August 5, 2011
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Jim Cockrill
In the aftermath of the recession, there's certainly not a shortage of real estate. In fact, if you have the capital, it's a great time to rent or buy new office space, says commercial real estate broker Aaron Forster of Four Star Real Estate Services.
Here's his advice for small business owners in the market for a new space:
How you present yourself during a showing is crucial
The market is great for small businesses right now. If you have a good concept, a landlord is more likely to take a chance now than ever, but only if he thinks you will succeed.
“When I show a space to someone, I have a pretty good sense of whether I will rent to them after a few minutes of conversation,” says Forster. “But don’t lose grandma's retirement by rushing in. There’s no need trying to reinvent the wheel or doing it alone.”
Don't use your residential broker to find a commercial space
You want a good commercial real estate broker, not a residential guy who anticipates a hefty commission. Also, do a "test run" before committing to any one broker.
“Ask him to drive you around. If he does not know the market, and more importantly the people representing the spaces off the top of his head, he is not active in the brokerage community,” says Forster. “Remember, the broker only gets paid if you sign a lease, so he won't take you on as a client unless he is confident that you will succeed. He will be able to polish the rough edges and get the maximum concessions from the landlord.”
Read your lease, but also read your landlord
Do some research on the guy you’ll be paying over the next however many months. Create a personal rapport with your landlord that goes beyond a signature.
“As a landlord, once I sign a lease, it goes in the file until something bad happens,” says Forster. “I rarely enforce the strict terms of the lease if a tenant is communicating and working with me. If you find yourself in a 'gotcha' moment with the landlord, you probably ignored the gut feeling you had when you first shook hands.”
Keep the communication with your landlord clear, and listen well. And when it comes to trusting your landlords decisions about annual increases, Forster say the number should be around 3 percent.
“If the landlord is asking for 6 percent bumps, you should be skeptical,” says Forster. “Liability indemnification should be mutual. Make sure your use is exclusive to the shopping center. Ask to see the CAM reconciliation (common area maintenance) before you put pen to paper.”
Get a real estate lawyer when you like the space
After you and your agent have finished negotiations, that's when you get a lawyer. Before that is a waste of time and money.
“If you feel like you need an attorney to protect you from an unscrupulous landlord," says Forster, "you probably should not sign the lease in the first place."
Ensure that you have enough of a financial cushion
While this one may seem obvious, there are more unprepared people on the market than you'd think. “Everyone knows and ignores that one,” says Forster. “There is government money out there. You might as well take it, but it's not going to make or break you. Spend your time working on your core business.”
Surround yourself with a team of solid professionals
That circle of competent people is relevant in so much of what you do professionally and personally. Get an accountant or hire a bookkeeper to set you up and teach you how to manage your business.
“So many people run their business into the ground and don’t realize that they were losing money six months or a year ago,” says Forster. “By that time you are looking at lawsuits and talking to collections agents, not fixing the problem. [Always] have an exit strategy that does not include losing your house and grandma's retirement.”
Online research is important, but in-person research is what counts
Costar/Loopnet, Craigslist and Google are all starting points, but getting in the car is the best way to find the perfect space for you business.
“Tour as many spaces as possible,” says Forster. “After you have located the space, go back to the Internet: Think about your competition. Your customer base. Distribution routes. [How close do you want to be to] home?”
Don't let your emotions get the best of you
Excitement and fear can interfere with making a rational decision. Try to focus on what is most practical for as many aspects of your business as possible.
“Existing business owners are much easier to work with,” says Forster. “They know the rules of the game already and can show profitability. If you are doing something new, be as professional and prepared as possible. Be honest. If you are expanding, start early. Don’t wait until your lease is expiring to start looking.”
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Jim Cockrill 8 months ago
I am a broker in Houston, and for the most part, agree with Shira. We have an incredible number of people moving here from other parts of the country. Since 90% of my business is referral, I initially have a conversation with the potential client, both to get a feel for their personality, and to see if what they want is doable in the Houston area. Houston is over 50 miles across, and not knowing what part of town they want to set up their business, and having knowledge of which businesses fare better in different areas of town, I rely on the databases such as CoStar to keep me abreast of sub-market pricing and conditions. I do not pretend to be an expert for certain areas, that is, in my opinion, old school thinking. I contact potential landlords and landlord reps to set up terms of bringing a tenant their way. Making sure I am going to get paid, that the rates and terms are within reason, and that the right sized space is availble on the property, before asking for a floor plan to be sent to me. I don't start to negotate on rent, TI, build-out, free rent, or anything else, until the client has toured the property and we decide to present a lease proposal. Proposing and negotiating the business terms starts at that point, and correctly stated, that's when an attorney comes into the picture. I do the business points, and the attorney does the legaleze to ensure my tenant has a smooth transaction.