Articles About Commercial Real Estate

From Kitchen Table to Office

Posted by: Garrett K.

Need an Office? Here are 5 things to consider:

1.    Term of the Lease: This first office lease will probably be one of the bigger commitments and liabilities of your business. Make sure the lease term is flexible and is within your budget based on current cash flow not future projections. Most small businesses start with a one-to-two-year lease, although in this economy, month-to-month lease may be more readily available.

2.    Location, Location, Location: The location of your first office is a balance of price and quality of life. Focus on a location  convenient for employees (or future employees) and one that is priced right. Commute times can have a drastic effect on your employees' quality of life and should be taken into consideration. Consider your safety. Have there been break-ins in the neighborhood recently? Would an employee feel comfortable working in the building alone, or walking to their car or public transportation after dark? All of these issues should be considered when considering your first office.

3.    Amenities: What restaurants, coffee shops and other businesses are available nearby that will make your employees' lives more comfortable? 

4.    Expansion or Reduction of Space: If things go well, you will be thinking about business expansion and you don’t want your space or your lease to hold you back. It's important to have a conversation with the owner about how much expansion space is available and an option to break your lease if it’s not available. If business is not going well, it is important to have an option to sublease your space or to buy out of the lease obligation.

5.    Parking/Public Transit: Transportation and parking are two of the most pressing issues for many communities. The proximity to public transportation and affordable and convenient parking are extremely important.  The more transportation options the better.


For more information on leasing office space see the Advice section on www.rofo.com

 

Last updated: 04.29.2009 04:49 PM

Tips for Finding Retail Space

Posted by: Garrett K.

Searching for a location for your retail store? Keep these 9 things in mind:
 

1.    Location, Location, Location: Walk in traffic is the best way for a new retailer to be discovered. Spend time in the neighborhood, learn the flow of traffic, the demographic, etc.

2.    Type of space: What side of the street is the space on? Do you get afternoon sunlight? Is the space deep and dark? Is there a lot of wasted square footage in the space? Notice as much as you can on the first tour and make sure to come back several times at different times of day.

3.    Neighbors/competitors: What businesses are located in the area?  Will their customers see value in your merchandise or service? Ask other merchants about the pros and cons of the area.

4.    Crime:  Being in a neighborhood that is gentrifying or potentially has some crime issues is fine for a restaurant or office, but potentially disastrous for a retail outlet. Your most valuable asset is your inventory and although insurance will help make up for losses, it is a major distraction from your business. Do a little research and see how many police reports have been filed within a mile of your potential location.

5.    Parking: How far away is the nearest parking lot? Do your customers need parking or will most of them be walking to your location? Check what the meter situation is and how often people are getting ticketed. The ability to have your customers park close by and affordably is extremely important. Make sure to do a walk around the neighborhood to look for parking options for your new customers.

6.    Signage: How big of a sign do you need to attract attention? What are the regulations of the landlord or the city as it relates to signage? Make sure to check out the neighbors and ask them how they got through the system if the regulations limit what you are hoping to do.

7.    Foot traffic: How busy is the street during the daytime? How busy is the street during evening hours? What types of people seem to be walking around? Is their a bus stop or school nearby that will have people congregating in front of your store blocking people from entering. Take note of who walks by and what percentage of people seem to be window shopping because the more people looking the higher likelihood you’ll find a new customer.

8.    Lease Negotiations: Check out http://www.rofo.com/articles/negotiating-101.html for some negotiating tips. In general, try to move away from personal guarantees and ask for the landlord to build as much of the improvements as you can justify. Make sure the get enough free rent to cover the period while you build any necessary improvements.

9.    Brokers: Most of the brokers you will be interacting with will be representatives of the owner of the building. If you want to hire someone to hunt for you or negotiate on your behalf, do some online research about brokers in your area who specialize in retail or contact support@rofo.com. We're happy to make a referral to a qualified broker in your area.

For more information on leasing retail space see the Advice section on www.rofo.com
 

Last updated: 04.29.2009 04:40 PM

Should Landlords Pay for TI's?

Posted by: Garrett K.

