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business builder real estate
by Ann Hansen and Jim Vos
The layoffs that followed the bursting of the tech bubble and the subsequent economic recession led many people to join the ranks of home-based business entrepreneurs.
Mail-order ventures, consultancy firms and numerous other start-up companies began to take shape out of the spare rooms, home offices and basements throughout the Twin Cities.
Now, several years later, some of these businesses have grown significantly, leaving the entrepreneurs with a new business issue to contend with: real estate. How do you know when it is time to move from your basement to an office building? Where do you start? Who do you talk to? Where do you want your office? How much space do you need?
Don’t be overwhelmed — asking questions is an essential first step. The next step, determining the right answers, is the most important part of the process. Here’s where this article, and an expert commercial real estate consultant, can help.
A different animal
Unless you have experience with commercial leasing, you may be unpleasantly surprised by how different this is from that first apartment lease you signed after college.
In complicated transactions, a commercial lease can easily be more than a hundred pages long. And every section of that lease is negotiable to some extent. But once you are locked in, your options are gone. Be sure to get expert representation, from someone who will look out for you exclusively.
Determining whether or not you are ready to make a move comes down to determining the immediate and future goals of your business. Your real estate should support your business plan and that means assessing whether or not staying in your home office is helping or hurting your business.
Will moving to an office building help produce the results you are looking for in the growth of your business? You should think of real estate as part of your overall strategic plan.
As a small-business owner transitioning to that first office space, there are hundreds of decisions to make. First, you need to start with the fundamental questions related to location:
• Will my customers need to come to my office space?
• Does the address and image of the building matter to my business? Or to my ego?
• Does access to the freeway system, airport or customers play a key role in my office location?
• Is easy access for my future employees important?
• What can I afford?
If location to customers or employees is important, map the locations of your customers and also consider where there is a better than average employee pool for your business. That may help you narrow down the location.
A real estate consultant can also help you accurately gauge what different types of space can cost in different parts of town. Typically, you’ll pay more for better quality buildings and more desirable addresses. Knowing how sensitive you are to price will help the consultant identify suitable options for your business.
In residential real estate the saying is, “location, location, location.” For the small business, equally important is “flexibility, flexibility, flexibility.” Programming your current space needs and projecting future growth is critical.
Too much space or not enough space can contribute to the death of a small business. Considering both current space needs and projected will ultimately save you time and money.
For instance, if your business grows quickly, having a long-term lease with a set square footage may hinder your ability to keep the growth moving in the right direction. A shorter-term lease or a lease with a termination option may be your best bet.
Don’t forget options
In any event, your lease should include options for expansion, contraction, renewal and lease termination. You may pay more per square foot to have this flexibility but the cost will be much less than the cost of restrictions of your business growth.
As mentioned, there are innumerable aspects of a lease up for negotiation. When comparing spaces, it is important that you have a clear understanding of what is included in the leases.
In addition to location-related considerations and flexibility of term, there are cost considerations such as operating expense costs, capital improvement pass throughs, overtime heating and cooling charges, common area factor/add-on and many other costs that may not be included in the rent. Only after carefully comparing your options can you make an educated space selection.
Plan for expiration
Once you are in your new space, you might feel that you can rest easy regarding real estate-related business issues for the length of your lease term. Not so fast! Keep in mind that, also different from residential renting, commercial leases aren’t automatically renewed at the end of the term.
Unless you have negotiated a new lease, you must leave your office space upon lease expiration or pay “hold over” penalties to the landlord, equaling as much as twice your rent. Tenants are wise to start thinking about renewal or negotiating a lease at a new space 12 months before the expiration.
Whether you are growing your marketing consultancy practice to add more employees and take on more clients, or you are expanding your online product distribution business to include a retail store, the location of your new space and the terms of your lease are paramount to the continued success of your business.
[contact] Ann Hansen and Jim Vos are principals at CRESA Partners, a Minneapolis-based commercial real estate firm that represents tenants exclusively. Hansen: 612.373.0294; ah*****@***********rs.com. Vos: 612.373.0290; jv**@***********rs.com; www.cresapartners.com
