COMMERCIAL SITE SELECTION TIPS
Site Evaluation: Prototype Visibility: The best prototypes make strong use of style, distinctiveness, and consistency. An image of a prototype is built through repetition. If your concept is large enough to have many locations that follow a similar design, people will learn what to expect when they see your business. A particular location will then become more visible to the extent to which the building and signage fit the typical look of your other stores.
Site Evaluation: Prototype Visibility: Site visibility will improve to the extent that the proposed building is a prototype that fits the type of business, has distinction, and is consistent with other examples of that specific concept. Strip center locations often lack the opportunity to communicate fully the differences in building style and identity that we have come to expect in freestanding locations.
Site Evaluation: Access: The ease or convenience of getting to your store is a measure of its accessibility. Access is most commonly defined in terms of the ease or difficulty of ingress, coming to the store or its parking area, and egress, leaving the store or its parking area, from the major traffic arteries.
Site Evaluation: Access: A variety of methods and attributes for measuring access are available, including traffic diagrams, traffic volumes, curb cuts, medians, quality of entrances from primary and secondary roads, etc. Use of simple subjective ratings of ease of accessibility from the primary road, secondary road, and freeway, and taking measurements of the time it takes, once the sign or building is noticed, to enter the parking lot, park, and walk to the entrance are great ways to measure access.
Site Evaluation: Drop-in Access: Convenience-driven access is often referred to as drop-in access. The easier and quicker it is to get to your business from the street system the better the drop-in access. If your business is convenience-oriented, drop-in access will have a significant impact on sales.
Site Evaluation: Drop-in Access: The easier and quicker it is to get to your business from the street system the better the drop-in access. Convenience stores, gas stations, quick-serve restaurants, and many other convenience concepts have made a science of defining and measuring drop-in access and constructing sites that rate high on drop-in access.
Site Evaluation: Drop-in Access: If your business is destination-oriented and has good visibility, poor accessibility will not matter a great deal. If they can find you, customers who want to shop at your store will put up with difficult access.
Site Evaluation: Drop-in Access: The significance of a good or poor access rating depends a great deal on several variables such as visibility, strategic position, competition, and market presence. Good access is critical in a competitive market where site visibility and position within the market are average or worse. If you are a strong destination and have only light competition and have excellent visibility, people will make sure they get to your store.
Site Evaluation: Resident Access: An important measure of accessibility relates directly to a concept's customer sources. Strategic access measure the convenience of the store's position in the market relative to key customer sources. Resident access is the measure of convenience for residents in the neighborhoods around the site to travel to the sire's retail trade zone. Are there good streets free from gridlock? Are there any major barriers between the pockets of good residential customers and the site?
Site Evaluation: Employee Access: An important measure of accessibility relates directly to a concept's customer sources. Strategic access measure the convenience of the store's position in the market relative to key customer sources. Employee access is the measure of the convenience of the immediate trade area to individuals coming from work. Good traffic corridors are essential because of the time constraints of this group.
Site Evaluation: Shopper Access: An important measure of accessibility relates directly to a concept's customer sources. Strategic access measure the convenience of the store's position in the market relative to key customer sources. Shopper access is the measure of the convenience of the site to nearby malls, entertainment centers or other concentrations of shoppers, diners, or fun-seekers within a mile.
Site Evaluation: Transient Access: An important measure of accessibility relates directly to a concept's customer sources. Strategic access measure the convenience of the store's position in the market relative to key customer sources. Transient access is the measure of the convenience of the site to highways used by travelers, hotels and motels, and other sources of transients.
Site Evaluation: Strategic Access: Strategic access is actually a feature of the trade area and its relationship to the retail zone near the site rather than a specific site feature. Strategic access is a reality check on the likelihood of each customer source to actually become shoppers or diners in your business.
Site Evaluation: Strategic Access: While a demographics analysis can often locate potential customer sources within one or two miles, it is essential to evaluate the convenience of access that each customer source has to the area containing your business. Your rating of accessibility and its importance to your concept depends on many factors. In your final Site Evaluation, you should include separate ratings for drop-in access and strategic access.
Site Evaluation: Traffic Counts: While traffic is a measure of the volume on the primary and secondary roads and freeways feeding the site, traffic is a highly overrated site feature relative to its predictive value in Site Evaluation. While you need adequate traffic volume on the major roads, the problem is that counting cars says little about the potential of those cars to stop at your business.
