzler is the electric water heater tank. Tanks keep heating water 24/7/365 whether you use the water or not. Tankless water heaters are available for both electric and gas homes but do your homework before installing.
You could install a solar water heater but the expensive system may take a while to recover your investment. If you stay with the tank, turn down the temperature and wrap it in a thermal blanket. Also, turn off the tank when you’re out of town and save.
Refrigerator/freezers are both guilty of guzzling electricity, but who wants to return to the old ice box. If yours was made after 2001 it’s probably more energy efficient. If you replace an old one, buy the Energy Star label.
An appliance must exceed federal energy standards by 15% to qualify. Top freezers use less energy than the side-by-side or bottom models. Save even more energy if you can skip the ice maker and dispenser.
We can’t forget the electric dryer which uses about 15% more energy than a gas model. If gas is not an option, buy an electric dryer with a moisture sensor to avoid over drying. When clothes are dry it cuts off.
Don’t forget to clean your lint filter too. Concentrate on these biggest electric guzzlers and you’ll see a dramatic difference in your electric bill. Conservation sure beats doing without. If your landlord owns these appliances, ask of you can make the modifications or changes first! Of course, it is always best to get it in writing!
Telephones are no longer considered a luxury but a necessity. People of all ages usually have a land fixed telephone line plus a cell phone. Kids can’t imagine not having a cell phone to chat with their friends. Some even use their phone to keep in touch with parents. At least we’re communicating more with each other but it’s become a monthly expense that can get out of control.
Some are afraid to open their phone bill each month and discover how much they went over budget. If you’re spending more than you should, then it’s time to take a good close look at your bill and determine if you really need all those extra bells and whistles.
For instance, ring tones are fun, but do you really need them. Can you do without call forwarding and call waiting? How often do you text message? If you don’t regularly use these extras that you pay for cancel them and save.
It may be time to go totally cellular. More than 15% of households have done just that. Before you take the total cell plunge, analyze your phone bill to see how much you use your landline and then add about 20%. Most people tend to talk more on their cell than the landline. It just seems to be cool and convenient.
Comparison shop. Some providers are not opposed to negotiating for free minutes, lower rates and even free services. There is lots of competition out there but be sure you have the plan that’s right for you even if you pay more. Ask about combining services and a family plan if several phones are needed.
Read the contract carefully including the fine print. Ask questions, but ultimately making the right decisions will be up to you. Make sure the provider rounds to the nearest second, not minute.
If you’ll be talking more in the evening hours make sure you get their definition of night hours. Roaming charges can take a big bite out of your pocketbook and vary with the provider.
Take advantage of the trial period. This can vary from 2 days to 30 days and may be negotiable. This will give you a chance to use the cell phone in your home and see if there are any areas of poor reception. Find out if you can access 911 with your cell.
VOIP (voice over internet Protocol) comes from your Internet provider and transmits calls over the internet. If you make many long distance calls this can be a good choice because it usually provides unlimited local and long distance calls. But, if you have a power failure, most broadband cell phones won’t work.
Another option is the pre-paid phone cards where you pay for minutes in advance. The price range is about $15 to $25. This is good for chatty children with a limited amount of minutes teaching them discipline and budgeting. If you lose the card you lose the minutes and many have an expiration date.
Going totally cellular is an important decision. Be honest with yourself on how much you use the phone. Over estimate rather than under estimate. Avoid long term contracts. Keep an eye out for special limited offers. Good phone service can keep you in touch. But, don’t lose touch with your budget.
If you are an end user of commercial real estate, it does not mean that you are not an investor. If your business plan calls for any type of real estate ownership, then you must think exactly like an investor thinks.
Of course most business operators know this but, often times they d not have the necessary time to brush up on all the issues. As I have said before, it does make sense to hire help when dealing in these matters. In most cases, that help can be an invaluable resource when moving forward with a lease or purchase.
In this newsletter, I remind you to check the market and to find out what is happening in the world of lending. I hope you enjoy this issue, Click Here!
In this market, one of the perplexing questions commercial owner occupants or property investors ask is ‘where do I get financing?’. You may have found that perfect office to relocate your business, found an apartment complex with an attractive yield or just want to refinance you commercial property, just to find that banks are still reluctant to lend.
Although there are still products like construction/development loans that have not returned to the market, investors are eager to lend on commercial properties. Most of the underwriting guidelines are different depending upon the property and loan type, which makes commercial financing more complicated.
So where is a good place to find such information? Contact Alan Mayhew at Capital Mortgage Group, 704-664-3611
Down>Bounce>Drag>Release>Up
When I first heart this, I thought it was something from a fishing show. As I read further, I realized just how important this concept is to real estate buyers. This describes the predicted shape of the recovery from this recession. Predicting what may happen can be a huge benefit for investors deciding when and how to get into this market if buying real estate is part of your business plan.
See the different types of potential recovery shapes at this link:
http://en.wikipedia.org/wiki/Recession_shapes
The following business week article discusses the W shaped recovery prospects that we face. I invite you to search the Internet for descriptions of the different recoveries.
http://www.businessweek.com/news/2010-03-25/ecb-s-wellink-says-global-economic-recovery-could-be-w-shaped.html
The bottom line with respect to recovery shapes is to try and time the market. The good thing regarding the W shaped recovery, it that the bottom may exist at least a couple times and even it you do not time it just right, if you wait long enough, the property will go up in value (as long as your original fundamentals are right)!
If you do not know the fundamentals of investing in real estate, STOP and do not move forward until you do.
Make sure you have allocated the time to do all of the necessary research when it comes to considering a business location move. Many business operators do not leave enough time to do just that. As a result, they make snap decisions that end up costing themselves both time and money.
I often see cases where quick decisions were made with the end result being the perfect storm for future failure. In other words, the business operator did not know what he did not know. Many times they missed important options that could have easily been obtained so that their future would have been more secure.
Knowing these options, asking for them and incorporating them into your next transaction will give you the piece of mind needed to navigate these turbulent economic conditions. I hope you enjoy this edition of the Tenant Buyer Bottom Line Secrets!
Take a moment to calculate your total annual salary.
Take that number and divide it by 50 working weeks in a year, next divide that number by 40 hours per work week. This figure is what you are worth per working hour.
Time- $_______ (your yearly salary here) / 50 working weeks/ 40 working hours per week = $ _______ THE VALUE OF YOUR TIME
Don’t you think that your time is better spent running your business and not doing something that can easily be out-sourced ???
Don’t forget that in most cases real estate brokers who represent tenants are paid out of commission splits with the property owners leasing agents, that means it costs you nothing! That is the portion of commission you let the listing broker keep if you do your own transaction without professional representation.
On the tenant-buy side of the commercial property equation, it makes sense to find someone, who can help you with respect to making these important business decisions. My advise is to find someone!
