COMMERCIAL REAL ESTATE LEASING
Before making a move consider the following:
Retail, Office, Industrial Tenant Representation in El Paso County - CIRES specializes in tenant rep. real estate services in El Paso County Commercial space market. We serve as the tenant's trusted real estate advisor, guiding the tenant through the entire lease or purchase process. Our commercial real estate agents help tenants find El Paso or Horizon City real estate for lease or sale.
Hire a Commercial Real Estate professional.
Commercial real estate is complicated and a good broker will help you navigate and position your requirement in the marketplace. You are not obligated to a pay a fee (the broker’s fee is paid by the landlord) and you are not going to get a better deal on your own much less find the best location for your company. There are numerous reasons why a tenant should use a Tenant Representative. The landlord has a vested interest in obtaining the highest rental rate and best outcome for himself as possible regardless if you have a broker or not. Without using a broker tenants are forced into working with the landlord or the landlord’s agent to coordinate the lease. These people have far more experience negotiating lease transactions than most tenants and since you need representation one way or another, you may as well have your own advocate. They can also help you avoid unscrupulous people and buildings with known issues.
Devise a plan before moving. Waiting until the last minute to start looking for space is a common mistake. Lease negotiation always take longer than you think. You will be rushed into a process and forced into making hasty costly decisions because of an existing lease with costly “holdover” provisions. Create a move timeline or schedule with your Commercial Real Estate Agent . Start the timeline with defining the space requirements, coordinating initial tours, term sheet negotiations, due-diligence, legal review, interior design, building permits, procurement of equipment and services, construction periods, and the furniture assembly and fit-out. Generally, the larger the space needed and the more tenant improvements involved, the earlier you need to start looking. As a rule of thumb if there is heavy construction involved start looking at least 12 months in advance. If the space requirement is small and no construction is involved, start looking for space 90 days in advance of when you need it. If some construction is potentially involved, start looking at least 6 months in advance.
Obtain preliminary approvals to proceed. Work with your Commercial Real Estate agent to tour recommended properties and come up with a list of the best options. Run your detailed financial analysis for each building based on assumptions with the help of your real estate agent, building contractor, fixture dealer, and others required in moving, equipping, and operating each building. If necessary, meet with your management team to obtain their feedback and commitment to proceed based on the various "what if" scenarios presented. This will quickly weed out the type of spaces and buildings you should go after and why. This is also a good time to refer to the space surveys conducted early on and to your established moving timeline.
RFP process. Instruct your Real Estate Agent to prepare a request for proposal (“RFP”) for each building owner on your short list. Your RFP should include the following basic business points among other items:
Note that not all tenants need to go through the RFP process. If your requirement is small, the choices few, and the dollars involved not that substantial, many tenants and landlords prefer to move immediately into term sheet negotiations. Your real estate agent will have a feel for how to proceed and will put your company into a position where it is negotiating on a few properties in parallel to get the best terms.
Lease Negotiations. Your Real Estate Agent will work with you to prepare a non-binding Term Sheet based on market conditions and RFP responses you received. Rely on your Agent for guidance on how hard to push, and how aggressive you should be with each landlord without losing their cooperation.
Legal Assistance. Using the final term sheet, meet with your attorney to help with the review and negotiations of the lease document. Use your agent and attorney to determine the best terms. Depending on the size of the lease commitment and dollars involved, you may wish to cap your attorney’s hours and involvement. Gather your broker’s concerns with the lease and determine how best to communicate your concerns to the landlord. Usually a conference call with all parties involved is best after initial lease comments have been distributed.
The following lease terms are important and should certainly be reviewed and understood clearly:
In many cases tenants will elect not to use attorneys for small leases. It is not advisable to proceed without a consultation with a board certified real estate attorney. Your Commercial Real Estate Agent will have contact information to several real estate attorneys in your area. Tenants should not proceed without consulting legal counsel.
Due-diligence.As you work through the lease document, it is time to carefully review the condition of the building you may end up living in. How much due-diligence to apply is often dictated by the total size of the financial commitment involved, the lease structure (triple net or NNN, gross lease, or full service lease), the age of the building, and the warranties available. For example, if the lease structure is triple net (NNN), which forces the tenant to be responsible for the electrical and mechanical systems servicing the building and the roof membrane, it is important to inspect the building similarly to how home owners conduct inspections of the homes they purchase. If you are the single tenant or about to take on a lot of space, you may wish to have the roof inspected or see if has recently been inspected and what the outcome was. Determine if the roof leaks, the useful life remaining on the building systems, and if the building has been well serviced or if there is deferred maintenance. If the building is occupied you can certainly talk to the tenants and see what they have come to find. If you are planning structural changes to the building and other improvements that will involve permitting, be aware that these will trigger an audit of the building by the city municipality to determine if the building has all the necessary life/safety equipment and is in compliance with other building codes. Make sure to understand what will be required to obtain approved occupancy status, and who is going to pay for what if code compliance issues are triggered by planned work to the building.
Ideally you want to shut down on a Friday at your current location and open on a Monday in the new location. To do this you will have to plan ahead to avoid painful disruptions and delays. While negotiating the lease document and completing your due-diligence, you will likely need to set into a motion a series of events so that you can move into the building on time. This might include provisioning telecommunications and data circuits, selecting contractors, receiving bids for work and equipment, generating quotes from furniture dealers, and arranging for the provisioning of various services. Put yourself in a position to pull the trigger on multiple decisions in parallel working down to granular details such as ordering business cards, changing your mailing address, updating your website, and sending out “we have moved” announcements to your customers and their billing departments. Finding and securing the perfect building for all the right reasons is obviously the goal here, but sometimes that’s not always possible and in fact most of the time, it is not. Concessions are often required and expectations reset after finding out that what you want in a perfect world, just isn’t possible. Make these adjustments early and your site selection process will go much smoother as a result. Clearly this guide doesn’t pertain to everybody and for the smaller leases very little of it is applicable as the dollars involved just isn’t worth the drama of a lengthy lease negotiation.
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