Site Evaluation: Traffic Counts: Many of the measures included in a Site Evaluation will to some degree also measure traffic; competition, retail activity, entertainment activity, restaurant activity, malls or other major generators, evening activity, offices, daytime or residential population, and so forth. As each activity is a traffic generator, and more active areas obviously have more traffic, traffic and traffic counts are usually not included as a separate site feature.
Site Evaluation: Strategic Position: Strategic position measures how well or poorly a site is situated in the immediate retail are relative to other businesses. A good strategic position means much more than high visibility or convenient access. Good position succeeds by making your store more convenient to customers coming into the retail area, while your competition, because of their weaker position, becomes less convenient.
Site Evaluation: Strategic Position: Position matters a great deal because it drives customer decisions to use one business over another. A poor position within a retail area reduces your convenience-oriented business because many customers will never drive past your store.
Site Evaluation: Strategic Position: In a competitive market get the best position possible relative to your competition. High competition, low image and poor position can be a disaster. Good strategic position generates convenience-oriented business because even if your store wasn't the primary purpose of the trip, it can quickly become a secondary stop by virtue of its good position.
Site Evaluation: Strategic Position: Having the best strategic position means that potential customers coming from all major customer sources pass your location soon after they enter the retail area. Selecting a location between the customer source and your competition is a good strategic position. A poor location is one in which your customers reach your competition first or can get to them more conveniently.
Site Evaluation: Neighborhood Type: The type of neighborhood you locate in must at least pass a common sense test relative to the type of business being considered. Demographics tell part of the story, but a quick evaluation of whether the physical character of the neighborhood will hurt, help, or have no impact on your business is just as important. Look for obvious red flags; otherwise expect at least a reasonable fit between your business and the surrounding neighborhood.
Site Evaluation: Surrounding Quality: High quality retail or residential surroundings are usually a positive draw for most types of businesses, independent of other factors. Perceptions of quality can be influenced by newness, contemporary design, expensive materials, landscape architecture, unique functionality, reputation, trees, parks or other natural features, and other factors.
Site Evaluation: Surrounding Quality: Low quality environments usually have reduced draw unless you possess a captive audience. Low-income housing, traditional factories, litter-strewn streets and properties, the absence of landscaping, the perception of crime, and vacant land all detract from quality.
Site Evaluation: Surrounding Quality: Low-income households and the absence of vehicles often create populations that have to support certain kinds of neighborhood businesses. Some of the highest-volume quick-serve restaurants and convenience stores exist in these surroundings.
Site Evaluation: Retail Balance: Balanced retail areas, ones offering a variety of shops, dining and services, often do better than areas with a limited like-group of retail outlets.
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Commercial Real Estate Tips
About Commercial Property Brokers - A full service broker receives as well as initiates transactions. They develop strong problem solving and negotiating skill. Full service brokers often work on more transaction than their tenant rep counterparts.
About Commercial Property Brokers - A qualified commercial property broker will put you in control of your lease transaction. Since you are the one who will live with the lease, control is exactly what you need.
About Commercial Property Brokers - Agency is an action; if a real estate licensee acts as your agent, they become your agent. A broker owes you a fiduciary duty. In other words: an absolutely faithful duty to perform in your best interest, and to do no harm.
See more tipsAbout Commercial Property Brokers - Any broker, even a tenant rep, can inadvertently become a dual agent in a transaction by performing an agency action for the other party.
About Commercial Property Brokers - Brokers are paid upon the completion of the transaction, and not paid if the transaction fails for any reason. Commissions are calculated in two ways: a percentage of the rent for all the years of the lease; or a certain number of dollars per square foot based upon the lease term.
About Commercial Property Brokers - Commercial leasing brokers fall into two categories: full service brokers, who serve as agents for both landlord and tenant; and tenant-only representatives. You will benefit from attaining the skills of a tenant rep.
About Retail Lease Proposals - Operating your business next to a business that may be morally objectionable such as an adult arcade can be a business killer. Have your attorney draft language to protect you from the owner leasing to such uses.
See more tipsAbout Retail Lease Proposals - Take a close look at how your potential neighbors are using utilities in the center and research whether or not you are sharing utility meters with high-demand users. Adjustments may need to be negotiated if separate meters are not possible.
About Retail Lease Proposals - When proposing your lease term, think about the best month for your lease to terminate. If your business thrives during the year-end holiday season and you open your business before the holidays, you may want the lease to end in January or February, rather than an annual anniversary of the commencement date.
