Sometimes, the best move a business can make is into a new market. While the idea of uprooting an existing business and moving to a new city may sound daunting, the financial opportunity it sometimes generates makes it difficult not to consider.
Select brokers know how to negotiate with cities on behalf of a company to obtain incentives like cash grants, employee training grants or even subsidized land.
“By leveraging knowledge of local, state and federal incentive programs, we can help create business and economic incentives and have cities compete for the client,” says Kevin Hayes Jr., vice president of CRESA Partners, an international corporate real estate advisory firm. “When you’re really looking at the scope of how incentives work, somebody needs to be capable of identifying the opportunities.”
Smart Business spoke with Hayes about what companies need to know when considering a move to a new market.
How do you know it’s the right time to consider changing markets?
The general rule of thumb that most people operate under is that ‘our lease is expiring within a year; let’s look at this process.’ Or if they own their facility, they often don’t consider making any form of transition until a problem has already appeared.
I would highly recommend that a company take the time to do long-term planning and to understand the marketplace as a whole. It’s never too early to focus on strategic planning, which can be separated from traditional brokerage services. If the people you’re already comfortable working with don’t help you set the course, then bring in a firm that can, so your existing brokers can then execute that strategy.
Moving may involve an early lease renewal or disposing of leased or owned space for the sake of making a transition several years earlier than intended. It may involve short-term renewals because the market is going to take a dip.
A competent representative will take your business’ goals and market conditions into consideration. The person should look at long or short lease terms based on what the market dictates. The way brokers are compensated is a market-standard fee that is based on a percentage of the total lease consideration, generally paid by the landlord.
If the broker’s fee is based on that total lease consideration, the longer the lease, the more the broker is paid. A good professional needs to be willing to say, ‘You need to do a shorter-term lease based on these market conditions,’ and not act in his or her own best interests.
How can a business compare two competing markets?
Engage a competent professional who will go through the process entirely on your behalf. Compensation should be based on the savings he or she creates. If the person is not successful in creating savings on your behalf, then he or she should not be paid.
Outside of that, keep a tight control on the your employees and representatives to ensure that there is leverage on your behalf. There often is a public agenda and a private agenda. If a city competes hard enough, it can sway the private agenda to go there. If the leverage is not properly built by the competent professional, then the desired city will not compete very aggressively for your business.
These incentive packages must be administered in an ongoing manner. If your firm needs to file again the following year, the professional who originally negotiated it should handle this function on an ongoing basis to ensure you receive the full advantage.
How should a business decide when choosing between two markets?
The cost benefit of relocating to different places is a mathematical number that won’t lie, but you should do a subjective analysis, too. A number of issues should be added in a separate analysis to make sure you’re not just making a decision based on the lowest-cost alternative — which may be a short-sighted strategy. If it affects your business in the long run, you may have been better off spending ‘1.5X’ and being in a different city where you’re going to derive more benefit or profit.
Look at the logistics of a company that has a supply chain, for example. Sure, you can move out to the high desert, but if you have trucks going up and down the hill, costs to move your goods now will be a lot higher because the trucks have to go up mountains. Looking at who your goods and services are being provided to is definitely part of it.
KEVIN HAYES JR. is vice president of CRESA Partners. Reach him at (949) 706-6600.