Listing a property for the highest possible price may seem like the best course of action, but more often than not it will deter buyers and negatively affect the final sale price. Establishing the price in line with comparable properties in the area, or slightly lower, will help move the property faster with less cost to the seller.
Rather than focusing on the final sale price, keep in mind the cost of NOT selling the property. When a listing sits on the market for months, it accrues ongoing caring costs like maintenance, property taxes, rent, etc. Holding out for a higher sale price can actually net a lower gain in the end. There can be a heavy cost to owning a property.
Timing is Everything
Identifying the right buyer is more than finding who wants to pay the most. It’s also about moving the property in a timely manner. When presented with a purchaser who wants to buy now but at a lower price than someone who wants to wait six months but at a higher price, it can be more beneficial to sell sooner than to hold out for more money. If you wait for the buyer with the longer timeline, you’re accruing costs the entire time. Additionally, it’s important to remember there’s no guarantee the potential sale won’t fall through.
Best Way to Maximize Value
Selling a property can become quite complicated, and most business owners don’t have enough time to dedicate to the process. To get the most value out of the deal, it’s recommended to enlist the services of an experienced commercial real estate broker. These professionals possess market knowledge and experience to help sell a property for the best price in the shortest amount of time.
Pricing the property correctly saves time, which saves money in the long run. Remember to stay informed on every aspect of the deal, from pricing to concession, as this will ensure you’re comfortable with your sale.
After finding the right office for your business, you’ll enter into the transaction process. This next step will consist of several important items: such as the lease negotiation, review and planning the buildout. Many of the opportunities that lie within the this phase rely on the success of your lease negotiation. If it’s handled properly, it can provide a number of long-term, tangible benefits for your company. Having a knowledgeable broker on your side throughout the transaction will simplify the entire process and provide long-term benefits for your company.
Perhaps the most innately complex piece of the moving process is negotiating a fair lease, and executing a successful negotiation can provide direct benefits to your business for years to come. At the beginning stages, your broker will gather multiple proposals to gain an understanding of market comparables to increase your negotiation leverage. The key to doing so is understanding the market as well as the varying terms and clauses laid throughout the lease. Experience is critical to being able to expertly navigate the twists and turns of a lease. Beyond market knowledge of fair rent values, having a deep understanding of the language a lease is written in will help you negotiate for rent abatement, tenant improvement allowances, escalations, securitizations, rights to expand or renew, and termination rights.
The negotiation process will include several rounds of back and forth offers which will continue until acceptable business terms are agreed upon. Tenured brokers will be able to evaluate the financial impact of each proposal to submit a reasonable counter offer to advance negotiations toward your goals.
After business terms are agreed to, it is heavily recommended to have an attorney read through the lease. Should you not have an attorney on-hand that specializes in real estate, a broker will be able to refer a qualified real estate attorney to assist in the process. The broker will work alongside the attorney to evaluate the language within the lease to ensure it accurately reflects the agreed upon terms, as well as search for any terms or clauses that may be unfavorable to the tenant.
Check the language for mention of the common area maintenance fee to ensure it is based on the total rentable area rather than just the rented area. Another consideration might be to ensure the building cannot rent to your direct competition. Small changes such as these can have a profound impact on the longevity and quality of your new location.
Working with a Tenant Advisory Group representative will add many benefits. They will quarterback the process to ensure it is completed efficiently and to your specifications. Clients that work with the Tenant Advisory Group brokers will gain access to a deep pool of knowledge on current market values and apt negotiation skills.
Here’s this week’s recommended reading:
From Thanks To Action To Impact: Why, Why Not? Guest Post: Gavin Mogan.
Uplifting messages light up the blogosphere during Thanksgiving week. I hope my contribution is uplifting, but my purpose is to challenge. Challenge sort of fuels you, the CRE Tech Maverick.
Be thankful, +52. Gratitude as a platform.
But is thanks enough? An attitude of gratitude is only a platitude to many less blessed than you. If thanks is the idea, then giving is the finished product… Via Duke Long.
Real estate investors snap up medical office buildings as boomers age
As aging baby boomers fuel growing demand for health-care services, investors are increasingly turning their attention to medical office buildings — a niche within the real estate market that some argue is recession proof… Via TheStar.
Shrinking U.S. Shopping Malls Get Makeovers
Visitors used to flock to the Highland Mall in Austin, Texas, around the holidays to stroll through the city’s first enclosed shopping complex and admire the giant Christmas tree crafted from poinsettia plants…. Via WSJ.
