When setting out to secure your first commercial space as a start-up or even relocating your established company there are a few steps I recommend to guide in a painless transition. No matter the property type retail, office, or industrial most property owners who act as a landlord are in the game for one reason, which is to make money on their investment. A smart landlord is also a smart investor, which means they are cautious about the tenants they lease space to, most will want an extensive due diligence into your company and also the owner of the company. Understanding the mindset of the landlord and being prepared to answer the tough (and somewhat intrusive) questions, for a new business, can be an invaluable tool. Pair this newfound understanding with the steps I have outlined below and you should be well on your way.
Work With an Agent:
As a commercial real estate agent you might assume that I am biased on this topic, which I might be, but in reality this should be a necessary step for any business owner with a commercial real estate need. When I say work with an agent I mean hire an agent that will represent you and your company through the entire process of securing a space and will act in YOUR best interest. It is important to remember that the phone number you see on the sign out front of the property or the number you find on google is the listing agent’s, who is obligated to act on the landlords best interest. Below I have a few bullet points of reasons to work with an agent.
- You get a full list of inventory available that meet your budget and space requirements, beats driving around or looking on craigslist all day.
- Agents know the market; they can give you an idea of whether asking rent is fair or unrealistic for a given sub-market.
- Landlords Perception, landlords assume that most tenants that are represented have been somewhat pre-qualified by their agent and worthy of consideration.
- Negotiations, Tenants typically save thousands of dollars throughout lease term by having an agent negotiate on their behalf.
- Lease Language, I have personally worked leases in excess of 75 pages, most of the language is included to cover “what if” scenarios, but having someone on your side who understands what all of these clauses mean will protect you down the road.
- It cost you (the tenant) NOTHING, Agents are almost always paid by the Landlord.
Have a Business Plan
This step is really most relevant to start-up companies that don’t have years past Profit and Loss statements or similar financials to show credit worthiness. Presenting a well written business plan to a landlord is no different than pitching your company to investors to secure capital. Remember landlords are gambling on you as well and expect their investment to pay off. It is important for you to include a realistic budget in this plan for overhead costs associated with leasing commercial space; this is where your agent can manage those expectations. For established companies relocating, providing your commercial rental history with landlord references and previous monthly expenditures should be enough for most landlords to qualify a tenant.
This should be a given for most business owners but having an exit strategy should also be applied to this end of your business. For the most part having a well-planned exit strategy for your lease begins when the lease is negotiated. Assuming you are working with a good agent who understands your business and goals, he should be able to ensure certain clauses are included in your lease to get you out if needed. The first clause I always make sure is included is a “Sublease or Assignment” clause which basically gives you the tenant, the right to go out and find another company to take over your obligation of the remaining lease term. “Early Termination” clauses are also an option, this clause, if you can get the landlord to agree to will essentially give you the right to terminate the lease with X number of days advance notice. An early termination clause typically has a specific contingency attached to it (uncontrollable external factors) I.E. Government Legislation affecting your business, Zoning Change, etc. Negotiating a Buyout; this practice is fairly common, in its simplest form you would essentially negotiate a dollar amount with the landlord to release you from your contractual obligations, and this dollar amount varies case by case but ideally for the tenant is a fraction of what is owed.
Tradd Varner; Coldwell Banker Commercial