Business Migration


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Throughout 2014 there have been many examples of a drastic escalation in the valuation of land within the confines of the City of Chicago. Since much of this land is being developed for the purpose of condominiums and apartments, developers may find it more attractive to shift their focus to surrounding neighborhoods. These value oriented investors and developers will begin to move further and further away from the heart of the city in an effort to find less expensive land and redevelopment options.

This ever-evolving landscape could lead to a new atmosphere in and around the city as the cities neighborhoods begin to have more of an office space offering. However, some employers are realizing that this is not such a bad thing. As businesses relocate out of the heart of the city, they are moving closer to employees. The feeling is that this will attract more employees by bringing the job closer to the talent pool.

The net result of all of this for the larger community will be a neighborhood scene with many mixed use and other developments. These will likely contain a larger and larger portion of office space, as the trend continues. All of this may not become obvious to the casual observer even by the end of next year. However, as this trend persists, the landscape of Chicago’ commercial real estate appears to be shifting.

Click here to learn more about the skyrocketing prices of land in the city.

 

The Difference Between Commercial Building Class Types


When searching for the most suitable office for your company, it’s important to consider the building class type. While the class type is often overlooked by tenants, its actually an important factor to determine and compare one building to another. When the class is taken into consideration and understood, one will find there is a big difference.

Office buildings are classified into three categories (A, B, and C). The class can be determined by age, amenities, technology capabilities, quality of HVAC systems, landscaping and how well the building has been maintained.

Class A

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These buildings are considered the highest quality available and state of the art. This is due to their modern architecture, sound infrastructure, well functioning HVAC system, professional management, tighter security and altogether well manicured appearance. Generally, these buildings will be under 10 years old. Thus, a Class A building or office space will be the most expensive.

Class B

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These buildings are still high quality, but may be a little out-dated. The average age will be between 10 and 20 years. Even in this case many tenants and/or landlords find these buildings to be a good investment. The technology capabilities may not be best in class, but typically will suffice. Security may or may not be on staff and typically it is not required to check in, in order to reach the space. While the amenities of Class B spaces rank average, with some facade work, a bit of interior redesign, along with an upgrade in management these buildings and spaces have the potential to be converted to a Class A status.

Class C

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This class varies depending upon location (city, suburb, town, etc). These buildings are generally 20 years old at minimum. Some may be well kept, however, normally these buildings will lack many modern amenities. Technology will be lower quality and the HVAC system may not function well. In addition, this could include old elevators and mechanical systems, moderately run-down parking lots, and out-of-date furnishings. These buildings will not have security staff or food available on the premises.

Are you Ready to be a Tenant?


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Qualification is essential when looking to lease a commercial space for your business. You and your new landlord will be making an investment in each other so it’s important to prove to the landlord that you are up for the financial commitment of the move and setting up of the new space.

Landlords must be reassured of the qualifications of their potential tenant. The landlord should be looked at as a bank. The landlord is going to invest funds, resources and time into the tenant. Therefore, like a bank, they need to be reassured that they are lending to a financially stable and professional company to ensure that rent will be paid and the building will be properly maintained.

Proving that your company is qualified to rent takes more than a good credit score. Commercial real estate is generally far more expensive than residential real estate, therefore more proof of qualification is needed. Landlords want to see income, profitability and cash flow, previous year’s tax returns and sources of financing and securitization, if a newer entity. Landlords are reluctant to enter a lease agreement with a business without knowledge of operating history, positive cash flow or strong financial backing, especially if an entity is less than two years old.

Before searching for a commercial space for your company, make sure your financials are in order, you are searching for a space within your price range and have proof of your qualifications readily available for your potential landlord.

 

How to be a Fantastic Tenant


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Searching for and leasing a commercial space for your business is a process, to say the least. To make the most out of your process with the least amount of agony, there are a few tips for finding a great commercial space and simplifying the process.

 

Know What You Want

To know what you want out of a space, you need to evaluate your business. It’s important to know where your clients and employees are coming from so an appropriate location can be chosen. You should also decide whether you want to be in a large, high-rise building, a small low-rise loft or something in between. All of these decisions are based on company preference, and when you know what you want, the process of moving becomes a much less overwhelming.

 

Decide what’s important

Important decisions always override preferences. Price and lease type are major factors when you are deciding what’s important for your new space. The company should be closely evaluated before deciding the essentials. If a company has major potential for expansion, consider this when deciding on the size of your new space.

 

Do your homework & Come Prepared

Work done in advance will speed up and smooth out the stressful process of finding a space. For example, prepare your financial statement before the ball gets rolling – a financial statement will be required at some point in the process. Be sure to have all of the necessary questions ready when you meet with your broker. This will help to avoid jumbled communication.

 

Use a Broker

Finding a space, figuring out the details of a lease agreement and making sure you will be paying the right price requires a professional. It’s important to hire a broker who can guide you through the long and sometimes complicated process of finding prime commercial real estate. There are a lot of long and drawn out steps before leasing a new commercial space. Dealing with this and trying to run a business can be overwhelming. Hiring a broker will ensure company satisfaction and a painless process.

 

When to Use a Broker


 

Recently, I had a very interesting conversation with a business owner who was seeking to renegotiate his office lease. He told me he is working with a business consultant on the renegotiations. I thought; Wow! Hold on, a business consultant?

An office lease is typically one of the largest expenses for a business. As such, it is critical to have the person with the most knowledge and skills in negotiating leases. The more experience the better. The word “ňúconsultant’ can easily be misleading and tricky. Consulting is the right motive, but a real estate consultant is the right specialist.

Difference between business consultant & real estate consultant

Business Consultant:

  • Talks only with existing landlord
  • Limited knowledge = no competition, landlord has the advantage
  • Client owes $ to business consultant
  • May get results, but likely not favorable terms

A business consultant speaks directly to the landlord to find out his/her best offer. The business consultant then shares the information with the client, who then calculates their best offer. The business consultant, who has no outside sources to compare prices of office leases, “negotiates” a price with the landlord. The landlord has the upper hand in this situation as he/she is aware that the business consultant has no outside information. Along with this, the consultant charges the client, who is left with unfavorable results.

Real Estate Consultant:

  • Talks with other landlord’s first to build knowledge and comps
  • More experience and knowledge = more competition, landlord will deliver better terms
  • Client owes $0, landlord compensates real estate consultant
  • Best results and knowledge about the current market

The real estate consultant always puts the client first, asking what their intentions are before negotiating/speaking with the landlord. The more information and knowledge, the more skilled the negotiator: The real estate consultant researches other buildings in the area, compares lease prices and shares this with the client. The client then has the power of information to renegotiate the lease with the landlord at favorable terms comparable to market. The landlord is now aware that he/she has competition and is more willing to seriously renegotiate the terms. Along with this, with a real estate consultant, the client owes nothing as the landlord compensates the broker.

 

In conclusion, the business consultant may achieve results, but likely leaves much on the table. If you want the best results, think competition, think strategically, and get a real estate consultant.

 


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