Most commercial leases typically run between 5- 10 years. In good leases, there are provisions to the rental agreement allowing a tenant to extend the length of the lease. A general rule of thumb: Instead of immediately exercising your renewal option, try to negotiate each renewal term instead. However, if you come to a standstill, you should have a safety net of something already negotiated ready for your protection. This is especially true if your location is critical or if your business is difficult to move. Here are my three quick tips to negotiating this most important feature in any commercial lease:
Always negotiate the renewal clause in the original lease
The new rental rate for a renewal period can sometimes work on a predetermined basis, as mentioned above. It is more likely however that a renewal clause will state that a fair market value be used to determine a new rate. While renewing automatically may sound easy, make sure to check spaces around your area in order to get a good idea of what other spaces are going for. Knowledge of the market and comps are both key when negotiating.
Stipulate the rate from the beginning
The fair market value itself should be carefully discussed and defined. Never let the landlord try to interpret what the FMV should be. Make sure that the FMV is defined as including items such as the tenant improvement allowances or concessions you might find from the landlord’ competition. When you are able to stipulate a specific rental rate for the renewal option, you protect yourself. If the market is higher than your renewal rate, you’ve already locked in the lower renewal option rate. If the market is lower than the renewal option rate, you are still able to try and negotiate the renewal rate down.
Know how to ask
Typically, concessions (or leasing incentives) include free rent and tenant improvement dollars. Business owners are sometimes shocked to learn that these concessions are also potentially available on lease-renewal terms.
Many times, landlords tend to take their existing tenants for granted. What many long-term tenants can negotiate is the cost to acquire a new tenant. Realtor fees, background checks, and potential lost monthly rent all add up – don’t be afraid to use your long-term, immaculate renting history with your landlord as leverage.
Of course, you have to know how to ask for incentives to get them; the landlord won’t graciously offer them out of goodwill.
Consider hiring a trusted broker in your area
Even if your company is somewhat familiar with the market and rental negotiations and believe you have someone with the time to properly manage the re-negotiation- you should still consider representation through a professional services firm that can help negotiate you the best deal.
Signing a commercial lease is one of the biggest steps in a business owner’s journey. The lease agreement is filled with all aspects of rules, regulations and terms to understand during a rental relationship. And, as a business owner, your livelihood is at stake so you want to make sure you’re getting the most value for your dollar.
Fortunately (or unfortunately, however you see it), this starts with determining your rentable square footage. It’s one of the first and most crucial steps in the process. However, especially if you have a mixed-use building or a space with multiple tenants, understanding what you’re renting can be confusing.
Before you sign any lease agreement, here’s a quick and dirty lesson to know what you’re paying for and ultimately getting for your business.
Rentable v. Usable Square Footage – What’s the Difference and Why it Matters:
Simply put, Usable Square Footage (USF) is the actual space a tenant occupies. Keep in mind, this only accounts for the space a tenant is using for their business, and it excludes any common areas (for example, the building’s lobbies or restrooms.) If you’re a tenant that occupies multiple floors in a building, the USF calculation includes lobbies or restrooms that exclusively serve your floor(s).
Rentable Square Footage (RSF) is your usable square footage plus your proportionate share of the building’s shared space. So, this can be anything outside of your occupied space and that benefits you (for example, the lobbies and restrooms, mentioned above). As a tenant in a commercial space, you pay for a portion of the shared space and so your monthly rent is always calculated on RSF.
The “Loss Factor”:
When you take a look at the lease agreement, you’ll likely come across the phrase “loss factor,” “common area factor” or “add-on factor.” And – for tenants – this is arguably the single most important calculation to understand when evaluating commercial property.
The loss factor is essentially the increase in the rentable square footage above your usable square footage. You can easily break it down into three easy steps:
Step 1: Determine how much total floor area a building has.
Step 2: Subtract the shared square footage (from the total building floor area) to give you the USF. If you’re unsure of this number, just ask the building owner as they can easily provide you with the information.
Step 3: Divide the total floor space by the USF to give you the loss factor %.
What does this mean for a tenant?:
Higher loss factor percentages mean that more of a tenant’s monthly rent will be dedicated to common areas and less to the space they occupy. However, this also means that buildings with higher loss factors have many more amenities – in the form of indoor pools, spacious lobbies with conference rooms, on-site laundry facilities, chef-grade kitchens – all of which might be very appealing to some tenants. The most important takeaway here, is determining if the price per square foot matters to your business.
