1. How far in advance should I start looking for space?
In a balanced market or tenant / buyer-
To lease: 4 months before the expiration of your current lease: first month to inquire about the market. Second month to identify and define your options. 3rd month to negotiate and sign the lease. Fourth month to overlap your last month of existing lease and allow for a smooth and orderly transition from your old space to the new space. You can adjust delivery time if you have complications, such as a heavy equipment manufacturing company that requires HVAC and electrical modifications, or other improvements for tenants that require permits and construction
To buy: 6 months before the expiration of the lease, first month, to find out about the market value. 2nd and 3rd month to explore the market and identify various options – 4th month to negotiate and get a contract – 5th and 6th month to do your due diligence, fix and finalize financing – and close the property. If it is difficult to satisfy, you may want to add another month or even two. You can adjust the lead time if your requirements are not typical of conventional construction and you need unique or special features that are hard to find (i.e. no interior columns, 35 foot ceilings).
2. Identify the zoning you need and define its geographic boundaries.
Each municipality has a zoning ordinance that specifies which businesses can operate in different zones. You can go to the link shown at the end of this article to determine what zoning you need. MuniCode provides online ordinance presence for numerous municipalities. It is critical that you first identify where your business can legally operate, and then narrow your search to those areas. Failure to do so will be a very costly and time-consuming mistake. I cannot stress this enough.
You must identify where you want to be. Throughout my professional career as an industrial specialist, I have found that, other things being equal, the final location of the space is strongly influenced by the proximity to the owner of the company’s personal residence. Other factors to consider are: distance to major interstate highways, airports, shipping ports, rail service, workforce, public transportation, and markets served. A good idea is to determine how far you will go in all directions. This helps make the search workable.
3. Determine if you need loading docks
If you are a distributor you need loading docks. You may also need street level doors. If you are a manufacturer or service provider, you may not need loading docks. There are several types of loading docks. Wells for trucks, embedded, platforms, 30 “springs and 48” springs. Be sure to select a building with the correct height, quantity, and spring configuration. Do not forget the size (dimensions) of the overhead doors. It won’t do you any good to have a 14 ‘tall truck that needs to enter the building and only 12’ tall doors. You may also need a ramp. Consider how long it will take you not to have a necessary function in a time and motion study.
4. Determine the ceiling height you need
If you are a dealer, the higher the ceiling height, the better. Determine if you stack 2, 3, or more pallets high. Typically you need 24 ‘to stack 3 pallets high. This may vary depending on the size and weight of your products. Be sure to consider the headroom, not just the overall height. Sprinkler systems, roof structural elements, and HVAC frequently reduce headroom. If you are a manufacturer or service provider, you may want lower ceilings; especially if you are going to condition the entire space. The fewer cubic feet you cool, the lower your electric bill. If you need a lot of lighting or power drops, a lower ceiling is also beneficial.
5. Determine the amount of office and warehouse space you need
Enable future growth. Having to move again or have a space nearby results in inefficiency and higher costs in the long run. Rent / buy 10-30% more space than you need and rent until you need it. Think long term. Plan for success. Make sure the building you enter has enough parking. Occasionally, office space will be built without permits and the result can be a parking shortage. This will prepare you for problems with the city trying to obtain an occupational license, as well as problems with neighbors. Typically, you need 1 parking spot for every 200 square feet of office space and 1 parking spot for every 800 square feet of warehouse area. Please confirm this with your building and architect codes.
6. Mechanical – HVAC – Fire Sprinkler Issues – Rail Access
This is where you plan the country in a big way. Modifying the building before moving in is much easier than doing it while taking up space. Mechanical and electrical engineers should be consulted when evaluating potential buildings.
7. Define your budget
Once you have an idea of the market values and the amount of cash you have, you can work back and find out how much space you can rent / buy.
Purchase Example: Assuming the following: You have $ 1,000,000 in cash and the buildings are selling for +/- $ 70 per square foot. Conventional financing requires a 20-25% down payment: $ 1,000,000 is 25% of $ 4,000,000. Dividing $ 4,000,000 by $ 70 per square foot results in a 57,000-square-foot building. The lender will generally require your cash flow to be 130% of your debt service. Keep in mind that you will also have to pay taxes, insurance and support. Property has tax benefits and appreciation can be an added bonus. Real estate values can rise and fall with economic cycles, and entry and exit timing strategies are crucial to maintaining and maximizing value.
Leasing Example: This is largely determined by your cash flow. Rentals can be quoted in various ways. Industrial leasing rates can be gross, modified gross, net, or modified net. The difference is how much of the variable costs (taxes, insurance, and maintenance) the tenant is exposed to. Other terms of leases, such as annual escalations (can be a fixed or variable% or based on a CPI consumer price index), liability for the cost of utilities, insurance, and insurance deductibles are examples of other expenses that should be considered.
8. Determine truck parking and field needs.
There are two things to consider for parking: One is the number of employees you anticipate having immediately and in the future, at the new location. The second consideration is what the building codes require.
How many and what type of truck deliveries do you receive per day, per week per month? Make sure the property you choose can handle truck volume without disruption from other tenants or property limitations.
9. Determine if and how much external storage is required
If you need outside storage, be sure to choose a property with the correct zoning designation. What you store outside plays a big role in how much land you need and where it’s allowed. Parking cars is very different from storing construction supplies or hazardous materials. You may need a 6 ‘high visual barrier, drainage, pavement, landscaping, or a parking lot that is lighted to certain specifications. All of this can significantly increase relocation expenses.
Leave enough soil to accommodate additional growth. Plan for success.
10. Do I use a corridor or do I look for the space myself?
How much is your time worth? Is it better to run your business and let a professional do it for you? Can you do both, okay? Do you have experience in real estate negotiations? I frequently get calls from people looking at, say, a 10,000 square foot building and I need 30,000 square feet or 1,000 square feet. After driving and making call after call only to find that the building is for rent and not for sale, wrong size, wrong zoning, partial occupancy or not available for 6 months, it becomes desperate.
The seller / landlord is usually the one who pays the brokers. Be sure to discuss the representation early in the relationship. Real estate agents have a legal obligation to disclose and treat the public fairly.
The link to the zoning ordinances online is http://www.municode.com
This is a short briefing on what to consider when looking for a new location.