• January 23, 2018

Top 12 Finding New Space & Relocation Tips for Commercial Tenants

Cheat Sheet

Top 12 Finding New Space & Relocation Tips for Commercial Tenants

Top 12 Finding New Space & Relocation Tips for Commercial Tenants 800 450 Leasing REality | Commercial Real Estate Education

When a tenant is considering channeling circa 2010 mindset of LeBron James by taking its “talents” and its company to a new location, the following should all be taken into account:

  1. Search, Identify & Plan (“SIP”). SIP, and don’t gulp, as just like life is a marathon and not a sprint, so should be finding the best space for your overall business needs. This part of the process can be a 3 to 6 month period, so plan accordingly.
  2. Hiring the Right Broker. The preference would be for a tenant to hire a broker who has a “goal line-to-goal line” mentality, with the ability to:
    • Take you through the dizzying process of securing the perfect space; relentlessly pound the pavement for you; steer you away from bad buildings and less desirable landlords, operationally speaking; and negotiate the best financial deal for you, given a tenant’s myriad of constraints and desires and the landscape of the rental market.
    • Ideally, the tenant advocate hired will be part of a brokerage firm having vast and varied real estate backgrounds and the talent to interchangeably “wear” their collective professional hats at the bargaining table!
    • If you are a retail tenant, the tenant adviser you select should be cognizant of every location in the market with good retail mixes and appropriate foot traffic, as well as the perfect blend of demographics suitable to your business.
  3. Preparing a Matrix Space Comparison Spreadsheet. Once the foregoing hiring and search has been accomplished, prepare a matrix or spreadsheet comparing the various costs, amenities, locations, pros and cons of the spaces searched by the broker on behalf of the tenant.
  4. Revisiting Goals and Budget. “Revisit” the tenant’s budget, real estate goals and the overall scope of the project, relying not only on its in-house team, but also on its broker, real estate counsel and accountant, if need be. When a tenant is negotiating a term sheet, the parties are still in the dating and courtship stage where a landlord is doing its best to seduce the tenant to relocate to its building, and accordingly, tenants very well will never have more leverage in the negotiations. The fees a tenant may need to pay its professional team at this stage will ultimately be far exceeded by the concessions secured on its behalf from its future landlord.
  5. Test Fit. Make sure that the space fits the current and future needs of its client’s company.
    • Some landlords will do a test fit for a tenant at little or no cost, and others won’t. Some furniture vendors, with the hope that the prospective tenant will ultimately use them, may do a space fit design plan for a tenant at little or no cost as well.
    • Tenants should ask key employees and/or department heads for their input as well at this juncture. Their input is necessary, and the respect shown to them at this point in time will pay off for tenants both then and in the future.
    • Try and choose the spaces you can envision spending the next 5 to 25 years of your business in!
    • Analyze whatever financial spreadsheet you like to use comparing the various spaces.
  6. Preparing the LOI or RFP. With the aid of a tenant’s broker and possibly its attorney as well, a tenant should prepare and submit either their own proposals, or alternatively, send out “Request for Proposals” (RFP’s) to a number of landlords and their agents. Consider submitting multiple proposals to create an “air of competition.”
  7. The ACNE Principle. Although in the end the picture will be a pretty one, this is the stage where the ACNE Principle comes in handy as to the next steps in the process:
    • A – Analyze: Analyze the counter proposals or RFP’s.
    • C – Counter-Propose: After analyzing the proposals and RFP’s, prepare counter-proposals to submit back to the landlord.
    • N – Negotiate: Negotiate the counter-proposals, and later on in this stage, the lease itself, with the attorney for the landlord lucky enough to have been selected as the winner of your future tenancy.
    • E – Evaluate, Engineer and Execute: Budgeting is paramount at this juncture, and whether by the landlord’s or tenant’s architect, the preparation of design and/or construction documents for space is as well.
      • Evaluate the landlord responses;
      • Engineer the potential space layout; and
      • Execute the letter of intent for the space selected.
  8. Tenant Improvement Allowance. If the landlord is providing the tenant with an tenant improvement allowance, attempt to address all or a majority of the following:
    • Landlords having a death like stranglehold on the tenant improvement allowance until a series of benchmarks are achieved by a tenant (such as completion of work, inspections and the delivery of lien waivers);
    • The timing for Tenant Improvement Allowance disbursements (such as whether partial draws will be allowed);
    • How much of the Tenant Improvement Allowance can be spent on hard versus soft costs (including furniture);
    • What documentation (and milestones accomplished from a completion perspective) should accompany a Tenant Improvement (“TI”) disbursement request;
    • Whether the T/I Disbursement can be made directly to the contractor, or does tenant need to pay the contractor first and then get reimbursed;
    • The period in which the tenant must request its T/I Allowance before losing it; and
    • Whether the tenant will have the option to apply any unused T/I allowance to free rent.
  9. Choosing the Right Contractor and Negotiating the Construction Contract. At the start and throughout the construction build-out and move-in stage, follow the steps below:
    • Review and approve the construction drawings regardless of whether the drawings are prepared by the landlord’s or tenant’s architect.
    • If the tenant is building out the space, send out RFP’s to contractors and ultimately pick a contractor based on what you perceive as the proper blend of pricing, competence, reputation, integrity and the ability to complete the project within your timeline.
      • Make sure the AIA Construction Contract is negotiated to your benefit.
      • Although it’s not nearly as one-sided as most commercial leases, which are extremely pro-landlord, tenants should know that the AIA contains quite a bit of language that can come back and bite them in the butt. Consider having your attorney prepare the construction contract to attach to the RFP (Note: Among other things it will save time and money).
      • Tenants should make sure an experienced attorney helps negotiate the AIA contract.
  10. The Construction Process
    • Order any long lead items, new equipment or furniture, and given that the majority of landlord’s will want nothing to do with your telephone and internet wiring – find the right firm to take care of this – as well as your long-term telecommunication needs.
    • If the landlord is building out the space, make sure that, as a tenant, you will be on the hook for little or none of the build-out cost, if possible.
    • Have a kickoff meeting with all parties involved in the construction and build-out process, in order to set expectations and have everyone on the same page.
    • During the construction process, have weekly or bi-weekly meetings – whether by phone, videoconference, or at the job site.
  11. Early Space Access. Negotiate language into your lease that allows you, as a tenant, early access to the space, without payment of rent, to install wiring and cabling (and even storage of furniture and assembly of work stations) during the latter part of landlord’s construction.
  12. Substantial Completion of the Space Build-Out
    • When the construction is deemed “substantially completed” by either a tenant’s landlord or contractor, arrange an inspection.
    • Negotiate that the tenant should have at least 5 business days advance written notice that the space has been (or if a landlord, will be) substantially completed.
      • Be as anal and thorough during the walk through as possible – being the equivalent of a construction proctologist to your new space.
      • Make sure that only minor punch list items remain – to be completed within no more than 30 days, which do not impact your ability to move in and enjoy your space.