If you’re in the market for industrial real
estate (or will be soon), a broker who
specializes in this area may be able to save you thousands of dollars over the term
of your lease. These professionals can
quickly identify suitable options, work with
you to produce a comprehensive request
for proposal (RFP) and negotiate with the
owner to get you the best rate possible.
“Over the last few decades, the real estate
industry has become segmented. Working
with a broker who specializes both in product type and geographically will save you
money in the long run,” says John C.
Dunphy, CCIM, SIOR, managing director,
industrial services, Colliers Arnold.
Dunphy cautions that you need a comprehensive plan up front. “Not doing your
homework and failing to keep an eye on
the tenant-improvement side of the equation will drive up your lease rates.”
Smart Business asked Dunphy for tips
on negotiating rates when tenant improvements are required.
What are some common misconceptions
prior to entering into an industrial lease?
Many tenants believe that if they focus
primarily on obtaining a low rate per
square foot they will get a good deal. That’s
not necessarily true. You have to consider
the functionality of the space and the build-outs that will be required. A 10,000-square-foot space that is laid out effectively, fits
your specific needs and requires few build-outs might end up being a better deal than
a 12,000-square-foot space that is priced
lower per square foot but that will require
more build-outs.
How does one go about identifying the right
space at the right price?
Working with a specialist will provide a
tremendous advantage. This person will
know all the nuances of the lease language,
legalities and tax implications.
Working with a generalist can cost you a
lot of extra money. A generalist may not
have access to all the listings that a specialist does. The specialist is always networking. He knows what is coming and going — whose lease is expiring when,
what properties are coming up. The specialist also keeps things moving along
quickly. He can usually identify suitable
options for you within one or two phone
calls.
Importantly, the specialist knows how to
prepare a comprehensive RFP, rather than
go to a landlord piecemeal. Many deals
slow down because of piecemeal. Landlords want everything thought out, all at
once. Huge time consumption can kill a
deal. Our industrial market is fairly tight
(about 5 percent vacancy rate). If the tenant is not prepared to come out of the box
with a well-thought-out plan, the space will
be leased out right from underneath them.
How far in advance of a lease expiration date
should a tenant start thinking about moving?
Tenants beware. Florida statute allows
landlords to increase your rent up to 200
percent per month if you go into holdover.
Smaller companies should start talking to
a broker about six months before their
lease expires. Larger companies need
more time, probably around nine months.
This will enable them to take advantage of
possible opportunities with newly constructed buildings or other factors that could be in their favor.
Generally speaking, it can take 30 days to
look at space and begin the initial stages of
the RFP, 30 days to negotiate a deal and get
the first draft of a lease and 30 days to
review. So we’re already at 90 days if all
goes well. Then you have to allow 30 to 60
days for permits on improvements, 30 to 90
days if build-outs are required … so the
process takes many months.
If improvements or changes are required,
how do you negotiate who pays for what?
You can have the landlord do the
improvements or you can arrange to hire
your own general contractor.
Many landlords prefer to make the
improvements themselves so they can control what goes into the building. To provide
this service, most landlords will build in
oversight fees, usually from 4 percent to 6
percent. If the tenant goes this route, he
needs to be clear on what will be included
in the build-outs and for what fee.
Tenants should be aware that some landlords also own their own construction
firms, which they operate as a profit center,
to make improvements in the buildings
they own. If this is the case, the tenant
should ensure the prices are in line with
what he could find for equivalent services
elsewhere.
The tenant may be able to save money by
hiring his own general contractor and
reviewing the bids himself. This will not
only reduce some of the fees but also
speed the process. In some cases, the
owner may be willing to offer a discount if
the tenant takes this path.
On another note, there may be tax benefits to both the landlord and tenant if the
landlord provides the funds for the tenant
to make the improvements; for example, in
the form of an improvement allowance
such as six months’ free rent. These are
among the many options a well-versed broker can help you explore.
JOHN C. DUNPHY, CCIM, SIOR, is managing director, industrial services, Colliers Arnold. Reach him at (727) 442-7184 or
[email protected].