Rofo users call us asking what landlords will typically provide in the form on tenant improvements. Here's what you can expect:

Retail Space
Most retail spaces are delivered in "as is" condition, meaning that the electrical and plumbing both work and the space is ready for business. It can be difficult to negotiate much of a contribution from the owner/landlord to complete your improvements that are needed for your business. If the improvements would be needed for any tenant, like an ADA bathroom, then make sure to ask for them up front as costs can increase quickly. However, in these current economic times, tenants may have more leverage when negotiating the TI's.

Industrial Space
Make sure the roof doesn't leak and your power needs are provided for with the current infrastructure. If the current infrastructure is not adequate, ask for the desired improvements in the first offer. Once those major issues are out of the way, improvements usually occur in the office area or for a restroom installation.

Office Space
For most small businesses, the biggest issue with a space is the necessary term of the lease. If you want to do a month- to-month or one-year lease, the landlord will rarely provide much in the form of improvements. If you are signing a lease for two or more years, there are opportunities to ask for new paint and carpet, or the reconfiguring of the exisitng office layout.

For any space, make sure to ask that the space is delivered clean with good looking paint and carpet. Please email sales@rofo.com with any specific questions.

Last updated: 04.29.2009 04:28 PM

Hire An Attorney At Lease Review

Posted by: Garrett K.

Reading a lease can be daunting and time consuming. But it's an important document and you should know what you're agreeing to when you sign the bottom line. But you're thinking: "I've rented half a dozen apartments without a lawyer. Why do I need to hire one for this tiny office?"

The simple answer comes down to the difference in regulations governing residential and commercial real estate. In residential, if your landlord doesn't deal with a maintenance issue, there is a local rental board that specializes in tenant rights. In commercial real estate, the lease is a formal contract and sets the legal terms moving forward without much regulation.

What does this mean to you?

I have seen extremely landlord-friendly leases that tenants sign without knowing what they are giving up. Some examples of things to look for:

-Holdover: Landlords don't like companies staying long term on a month-to-month lease. To prevent that, they add a clause called Holdover which sets the rent for month-to-month terms after your initial lease expires. Landlords typically ask for 150% but it can and should be negotiated.

-Percentage rent: For retail space, landlords will attempt to receive a percentage of your total sales revenue. I've seen landlords ask for a percentage of the sale price if you sell your business during your lease term.

-Restoration Clauses: Most landlords will ask to approve any improvements completed in the space. What a business needs to be careful of is creating a situation where a landlord demands that a space is restored to its past condition.

-Code Compliance: Spaces need to meet local codes but those codes change constantly. It's important to make sure that you don't agree to bring a landlord's building up to code for improvements you're doing to your space. ADA compliance is very expensive and you do not want to bear the brunt of those costs.

-Personal Guarantees: Landlords will typically ask small office and retail users to guarantee a lease. This is not optimal but sometimes can't be avoided. If you do agree to one, try to have it scale down over time.

These are but a few issues to watch out for, but there are many others. A real estate attorney can help you identify important issues and make sure that you are signing a fair document.

Good luck and feel free to email support@rofo.com with any specific questions.

Last updated: 04.29.2009 04:05 PM

How to Hire a Broker

Posted by: Garrett K.

What to Consider When Hiring a Broker

1. How active is the broker in the marketplace?
If the broker is active in San Jose, but has never worked in Oakland, where you're looking for office space, it could be a mistake to hire him/her. If they can prove to you that they have the ability to find the tough to find spaces and get information on the most recent transactions. If they can pass both of these hurdles and seem qualified, an out-of-town broker can provide the right level of service. If not, ask them for a referral to a local broker.

 2. How long has your broker been in the biz?
Less experienced brokers may work hard but may expose you to common mistakes. Industry veterans can quickly make you aware of the pitfalls and help you avoid them. After about three years in the business, a broker is usually seasoned enough to have learned the tricks of the trade.

 3. Check out references
Ask to speak to recent clients who can vouch for their diligence and honesty throughout the process. Ask about their negotiating skills and time spent on the process.

 4. Are you looking for a Specialist?
Many brokers specialize in types of firms or industries.  If you can find the broker who specializes in your industry (biotech, retail, restaurants, etc), you may get a leg up in the negotiation. 

 5. Conflicts of interest
Some brokers might work for many landlords throughout the city. If they do, at times their fiduciary duty is challenged when they represent both parties. Most brokers are ethical and this would not create a bad situation, but exceptions do exist.

Last updated: 04.29.2009 03:20 PM