Saturday, February 21, 2015

My Commercial Real Estate Lease is Expiring...Now What? Part Deaux

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Recently, I posted advice for a business whose desire was to stay in their existing location and renew their commercial real estate lease.

If you missed the post, shame on you, but you can catch up quickly by reading here.

Today, I want to offer advice to those businesses who have made a decision to move the operation to a new location.

So, in order of priority, below is my counsel:

Question your reason for moving. This piece of advice is FIRST on my list for a reason...because it is the most important! Please spend a great deal of time considering the reason(s) for your move. In my experience, companies generally are motivated to move by one or more of these five reasons...to achieve a rent savings, to capitalize on a chance to own, to acquire a better building or location, affecting an up size or downsize, or achieving a better efficiency. Why are you moving? Reasons such as my landlord is a clown or I need a couple of extra offices really is not a proper motivation for enduring the cost and disruption of a move.

Figure out how much a move will cost. Moving is extremely expensive...both in absolute moving costs (machinery, offices, setting up the new facility, new collateral for the business...website, stationary, business cards) and in hidden costs (loss of key personnel, loss of productivity, downtime, customer loss, etc.). Thus, a move should be delayed or postponed until absolutely necessary. I advise my clients to generate a couple of bids from a commercial mover so that the cost to move their operation is clearly defined.

OK, so now that you have stared at yourself in the mirror, have justified your move, and have a sense of the moving costs...what should you do next?

Engage great help. Generally, this help comes in the form of a project manager and a commercial real estate professional. A project manager can help you determine exactly how much space your company REALLY needs so that you don't lease or buy one iota more square footage than you need for today's operation and a modicum of future growth. The right project manager can also help you with plant layout; planning and permitting modifications in the new building; hiring architects, contractors, movers, office furniture vendors, IT, cabling, and phone providers, and the myriad other tasks involved in moving your operation from point A to point B...now you understand how MAJOR of an undertaking a move actually is! The right project manager frees your time to run your business (to pay for the new facility) so that you don't have to worry about the details. A commercial real estate professional will identify potential sites for your relocation, can guide you through the market conditions, and help you negotiate the best deal with owners in the marketplace. A couple of subtleties here that you need to understand. More is not better in the case of commercial real estate professionals. You are better served to engage ONE agent to assist you in your search. Spend some time finding the RIGHT one and let her go. Also, you don't pay the commercial real estate professional...the owner of the building pays any real estate commissions.

Allow plenty of time. A properly conducted analysis of your operation, a well managed search and negotiation for the new space, and the move execution take TIME. Depending upon the complexity of your operation, you should allow twelve to eighteen months to accomplish a move.

Consider ALL of your alternatives. After you have ventured into the heavily owner oriented commercial real estate market in the OC today, you may realize that your existing location is not so bad after all. Please don't discount the possibility of staying in your existing location and renewing your lease OR approaching the owner of your building to see if he would sell you the building. Additionally, research your rights as to what happens if your lease expires and you are still occupying the building. Recently, we have encountered two situations where the owner of the building, that our client occupied, leased the space to a new tenant (thinking that our client was moving out on a certain date). Fortunately, we had anticipated this as a possibility and had made provisions.