Look Before You Lease

How you search for a business location can spell success or failure. Here's the scoop on negotiating a deal that won't foil your firm

lease, sublease, buy or participate in a shared co- op? Answers to these questions will help you narrow your search and save you the time of looking at buildings that don’t suit your needs.

While you can go it alone in your search for space, it is recommended that you work with a commercial real estate agent/broker. “The broker has access to data in terms of demographics, income in the neighborhood and traffic flow. He or she can also assist you with negotiation of the lease,” says Wiley Sturns, president of Consolidated Realty Board, a subsidiary of the National Association of Real Estate Brokers in Los Angeles.

You will also want to work with an architect to help with the build-out or renovation of your space. Most spaces, particularly in retail, come as a plain vanilla shell. You have to design it to fit the needs of your business.

Once negotiations of the space start and leases are drawn, hire a commercial real estate attorney (not a general practitioner) to review the agreements. “It’s extremely important that you get somebody who knows the ins and outs of real estate law because it’s not like regular law,” says Donn Raabe, director of member services for the Commercial Investment Real Estate Institute, a Chicago-based organization that offers certification in commercial and investment real estate. “There are distinctions within each community and state that you need to be aware of,” he says. Commercial real estate attorneys charge by the hour. Fees vary but can run as high as $200-$300 per hour.

There’s no standard length of time for finding a facility. Each case is different. However, depending on the complexity and size of the business, negotiating a lease and closing a deal can take anywhere from a few weeks to several months. If your buildl-out is extensive, it can take several months before your space is operational.

SUBURBS OR CITY? ASSESSING YOUR NEEDS
Perhaps the biggest part of your search will be determining what you can afford. Devise a budget to include all expenses related to your space. Keep in mind the rental rate is not your only expense. You must also consider cost for the security deposit, real estate taxes and various operating expenses. For retail businesses such as restaurants. operating costs can be especially high. For example, all restaurants must have proper ventilation.

In New York, for instance, the ventilation in restaurants runs along the sides of buildings and onto the roof. From scratch, each story can run about $10,000 just to vent. If you’re looking to locate in a building with 40 or 50 stories, that can be a significant cost that goes well beyond your monthly note.

The cost of commercial space varies according to a number of factors including location and type of building. However, in most major cities, there are average prices for four classes of space.
Class A buildings run anywhere from $30-$65 per sq. ft., with the average at $43-$44 per sq. ft. These buildings are the creme de la creme of sites.

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