Some
of you reading this column own or lease your business location. Many readers
are investors who acquire income properties. Finally, you may make your living
in some aspect of commercial real estate - brokerage, lending, escrow, title,
or a contracting trade. Today, I will delve into a concept which will help you
clearly define your requirement for commercial real estate whether you are a
business owner, a commercial real estate investor, or a commercial real estate
professional.Image Attribution:www.pinclipart.com
Used is the acronym NUCLEAR. The letters stand for Need, Urgency, Catalyst, Loyalty, Expectations, Authority, and Resources. If you are considering leasing or purchasing a location for your entity, making an investment, or representing an occupant or an investor - these seven categories can adequately guide your efforts.
Need. There is an old saying in the contracting trade that goes: “measure twice - cut once.” This old adage can apply to deciphering your space usage. Too often, I meet with companies who have a general idea of their growth but have not completed an analysis - they “cut without measuring”. With available space in critically short supply - spend some time with a material handling specialist or industrial engineer. These pros can zero in on the right square footage.
Urgency. I walked a building last week with a food manufacturing company who just received a Walmart contract. The operation must ramp up significantly in the next 90 days. Clearly this falls into the category of urgent. Maybe you recently sold an income property and have parked the proceeds into a qualified intermediary with the idea of affecting a tax deferred exchange. Certainly, you have two time frames which provide your motivation - 45 days from the close of your escrow and 180 days to re-deploy the money into a like kind investment.
Catalyst. What is causing you to consider market alternatives? Does your lease expire soon? Just get a huge piece of business? Acquired a competitor and now you must meld two cultures?
Loyalty. Trusted advisors can make the process of weighing your options much easier. I always suggest a team. Included should be - a commercial real estate professional, a commercial insurance broker, a business banker, a CPA, a transactional attorney, a material handling specialist, as well as specific subcontractors. If your team is missing a professional - ask for a referral.
Expectations. As recently noted, the inventory for manufacturing and logistics space is in skimpy - therefore property owners are quite bullish. Please make sure you’re not assuming a COVID-19 discount when the indications are otherwise. A close look at recent transactions and current availabilities would be a good place to start.
Authority. Are you the decision-maker? If not, are all the stakeholders and shareholders in sync with your direction? The last thing you want to create is a squabble in the midst of a property search.
Resources. Leasing a building is similar to the way in which you would apply for credit. Let’s say you are looking for a building of 100,000 ft.² with an asking rent of $75,000 per month. Contemplated is a 10 year lease. Simple math would suggest a monthly rental of $75,000 multiplied over 120 months. Therefore, you asking a landlord to extend a $9,000,000 loan to your company. Can the enterprise foot the tab? How can you secure the owner’s risk - enhanced security deposit? Personal guaranty? Get yourself prequalified for financing in the event you are searching for a business home to buy. Your lender will be able to quickly determine your ability to purchase.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
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