Friday, August 19, 2016

The Commercial Real Estate is ALMOST Perfect - Now what?

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You have conducted an exhaustive search with your commercial real estate adviser and have happened upon the perfect space to house your rapidly growing company.

There are just a couple of deficiencies with the building that can easily be remedied - or so you believe.

What appears to you as an easy fix may in fact be a big deal depending upon the nature and motivation of the ownership.

I'll just add an office or six. Let's take for example the addition of some offices so that your key employees can operate within a private setting. You look at the existing layout and figure with the removal of a couple of walls here or moving a door there, you are golden. What many fail to realize is the cost, permitting, time, and effort required to simply add a couple of offices. Adding office is expensive! Simply moving a wall doesn't account for the air conditioning ducts that must be re-routed, the ceiling grid that is interrupted, new Title 24 energy efficiency upgrades that are triggered, the holes left in the flooring, and additional parking spaces that may be required. The offices will need to be permitted. A layer of bureaucratic challenges awaits the unsuspecting. Once the true cost of the new offices is determined, we now must negotiate who pays - you, the owner, or some combination of you and the owner. Generally, an owner will be reluctant to pay for an improvement that adds value today but may need to be ripped out in the future. Consequently, most owners will dump that cost onto you, the occupant. If an owner has the money to invest in tenant improvements, he may want to be paid back for those improvements over the term of the lease. This is known as amortizing the tenant improvements. Simply structured, the cost is multiplied by some factor of money and divided over the term of the lease to calculate a monthly amount which will be borne in addition to the base rent.

Lights, camera, action. Ok, maybe you need to increase the electrical service into the building so that your machinery runs smoothly. Easy, right? Ummm, not necessarily! Power into an industrial building originates at the transformer. In modern buildings, the power is then routed underground through a conduit into a switchgear located in the warehouse. So, adding power becomes a function of how much is available at the transformer, how large the conduit is into the building and the size of the switchgear. All boxes must be checked in order to economically upgrade the power feed into a building. If the transformer capacity is insufficient, the utility - SCE or a city power utility - will need to replace the transformer. If the feed into the building is too small, the pavement will need to be jack hammered, conduit replaced, and the switchgear changed. Yep, you guessed it - at a significant cost.

Who's next door. The space may work but is your use of the space compatible with the neighbors and allowable within the zoning? If not, you will face some cranky folks next door and a city with reams of paperwork for you to complete prior to your occupancy being approved. By the way, if you undertake a conditional use permit process, plan on the next six months of your life being consumed in minutia. Oh, and by the way, your owner may require you to lease the space regardless and place the risk of getting the use approved on your shoulders.

Tuesday, August 16, 2016

Avoid #cre Misunderstandings. TUESDAY Traffic Tips

Avoid #cre Misunderstandings. TUESDAY Traffic Tips. In today's VIDEO tip, I discuss a foolproof way to avoid misunderstandings in a commercial real estate transaction. This and a THREE YEAR birthday celebration for the TIPS!

Friday, August 5, 2016

The BIGGEST Mistake Occupants Make

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The biggest mistake occupants make? Believe me, I've seen some doozies!

But, in my opinion, the biggest mistake I see occupants of commercial real estate make is - not considering their existing location when contemplating a move.

After all, why would they consider their existing location - they are moving!

Well, in no particular order here are the reasons why an existing location should be considered, re-considered, and re-re-considered before incurring the expense and disruption from a move.

Moving sucks. Moving is expensive, disruptive, and rarely achieves the kind of efficiency an occupant seeks.

The market is tight. As I have written about ad nauseum, we are steeped in an owner's market. Although your belief may be, there are greener pastures - the reality is those green pastures are akin to drought tolerant lawns - tinged with brown these days. With 98 of every 100 buildings occupied, there are very few viable alternatives available for your consideration. Said another way - there might not be a better building in the market for you.

There are at least ten ways to stay in an existing location without incurring the cost of a move. You can possibly add office space, expand the building, install a production mezzanine, store product out doors, use the cube height in your warehouse, purchase a Kardex Remstar machine which can manage 10,000 sf of floor storage in 1000 square feet of floor storage space, outsource a function, use a third party logistics company to warehouse for you, stay put and lease space close by, add a second or third shift. All of these should be considered before you spend a dime moving.

Strategic value. Even if you absolutely, positively cannot stay in your current location, you can still use the location strategically to make a better deal in the market or motivate your existing landlord to sweeten the deal if you stay.