With any commercial real estate lease, you should always know exactly what you’re getting and what you’re paying for. As a potential tenant, pay attention to the fine print – it really matters to your business. Having the help of a trusted and experienced advisor or broker can help tremendously in these types of situations, so as a tenant, you can always be sure you’re getting a fair deal.
If you’re going into a lease or purchase, it’s important to know what you’re getting into. Check out my previous post “8 Tips and Tricks for Commercial Tenants” that can help you have a smoother transaction process.
Type “crowdfunding” into any Web browser and you’ll see dozens of results pop-up: Indiegogo for a vegan filmmaking challenges. Crowdwise to save the Hebridean whales. Kickstarter for potato salad.
In no less than five years, crowdfunding (the act of raising hundreds or even thousands of dollars from people online) has exploded in growth. Take for instance, the $2.7 billion dollars that were raised through crowdfunding campaigns in 2012 alone (doubling in growth the previous year)*.
In its brief existence, crowdfunding has managed to weave its way across all industries, and the latest: Commercial real estate. Sites like those above aim to give anyone from young professionals to retirees an opportunity to directly contribute to a product, a Website, a cause – and see it come to fruition (or sometimes, not).
When it comes to commercial real estate, crowdfunding’ been used to help raise capital to invest in all types of property. Generally, with this strategy, it means lower fees, more transparency and better returns for the individual investing. It gives just about anyone the ability to build a diverse portfolio of investments. It opens doors for first-time investors and it’s less scary. Imagine that instead of giving $25,000 towards one property, you can spread out your investment dollars by putting $20,000 towards a hot new restaurant build-out and $5,000 to help fund a new green-tech condo complex.
Developers also benefit from crowdfunding in several ways. Overall operations are more efficient and costs are generally lower. Since borrowers are connected directly to investors, it eliminates the need for big banks to step in. And dealing with burdensome corporate overhead? Sayonara.
So is this investment strategy here to stay? It’s hard to say, but what I can tell you is that it’s a trend that’s certainly on the upswing and if you’re someone who’ considering making an investment in commercial real estate, it’s worth looking into. Before going into any investment, however, seek the advice of a consultant or a trusted broker. While there are some wonderful benefits, there are still unresolved issues around quality control and minimal regulations in place.
*Data sourced from http://www.crowdmapped.com/crowdfunding-trends-and-statistics/
Choosing where to house a business can be extremely difficult – especially when deciding between the city or the suburbs. There are the obvious factors to take into account; financials, space, client locations, commute and employees. However, there are two lesser-known pulling factors that you need to take into account: Tax credits and split-office locations. These two aspects may not be as simple as you think.
Most people know that certain states are considered more business-friendly to major companies than others. South Carolina is now a well-known manufacturing hub with companies like Jacobs Engineering, Boeing and BMW all housing American operations in the Palmetto State. It should not come as a surprise that local economies do this as well. In fact, just last year Vernon Hills extended a tax incentivised deal to keep CDW in the Chicago suburb. Some may argue that it is ridiculous to offer a multi-billion dollar company tax breaks to stay. However, look at the flip side – by keeping their headquarters in Vernon Hills, thousands of residents continue to be employed by CDW, which stimulates the local economy.
This should not be confused as a suburb-only tax break. In fact, seeing as the Chicago mayoral runoff is coming up, Rahm Emanuel has been both criticized and praised for trying to bring major businesses back home. One of the major incentive programs is the Economic Development for a Growing Economy (EDGE), which lowers payroll taxes for newly relocated businesses. According to CNBC, Illinois is middle-of-the-road when it comes to business friendliness – ranking as the 27th most business friendly state. By offering tax incentives to move to the city, Chicago politicians are hoping to attract more long-term investments.
Split-office locations seem to be a growing trend for offices who want to have a presence in a downtown city, yet want to avoid paying the full costs for a large office. This can be incredibly beneficial – say you are an enormous manufacturing firm who has clients downtown or that visit Chicago often. By splitting your location, you can have your sales, account managers and C-suites downtown in an easily accessible location for meetings. You are also saving money by keeping the bulk of your company in the suburbs where space is far cheaper per square foot.
However, companies that choose to go this route need to be wary of potential resentment amongst employees over the location at which they will be working. This argument works in both directions. Many times, people located in the suburbs would far prefer to have a location near them, and commuting an hour into the city is far from ideal. The other primary concern with splitting your office is reducing contact between departments. If you look at many company surveys, inter-department communication always seems to be an aspect that employees complain about the most. If your company is already facing issues communicating between departments, then splitting the office locations between downtown and a suburb may serve to widen this gap.