About Retail Lease Proposals - Within the operating expense budgets for shopping centers you are likely to pay for promotion and media fees. Be sure these are reasonable and will benefit your business. You may want to have limits placed on how much these can increase annually, or you may find a weak center spending more than you can afford in order to save the center if business falls off.
See more tipsAmericans with Disabilities Act - Do not attempt to tackle the Americans with Disabilities Act compliance without the help of a professional. If employing a space-planning architect, it will be their responsibility to keep you informed about ADA. At minimum you must go to the planning department and ask that the building file be reviewed and that a building inspector visits the site before you sign the lease.
Common Lease Clauses - Most leases contain a provision stating that this is the entire agreement and that you have not relied upon any other representation and that there are no other outside agreements. To make sure this is accurate, review all your proposals and notes on the transaction and check to see everything you have been promised is in the lease.
Common Lease Clauses - Normally you will have access to your premises 24 hours a day, 7 days a week, 365 days a year. And you can expect the electrical plugs and lights and elevators to operate. Many of the other services the owner is obliged to provide will only be available during the building operating hours - these include HVAC, guard services, building engineers, etc. If you need any of these types of services to be extended beyond the buildings operating hours, the cost of these, if even available, will be passed on to you. This is a big issue for some properties, and a footnote for others.
See more tipsCommon Lease Clauses - Regardless of whether or not you are reimbursing the owner for their insurance policies, you will be required to provide your own insurance. Start by sending this part of the lease contract to your insurer along with any clauses that deal with attornment, indemnification and/or subrogation.
Common Lease Clauses - Some forms describe the premises by defining both the rentable and usable square footage, while others just give the suite number and refer to an exhibit: an architectural drawing of the space. Always ask how recently the space was measured and by whom. When an architect is involved it should be easy to obtain accurate area calculations.
Common Lease Clauses - Some of the aspects of assignment and subletting are becoming more and more restrictive. Be sure you know your rights and obligations as well as the rights retained by the owner. The owner will always require that they consent to any assignment or subletting.
See more tipsCommon Lease Clauses - Some smaller properties, owned by individuals, will not want to go through all the calculations and ensuing discussions with tenants about increases in rent. Instead they might simply ask for a flat percentage increase annually. While this is easier for both parties, typically this kind of increase is based upon the entire rental payment. Expense increases are only applied to that portion of the rent that goes toward a particular expense - you could pay more for the convenience of flat percentage increase.
Common Lease Clauses - Sometimes tenants are concerned with outgrowing the space before the lease expires. Usually the solution is to sublet or assign the lease. However, if the sublease and/or assignment provisions are too restrictive, you may want to negotiate an early termination of the lease. There are costs associated with the right to terminate early. Normally you will be expected to pay several months of rent while the owner finds a substitute tenant. If the owner provided you substantial amounts of improvements, you should expect to repay the unamortized portion of that fee. While early termination penalties are expensive, for some tenants this is preferable to being a sublessor and the potential liabilities of those duties.
See more tipsCommon Lease Clauses - The "drop-dead-date" is the date by which, if the premises are not delivered, a tenant has the right to cancel the lease and reclaim any money on deposit. How long a tenant may have to wait to cancel a lease is a negotiable item, but 60-100 days is typical. Frequently a delay in possession does not extend the term of the lease, leaving the tenant with a shorter term than anticipated. Be sure any delay in possession automatically extends the expiration of the lease term to get the full benefit of your bargain.
Common Lease Clauses - The balance of the lease must be reviewed by your legal counsel and discussed thoroughly to make sure you understand what you are signing. Do not get lulled into thinking the bulk of the lease is boilerplate; you never know what may be buried in the miscellaneous provisions.
Common Lease Clauses - The late charge is used to offset the cost incurred by the owner in collecting late rent and as a preventative measure against late rent. Most leases do provide a grace period: 3-5 days is typical. You can often negotiate more days, but I think it might be better to negotiate one or two forgiveness' of late charges per year as this will probably save you more money if you forget to pay on time. The interest rate is for longer, uncured monetary defaults and is applied to those overdue amounts in addition to any late charges.
Common Lease Clauses - The lease will set out the obligations of the parties for maintenance and repairs of the premises and you must be sure this accurately reflects your understanding. As a general rule, in a full service gross lease used for office space, or in any kind of lease covering multi-tenant property, the tenant will be responsible for the interior and the owner for the exterior and common areas.
