How to Work Through the Initial Stages of Securing Your New Commercial Real Estate Lease - Vol No. 1
Updated: Feb 22, 2018
Do you have a burning desire to understand how a commercial real estate lease transaction should likely go? Maybe you’re actively looking for commercial space right now and could use some insight? Well, here is a quick process overview of the initial stages beginning with site selection scouting through tour time - written from the perspective of a commercial broker who’s been on both sides before (lessee & lessor). We’ll follow up this one with another installment later picking up where this leaves off - post site tour, LOI to lease.
Upfront Heavy Lifting
Let’s play it forward a bit and assume you’re already working with a tenant broker. You've done your homework and identified a broker you feel great about being your advocate for success. If you don’t know a good one, let me know, because I know someone.
At this point, you’ve had some in-depth conversations with your broker about the workspace attributes you’re looking for and where you want to be located. This is a key conversation to be had as it sets the initial stages of the search process up for efficiency. It's not just a discussion about price and square footage.
For example, if you're considering some new warehouse space where you can assemble and distribute the next Amazon best seller, you might want to think about things like how many dock doors you'll need and ceiling height limits so you know how much of your innovative product will fit into the 5,000 square feet you think you'll need. Will you want to know if there is good air movement in the warehouse space with proper ventilation? Probably. Maybe it has a Big Ass Fan in it already and you're set. That's a real fan company - check it out.
(Image Credit: www.BigAssFans.com)
Whatever you do, don't skimp or be too hasty with the upfront details. You'll regret it later. Plus, this is an awesome time to voice your ideas and plans for your new space with your broker who will probably have some valuable feedback to offer you based on his or her experiences in the marketplace. It's free knowledge from someone who has your best interests in mind. Take a look at the interview blog I did with an office building owner for some additional feedback from a landlord's perspective and advice for tenants seeking new workspace.
Here are some examples of detail items/questions discussed upfront with past clients of mine by space type:
Natural light availability
24 hour access
Janitorial services included for the office space and common area
Washroom in the same space or on the same floor outside of the office
Industrial Warehouse Space:
# of Drive-in doors (box truck accessible)
Existing office space to warehouse space ratio
Can a tractor-trailer (a semi) maneuver efficiently on site
Is it sprinklered
What is the traffic count on the frontage roadway
Tonnage requirements of the cooling system (do you like seeing your patrons sweat while eating their hoagie?)
What type of co-tenants are there
Is there a pylon or monument sign available
So, you've established those important details and received access from your broker to a shared digital space where your broker is segregating prospect locations (“prospects”) into their own little space in the cloud complete with the level of detail you need to make an informed decision as to whether or not you want to pursue next steps.
You’ve done it. You sifted through what was ideally a shortened list of prospects because you and your broker talked extensively about your needs and wants at the onset of your relationship to weed out unnecessary work later on. Now, you have some target locations (“targets”) to get better acquainted with. Armed with targets, your broker begins reaching out directly to the landlord’s representation to get any additional details not available on the surface.
Launch Digital Marketing Office HQ Image Credit: LDM
Additional details not available on the surface? Yep. Those could be things not shown on the ol’ world wide web that include things like how much the “pass-thrus” are on a triple net lease or how often the janitorial service maintains your common area at your potential new workspace. I’d sure like to know whether or not that garbage can just outside my main entrance gets relieved daily versus weekly. After all, I’m paying for it (well, you are - depending on the context)…
All of those juicy details should be laid out for you in an easy-to-understand and efficient manner - digitally. Ideally, you take a few moments to review those details on your own and then set a discussion call/meeting with your broker to go over any questions and to chat through comments. At this stage, you cut out those targets deemed no longer target-worthy and focus on the nuts (it’s a poker reference).
Time to be as efficient as possible and also a bit understanding. You’ve narrowed down to 5 targets and want to see them all this Friday morning. Cool - let’s get it. But, be aware, it’s not just your schedule (and your broker’s) to coordinate. It’s likely 5 different landlord reps and/or property managers who all need to be synchronized at just the right times to accommodate the wishlist of target tours, travel time between each and the mid-morning Starbucks refill you’re gonna want (need) along the way.
Image Credit: OKW Architects
Show up for this tour with an iPad (or tablet) or your phone with direct access to the digital files of each of the targets you’re going to visit that day. An organized powerpoint with note taking capabilities prepared by your broker is a nice touch here, too. Even better is access to that neatly organized cloud-based document your broker set up for you where you can make your own tour notes on the go.
Whatever you do, please tell your broker not to show up with a stack of papers with the information about targets printed on them. Our trees have enough other items their value is wasted on. Not to mention, odds are the landlord rep / property manager made sure to burn through a few reams of paper earlier so they could provide you with a nice packet of paper you’ll read once and toss in the garbage (hopefully, the recycle bin). Yeah, I like trees.
During the tour, ask a lot of questions. This is your best opportunity to get real time feedback. Be careful not tip your hand during your tour about your preferences related to financial or commitment metrics of future lease terms. It's not that you're trying to hide something or be shifty, it's just that you haven't had a chance to digest all of the information about the space to make an informed statement yet.
A takeaway action item from your tour will be to discuss key metrics with your broker post site visit about an approach to leverage points in a lease negotiation.
Some things to look for during your tour by space type:
Check the tenant board in the main entrance to see what kind of other tenants are there and how full the building is
How clean is the common area space of the building and also the space you're touring (definitely check out the common area washrooms)
Is the main entrance to the building secured with key / fob access or does it have a check-in desk with a live person
Notice any roof leaks (don't want your new innovative products getting drenched)
Make sure all overhead doors operate as expected
If it has a recessed dock, be sure to consider the docking leveler / plate / or other mechanism functions as it should
Look for rodent droppings along the base of the walls (if you're a restaurant, that'll be an immediate issue to curtail)
Are the storefront windows fogged up (you'll want folks to see in most likely!)
Are the storefront, sidewalks and parking lot in good condition (a landlord that paid hundreds of thousands and maybe millions for a property that doesn't keep it in good repair isn't going to take care of you either)
And on, and on, and on...
Hillside Town Center, Hillside, IL
Tour time should be fun. This is your chance to visualize your future workspace in all of its potential glory. Take time to think through how your team members would move about the space in a layout that fosters productivity and complements your company culture and its future success.
We'll delve into the Letter of Intent (LOI) and Lease process next time and also include some helpful information about planning for your space buildout, permitting and approvals process within the local municipality.