4 steps to locating an appropriate facility and negotiating a great transaction

4 Steps To Locating An Appropriate Facility And Negotiating A Great Transaction
By Mark D. Rauch

One of the major annual expenses to most company's almost always includes the cost to lease or purchase an appropriate facility. Like any major decision, leasing or purchasing commercial real estate should be thoroughly contemplated. In order to save substantial time and money, a site selection process should be put into action in advance. Depending on current square footage and individual circumstances, this process should begin anywhere from 6 month's to 24 month's prior to lease expiration

Specific issues to address include:

1st: Needs Assessment: Two major points to consider are the appropriate square footage while allowing room for growth AND what geographic location makes the most amount of sense. Topics to discuss would be the current and expected number of employees, number of private offices which should include senior level, mid level and junior level offices with an approximation of size per employee, open bullpen area, number of work stations, number of conference rooms, mail room, work room, reception area, file room, kitchen/lunch room, phone systems, cabling, a flow factor which is typically in the range of 25% to 35% percent and the building image that is expected along with services and amenities that are within walking distance.

2nd: Market Analysis: The time involved to seek out suitable facilities will be greatly reduced once a company's needs are defined. Because specific needs will have been defined in advance, owners and their broker will view this prospective tenant/purchaser as someone who has taken the time to determine their needs in a professional manner and thus with a much higher level of respect.

Sources to help you find suitable space include Tenant Representatives, classified advertising, economic development agencies, chambers of commerce and various online sites some of which are by subscription only.

3rd: Property Inspections: Ask as many questions as possible regarding landlord/seller responsibilities and expectations during the inspection process. This will help you gather information that can be utilized during the negotiation phase. Keep in mind that it is easier to obtain information in a "non-negotiation" environment than at a later time.

A seasoned and competent Tenant Rep will have relationships with the various landlords/owners and their brokers and will provide you with data sheets, site and floor plans, general information regarding the history of the property a demographic profile of the area and a feel for how that particular landlord or seller negotiates.

4th: Negotiation: In order to negotiate a great transaction, it is imperative to create a competitive environment. A "short-list" of suitable buildings pursued simultaneously will accomplish this. Landlords or sellers will want to win your business. It will also create various alternatives for you that will remove the emotion of focusing only on one property.

Some of the major issues to deal with in the negotiation phase would include the terms of the lease or purchase, base rent plus all additional expenses, tenant improvement dollars the owner will contribute, and any options to renew, expand, contract or purchase.

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

If the transaction is a multi-million dollar acquisition or a short-term lease, implementing a detailed plan will result in a streamlined, beneficial transaction that will be advantageous for a company over the long-term. If utilizing the services of a Tenant/Buyer Rep, 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.