Granted, the majority of your suburb versus city decision should probably be weighed on finances, clientele and employees. However, if those aspects do not solve your dilemma, then these secondary factors can end up playing a major role. Taxes or tax breaks can cost or save a company millions per year, and splitting office locations can be beneficial, as long as your business fits the right mold.
The business landscape is competitive. The line between ethical and unethical can often become blurred. There is a big discrepancy and ultimately a determining factor in reputation, of how one sees the difference between the two. With the rate new businesses and competitors are emerging, there is a rising concern from established companies that they must do whatever they need to in order to sustain their place in the market. Sometimes, though not always, this leads to a one-sided result that is achieved by not taking the high road or considering the repercussions.
Playing fair does not make you weak. There are rules and ethics in the game of business that allow anyone to have an equal shot. Keeping these rules in mind and respecting a level playing field will build respect, not only for how others see you, but if others want to do business with you.
This is the most important aspect of conducting fair dealings. Every other benefit of fair play derives from the fact that positive business interactions will garner you more respect amongst peers and even competitors. Every negotiation has the possibility of a “Win/Win” scenario. When you work for transparency throughout the process and settle on that solution that is mutually beneficial, both parties come away feeling good about the situation. Over time, word of these continuous positive outcomes will spread and begin to develop into your reputation.
Depending on the industry, drumming up new business can be a painstakingly difficult process that takes weeks, months, even years in some cases. This is why recurring customers/clients are so valuable to any business. Whenever you walk out of a sale and feel like you pulled a fast one on somebody, there will be the short term benefit of acquiring that customer and the long term detriment of never getting them to come back or refer you to other clients. Maintain transparency throughout the process and reap the long term benefits of a lifetime client.
Book of Business Expands
Referrals are the lifeblood of most companies. These referrals increase tenfold with each positive negotiation, as word begins to spread that you listen well and react accordingly to the other side’ needs. By making a habit of understanding what both sides of the table are looking for, your network will begin to expand as those that you work with send new business your way. Effectively communicating to reach a strong compromise in all your work will increase the likelihood that you become the go-to for anyone referring business in your industry.
Too often, negotiations and business dealings end with one side feeling cheated or misled. This does not have to be the case. In fact, in order to succeed in the long run, honest and reciprocal negotiations should be the ultimate goal. Unfortunately, egos and emotions get in the way and decision makers do everything within their power to not wind up on the losing side of the negotiation table. By proceeding under the ideal that both sides can be the winning side, you will be better equipped to play fair and ensure that nobody feels slighted.
The decision to rent or buy a home is one in which most people approach with significant care. It’s no different when evaluating whether to buy or lease with regards to commercial property.
This is a critical decision in a company’s development and requires extensive analysis. The Tenant Advisory Group, LLC (TAG) has significant experience helping a diverse group of companies navigate this decision.
There are several important factors to keep in mind when addressing the question of leasing vs. buying commercial space. On the top level, a company will want to consider the state of their industry, their own firm’ growth projections, and the amount of capital available.
The results of this high level analysis may make the choice of buying vs. leasing relatively easy. However, if the choice isn’t clear after this review there are additional factors that will then be considered.
TAG can assist you in this process and ultimately help your firm identify the right choice for your business.
In the meantime, we have outlined some of most important advantages and disadvantages of each choice and can provide you with additional information at your request.
– Flexibility (amount of space, duration of lease)
– Reduced risk (no long-term responsibility)
– Reduced responsibility (building owner worries about property)
– Easy exist strategy (can relocate as soon as lease expires)
– Security deposit (not paying buy out so saves you money)
– You are not building equity
– It is not “your” space as it belongs to the landlord
– You are dependent on someone else to fix things, improve things, or deteremin if you can sublease or not
– Long-term investment
– Building equity
– Interest is tax-deductible
– Stability in business location
– Possible appreciation (only works for long term)
– Leasing unoccupied space (if your not occupying the space you bought, could make a profit leasing it)
– Capital intensive
– Finite allotment of space
– Possible depreciation
– Difficult exist strategy
- Company Environment
- Collaborative space
- Individual offices
- Hierarchy of office space (bigger offices for partners or CEO’ and smaller for employees)
- Call centers (ie. sound proof space)
- Conference area (group meetings)
- Touch down areas
- Reception area for greeting customers
- Food options
- Security (is this important for you?)
- After hours accessibility to your office
- Parking or public transportation
- Reception area
- Being closer to partners, customers, suppliers, employees/talent, resources