See more tipsCommon Lease Clauses - The operating expense increase clause, or additional rent clause, allows the property owner to pass through increases of operating expenses to the commercial tenant. Normally the pass through begins in the 2nd year of the lease term. The 1st year is referred to the base, or comparison, year and increased expenses are compared to the base year - the difference is apportioned to all the tenants and passed through as an operating expense increase.
Common Lease Clauses - The term includes the commencement date, expiration date, and contemplates a possible delay in possession. If the space is vacant and in move-in condition, then barring strikes, riots, natural disasters or other acts of God, you will likely not have any delay in possession of the premises. If the space is subject to construction work, you may need to anticipate delays, or even establish a "drop-dead-date."
Common Lease Clauses - The use clause will appear with the basic business points and is important because if too tightly written it can affect what you are permitted to do in the premises later if your business model changes and your rights to sublease or assign the lease at a later time. Think about the ramifications of this clause with respect to your business, particularly if you are a retail or industrial tenant.
See more tipsCommon Lease Clauses - There are many erosive forces at work that can silently reduce a commercial property value. Property taxes increase annually, insurance costs constantly creep up, utilities and other operating expenses must be monitored and re-negotiated. The lease contract rent is a promise to pay, and is paid in future dollars. Inflation causes the future value of money to have less purchasing power - this is why commercial leases contain protective clauses against income erosion. These are known as escalation clauses.
Common Lease Clauses - You are likely to encounter the term "Substantially Complete" with respect to the owner's delivery of the premises. This is intended to mean ready to occupy, with only a punch-list of items to be completed or corrected. Make sure you negotiate for at least 30 days to submit your punch-list to the owner, as you will certainly be too busy with other matters to do it in less time.
Common Lease Clauses - You may receive assurances that the owner has no intention of selling during your lease term; that is not enough. The property may be transferred for estate planning reasons or by reason of death. If the owner says they have no intention of selling, then giving you a cap on tax increases should not be a problem.
Common Lease Clauses - You will be required to sign up to four copies of the lease in original signature. I suggest you initial every page of the lease when you are signing to prevent any accidental substitution of pages. You will next need to provide good funds to cover the first month's rent and any security deposits, or contribution to tenant improvements. You also need to deliver an insurance binder from the insurer.
See more tipsCommon Lease Clauses - Your lease will start with the basic business points, either in an outline form or using fill-in-the-blanks as with form leases. The lease will describe the legal entities involved in the transaction - be very sure this is done correctly, as mistakes here can be costly. If your business is a corporation or limited liability company, you certainly want to maintain the protection that theses business structures afford.
Creating a Proposal to Lease - A well-written proposal to lease will get you well into lease negotiations. Once the proposal stage is complete, you will be provided a draft lease for you and your legal counsel to review and fine-tune into a contract that accurately defines your agreement. An experienced broker can help you write a successful proposal to lease.
Creating a Proposal to Lease - Be aware that if you are offered a reimbursement for tenant improvements provided by you, it could cause a taxable event. Consult a tax advisor before agreeing to any cash allowance that comes as a reimbursement.
Creating a Proposal to Lease - If the property is a multi-tenant property you will need to define the owner's obligations related to the common areas.
Creating a Proposal to Lease - If you are negotiating for more than one space, I advise you not to go much beyond the 1st round of proposal responses or into multiple space-planning sessions without informing the property owners. Creating competition in a softer market can work well I your favor, so letting the other side(s) know you have other options can garner some nice concessions.
Creating a Proposal to Lease - If you have been provided with a floor plan of existing conditions, mark it up and include it with your proposal.
See more tipsCreating a Proposal to Lease - If you use hazardous materials, it is important to discuss that up front to avoid wasting everyone's time. In industrial space you will want assurances the space is clean before occupancy: Be sure to ask the owner for a complete written disclosure about prior uses of the premises.
Creating a Proposal to Lease - In preparing letters of intent, I prefer the approach which makes the proposal simple. This means to gain agreement on the big issues first and set aside smaller issues to work out later in the lease negotiations. This negotiation strategy relieves much of the inherent tension in negotiating, and makes agreement on the side issues easier to obtain.
Creating a Proposal to Lease - Most tenants are concerned about expansion rights so they can avoid moving if they outgrown the space. Owners are reluctant to grant any options since options never serve the owner's interests. Options to expand or renew are definitely considered concessions by property owners. Ask for what you want, but expect the owner's attempt to water down your rights as much as possible. In tight markets, option concessions tend to dissipate.
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