A pre-property tour primer

Before embarking on property tours to look for a potential new home, business owners need to undertake a detailed analysis of their space needs. This will save time and money, resulting in a much more efficient process and result.

One of the first steps is to establish a project team. While larger companies often have in-house real estate departments that work closely with their finance departments, most smaller companies need to outsource those functions to a commercial real estate broker acting as a tenant representative. In my experience, the project team typically includes the business owner, the chief financial officer or outside CPA, the tenant rep, possibly the company’s bank, and a space planner or architect.

After I get a call from a company telling me that they are thinking about moving or need more space, I always request a meeting at their place of business so I can see for myself how they are using their current space, and to get a complete understanding of the reasons for a move.

This visit gives me the opportunity to ask a number of questions.
• What is the most appropriate action – renewing the current lease, relocating or buying property? This is one of the most important conversations I have with tenants, since it generally uncovers the actual reasons for the exercise. In some cases, a tenant will have more space than it needs, and if some of that space can be given back to the owner, the tenant is happy to stay. In other cases, the tenant wants to leave no matter what. And in other cases, the tenant is tired of paying rent and wants to acquire equity by way of ownership.• How do space needs fit within the overall business strategy and objectives? This question gets into a discussion of what it is that a particular business does, and whether the space it is in, or desires, helps the company to meet the company’s mission.Terms vs. budget • Is the current space efficient or can it be reconfigured to achieve efficiency, both from a use and cost perspective? It’s not uncommon to find on an initial visit to a tenant’s current place of business that the space is being used very inefficiently, or that there is more space than is needed.A space planner or architect can be helpful in analyzing the layout and offer suggestions on how to improve it. This can have beneficial results in terms of productivity and an improved bottom line. In some cases a tenant can sublease excess space, lowering its own occupancy cost, but this generally requires the consent of the landlord.• What will be the total amount of usable square footage needed? This is the bottom-line number that will be critical in going forward with the space search. Business space is generally listed in terms of rentable square feet, which is a number that includes the actual, usable space plus a portion of the halls, lobby and other common areas that a tenant pays for based on its percentage of space to the entire building.• What is the budget for space and how long a term is desired? Financial executives are pretty good at helping tenants to determine what their budget can be for their occupancy costs, and are a key factor to determine prior to property visits.The desired lease term is also important. Some businesses are in growth mode and don’t want to lock themselves into a lease for many years. However, a longer term lease has advantages for landlords and tenants when extensive renovations are desired.• What are the requirements in terms of location, image, services and amenities? Most tenants have specific requirements that must be understood in order to properly conduct a search for potential spaces that meet them. Typically it will take several months to identify potential spaces, but it can take much longer. I spent more than two years with one client before we were able to find a location that best met their requirements.Other points to consider before visiting a new property can also include special requirements for finishes and lighting, computer server rooms as well as warehousing needs.

By going through this process, the search process is more streamlined than it would be otherwise, saving time and money for the tenant.

Dan Scanlon, JD, CCIM, is an adviser with Grubb & Ellis|Northern New England, Bedford. He can be reached at 603-206-9605 or djs@grubbellisnne.com.