How to find and negotiate for commercial property.

The process of leasing or purchasing commercial property should be well thought-out, like any major business decision. The cost to lease or purchase is usually one of a company's largest annual expenses, and a site selection process should be implemented in advance to define specific needs, which will minimize wasted time in locating the ideal facility.

Whether a company is searching for office, industrial or retail space, there are specific items that need to be addressed before the inspection process begins.

Phase I: Defining Needs

Most important to a business is to initially determine how much space they require, allowing room for growth, and the preferred geographic location. It is suggested that an internal questionnaire be developed which will shed light on existing and future needs. Items to consider include:

* Number of current and anticipated employees;

* Number of private offices required with approximate square footage per employee (i.e., sales vs. executive offices);

* Conference room, training room, kitchen area square-foot requirements;

* Storage, telephone, miscellaneous area square-foot requirements;

* Warehouse requirements - number of pallet positions, ceiling height, loading facilities, etc.;

* Light assembly/manufacturing requirements - number of machines/employees and power requirements;

* Access to labor market and customers;

* Transportation and parking requirements;

* Image of Property, nearby services and amenities (restaurants, hotels, etc.)

Phase II: Market Analysis

Once a company's needs are defined, the time involved to identify suitable properties will be greatly reduced. In addition, owners and brokers will view this prospective customer as a serious tenant/purchaser who has taken the time to determine their needs in a professional manner.

Sources to find suitable space include real estate brokers, classified advertising, economic development agencies and chambers of commerce.

Finding an active, knowledgeable broker with a computerized listing system and Internet access will help to streamline this process.

Phase III: Property Inspections

When inspecting suitable properties, ask as many questions as possible regarding landlord/seller responsibilities and expectations. This will help you gather information that can be utilized during the negotiation phase. It is easier to obtain information in a "non-negotiation" environment than at a later time. Specific items to address include: Condition of premises at occupancy; age of roof and mechanical systems, and environmental issues.

Again, a professional broker should provide you with data sheets, site and floorplans, general information regarding the history of the property and, if required, a demographic profile of the area.

Phase IV: Negotiation

A "short-list" of suitable buildings should be pursued simultaneously to create a competitive environment, where landlords or sellers will want to compete for your business. It will also create various alternatives that will remove the emotion of focusing only on one property. Having a Realtor (who has access to market trends, pricing and comparable) control this process will allow for the maximum negotiation leverage to yield the best deal. By analyzing each scenario, your broker will be able to give you an objective point of view.

Items addressed in this phase include:

* Lease terms/purchase terms;

* Rental rate and additional expenses;

* Owner's construction contribution;

* Options to renew, expand and purchase.

A comprehensive financial analysis should be performed to determine which opportunities are the most cost-effective over the long-term. Size of available units, lease prices, common area and "add-on" expenses will vary, and a financial analysis will allow for an easy comparison of properties.

Summary

Whether it is a multi-million dollar acquisition or a short-term lease, implementing a well thought-out site selection plan will result in a streamlined, economical transaction that will have long-term benefits for a company. If utilizing the services of a real estate professional, ask about their experience and success as it relates to similar types of transactions, as well as their capabilities and technological resources to service your needs.

(Ian M. Grusd, CCIM is Director of Commercial Properties for RE/MAX First Realty. He has been involved in the sale and leasing in excess of 2.5 million square feet of office, industrial and retail properties.)