Commercial real estate may be one of the most important investments you can make. But unlike the residential market, finding the right space then negotiating a lease or purchasing a property can be quite complex.
Before your next deal, consider Richman’s Do’s & Don’ts and allow RakowGroup to help you with all your Commercial Real Estate Needs.
DO engage a commercial real estate professional to be “Your Agent”. This person will advocate for your best interests, be impartial, and help you to properly evaluate your options and make recommendations for your best course of action. The idea is to save yourself time and money and to avoid a series of costly mistakes.
DO decide on location with the help of your agent. You’ve heard it before: “Location, location, location,” and it’s true. If you’re purchasing a property, location will be important to filling your building with tenants. The location also will dictate what kind of commercial zoning rules and other regulations and guidelines are in play. Take into consideration commuting time, access to clients, and proximity to public transportation, etc.
DO plan for future growth if you are leasing space. Often times, companies will outgrow their space prior to the end of their lease term. If future growth is imminent, consider taking on some additional space today. If the projected growth is further down the road, see about negotiating for rights of first refusal and expansion options for additional space in the building.
DO work with your agent to create a mock layout showing the desired number and size of offices you will need in the space, the amount and size of open work space, conference rooms, reception area and utility rooms. Also to be considered are where in the office your workers and management will be located, and what their respective needs might be.
DO understand the amenities and limitations of a particular property. For example, in warmer weather, does the cooling system go off in the evenings and weekends? What does the parking situation look like? How and when are visitors able to access the building? Is security tight or lax?
DO begin the lease renewal process at least 6 to 9 months prior to your lease expiration and significantly sooner should your existing lease have a renewal option.
DON'T rule out the option for a larger space than you need. Sometimes it makes more economic sense to lease a slightly larger space where the configuration is better suited to your needs, than taking a smaller space requiring extensive renovation. Renovation work is generally factored in by the landlord, so price-wise it may be more to your advantage to go for the larger space.
DON'T neglect to look at your true occupancy costs ahead of time; ask questions regarding your financial responsibilities. First there’s the rent, which you’ll be paying every month. But have you factored in insurance, particularly liability insurance, which is necessary to protect your business, and is usually required in the lease agreement? Are the costs of utilities included in your rent or are they paid directly by you? Do you need to pay for cleaning services? And do not forget to budget for future rent increases and increases for building operating expenses and real estate taxes, as these are very common costs which will begin to add up along the way.
DON'T forget to make sure that you have an agreed upon detailed term sheet outlined by the time you request a lease. The term sheet is often non-binding, yet is the basis of the eventual lease agreement. It should contain the cost items of the lease, their escalations, size of the space, parking allocation, landlord’s fit-out obligations, security deposit amount, etc. If you are not comfortable with the terms presented by the landlord, work with your trusted agent to resolve the most important issues. You should agree on the terms before the lease is drawn up.
DON'T assume renovations are part of the deal. Carefully review the scope of work the Landlord will perform including details such as carpeting, paint, tile/flooring, finishes, window treatments, millwork, glass vision panels or sidelights, etc.
DON'T put all your eggs in one basket. Make sure you have more than one option as deals can often fall through. That said, act early as time also gives you options. The sooner you begin the process, the more prepared you will be to make the many important decisions necessary to successfully obtain space. It also gives your agent greater leverage at the negotiating table.
DON'T try to renegotiate your renewal on your own. Landlords typically view existing tenants as “trapped tenants” and only with the assistance of a commercial Real Estate Professional will you be able to achieve the desired amount of leverage to negotiate the best terms.
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