You’re ready to take the plunge, open your own business and make your dreams come true, but where do you start? It’s often overwhelming when you’re faced with all the steps it takes to get your business off the ground. If you need physical space to operate your business, one of the first things you’ll need to consider is where your business will be located, but how do you find and secure commercial real estate? Let’s walk through the process.
Step 1: Identify your desired neighborhoods. This might be the easiest step in the process. You probably already have a few neighborhoods and locations in mind, an idea of where you want to operate and the type of building you want to be in. Think about things like foot traffic, street access, and parking. Would you rather have a standalone building or be part of a larger complex?
Step 2: Decide if you want to rent vs. buy property. There are typically three factors to consider when making this decision: risk, cash, and financing. In terms of risk, are you willing to go further into debt to own a property? In terms of cash, do you have cash on hand for a down payment? And in terms of financing, you must understand how much money a bank is willing to loan you. A commercial real estate broker can make recommendations for you based on these factors, which brings us to the next step:
Step 3: Hire a commercial real estate broker. A commercial real estate broker will walk you through the process of looking for space, determining whether you should lease or buy, and help you through lease negotiations. They will be there with you until the deal is signed and then even five years down the road when it comes time to re-negotiate your lease.
How do you hire a commercial real estate broker? First, ask for recommendations from fellow business owners or friends that have gone through the process of hiring a broker. Don’t have anyone in your life to ask? Reach out to other people in your field who might be willing to speak with you. Try and find a mentor and see who they recommend you work with.
Once you have those recommendations, interview two to three of those brokers and get a feel for their personality and understand their special areas of focus, because there are different types of commercial brokers. Some brokers specialize in land, some in industrial spaces, and some in retail spaces. You should work with someone who has expertise in the type of property you’re looking for, and don’t forget personality. Finding the right fit sometimes comes down to whether your personalities click.
“We encourage clients not to commit to any one broker up front,” says David Meeker, Owner, Elm Partners. “Work with them for a few weeks up front and determine if you work together well before you commit. As brokers, we feel confident in this process because it puts the responsibility on us to do a good job for you.”
Why is a broker so important? Because there are upwards of 20 parts to each real estate deal. A broker can help you with things like negotiating rent, tenant upfit allowances, free rent periods, and common area expenses. They also look at TICAM (taxes, insurance, common area maintenance), a calculation usually done first by the landlord. The broker will check the TICAM cost each year.
“We check it each year,” says Meeker. “We find that the landlord could be overcharging. Ideally, your broker should save you more money through these negotiations.”
After the deal is signed, a broker can also help connect you with all the other parties you will need in order to build out your space, like equipment providers, architects, contractors, and project managers.
Concerned with paying for this type of service? Well, a broker actually gets paid by the landlord or seller, usually around 3% of the total lease amount or total sell price. Half is paid at the execution of the lease and half when the tenant opens their business (deal and market dependent).
So, select a location, decide if you want to rent or buy, and hire a real estate broker to protect your interests. If you follow these steps, finding commercial real estate will not be such a daunting task. But once you find it, how do you secure financing? Read more about that in our next blog here.