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RE Decisions-Preplanning #1: A How-To Guide
The following comes from our ITRA affiliate office in Long Island, NY:
Leases are typically for long periods of time, often 5 to 10 years and more. Companies must not only plan for their present needs but for their future as well. To do this the CEO must determine his vision for the future of his company. Does the company see growth and hiring in its future or cutbacks due to a slowing economy? Are there possibilities for mergers, acquisitions or new products? Or is retirement a possibility?
Whether or not change is in the future the transportation needs must be assessed. A central location for the labor pool and clients is necessary. Access to CBD’s, major highways, train stations and airports should also be considered. If a comparison among states is being performed, school districts, affordable housing, taxes and quality of life should be taken into account.
Image of the future building is very important. Is the location to house corporate executives or back-office employees? Are clients coming to the building? Some buildings offer amenities such as covered parking, concierge, gym and lockers, cafeterias, childcare, card shops, personal trainers, etc. These buildings are the most expensive and considered “A” buildings.
Should a criteria be a “Green Building” designation? Green buildings provide reduced energy costs and tax benefits. Statistics have shown that Green buildings improve employee productivity reducing sick days and turnover. In some industries, the Public Relations value of sustainability and social responsibility may be priceless.
Finally, the budget must be considered. Obviously buildings with an “A” image or “Green” designation will be more expensive than buildings that don’t have these features. The budget analysis should include the entire term of the lease because leases are designed to offer lower rates initially but escalate over time. It’s the end of the lease that is always surprisingly expensive. However, smart initial planning will eliminate surprises.
David Dowers
Tenant and Buyer Representation Specialist
509-232-2030
Tags: "real, commercial real estate, estate, lease, office, tenant, tenant representation
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Replies to This Discussion
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Permalink Reply by Angie Everstine on -
Great info David! I just wanted to add that tenants should think about hiring an Interior Designer/Space Planner to help figure out how much space they need and evaluate exactly what type of building/lease space suites their needs. As you mentioned, the initial planning is so important! We are seeing an increase in this area and have been able to simplify the process for our clients. Space planning can also take into consideration reusing/relocating existing furniture which will save the tenant from having to purchase new.
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Permalink Reply by Ed Davis, PLS on -
Dave,
I hope our clients and prospective clients put the above together with articles in the Real Estate Community that we both have written recently.
With the reduced pricing both in purchases and leases , the CEO's are missing a huge opportunity if they are not moving today. We always help our clients in choosing their correct present and future needs.
This is the time of the decade and perhaps the century for us to negotiate a new lease or purchase on their behalf. -
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Permalink Reply by Coralie Myers on -
Two things as a lending specialist that I recommend to clients:
1. If the potential tenant will be/is borrowing funds, they need to check with their lender prior to signing the lease to see if an assignment of lease or landlord's lien waiver will be required as a loan condition. It is on SBA loans, and on many direct bank loans. Once the lease is signed, it is very difficult to obtain - there is no incentive for the landlord to sign, and if it is not available, the lender may require additional collateral or reduce the amount of the loan.
2. If the potential tenant is moving into older space, it would be a good idea to see what the energy costs have been and/or get an Avista energy audit. If improvements can be made to improve the energy efficiency of the space, you may be able to negotiate that as part of the lease. Several years ago an Avista person told me of a case where a business moved into an older building downtown and budgeted $400 a month for utilities. Her first monthly bill came and it was $4,000! She could not afford it and soon closed. Had she done planning - specifically a business plan, she would have known the costs ahead of time. -
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Permalink Reply by David Dowers on -
Excellent points, Coralie! Thank you! I typically make it standard practice for either me or my client to do the research with the utility companies. It's part of our "to-do" checklist.
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