What is the process for leasing office, retail, or warehouse space?
Leasing office, retail, and/or warehouse space can be a complicated and confusing process. The list of steps outlined below may be applicable in total or only in parts to any specific transaction. A broad overview of the leasing process includes the following steps:
- Market tour and exposure to potential sites
- Solicitation of proposal(s) from top potential sites
- Preliminary space planning for any required construction
- Pricing of space plans and construction
- Negotiation of final business terms with selected site(s)
- Lease preparation, review, and negotiation
- Finalization of space plans and final pricing
- Lease execution
- Preparation of construction plans for any required construction
- Permitting and Construction
- Move In
It is important to note that some steps in the process may be done in a different order (i.e., the finalization of space plans may be done simultaneously with the lease finalization). Additionally, some steps may not be applicable in some transactions. Finally, some of these steps are incumbent on the Tenant to perform, while others are typically handled by the Landlord in the transaction. AGM Commercial Real Estate Advisors walk tenants though the process and expertly advise as to where the greatest efficiencies can be obtained, both financially and in time-savings.
How long does it take to complete a deal from start to move?
Each transaction is different and can vary greatly in the amount of time it takes to complete. The biggest factors that influence the amount of time required are the size of the transaction, the amount of construction required, the locality and its permitting process, and the flexibility of the attorneys involved to reach mutually agreeable terms. As a general rule of thumb, for a transaction where construction of office space will be required (including reconfiguration of offices within warehouse spaces), the following time frames should be utilized:
|Up to 3,000 SF of office space:||4 – 6 months|
|3,000 SF up to 20,000 SF of office space:||6 – 9 months|
|20,000 SF up to 50,000 SF of office space:||9 – 12 months|
|More than 50,000 SF of office space:||12 – 36 months|
What role does AGM Commercial play in facilitating a transaction?
There are two primary roles that AGM Commercial plays in facilitating a transaction. The first is to make sure our clients get the best possible economic results that are possible within a given set of market conditions. AGM Commercial cannot get a deal that “beats” the market; no one can promise such results unless they are the final decision-maker for a given property (and are willing to undercut overall market conditions.) However, AGM Commercial can ensure that our clients get the most aggressive set of financial terms possible in a market, given the various factors involved. The second role AGM Commercial plays is to facilitate, streamline, and manage the process of completing the transaction. The professionals at AGM Commercial are able to make sure each necessary step is taken to allow for the smooth processing of the transaction. In so doing, we let our client do what they do best: run their business. We handle the “heavy lifting” of the transaction process.
What are the differences between the various rent structures in the market?
Rent structures can vary greatly depending on the building type and Landlord preference. To the untrained professional, they may also be confusing or misleading. It is possible to see a rent quote at $10.00 per square foot that ends up costing more than a rent quoted at $20.00 per square foot. In the most simple of terms, the variety of rental structures all describe what costs are included in the rent.
On one end of the spectrum is a triple net lease, often seen quoted as $X.XX per s.f. NNN. This is most common in warehouse, retail, and single-story office facilities. Triple net means that the rent is net of (or a tenant pays in addition to the base quoted rent) the three primary components of operating costs: taxes, insurance, and common area maintenance. The tenant also contracts separately for the services it uses, including janitorial, electric and/or gas, water, etc.
At the opposite end of rental structures are full-service rents. These rents are often seen quoted as $X.XX per s.f. F.S. Full-service rents include all costs of operating within the space (rent, utilities, taxes, janitorial, etc.), except for data and telecom services. The only unknown costs that a tenant is exposed to are what are called “base-year expenses”, whereby if the operating costs of the property go up over the lease term, the tenant is responsible for a portion of the increase (but not the entire cost) of the expenses.
There are other rents which include some costs but not others. The most common are:
- Industrial Gross. This includes base rent, taxes, and insurance, but not common area maintenance. Tenant specific services such as utilities, janitorial, etc. are contracted separately and paid for by the tenant.
- Net of Utilities and Janitorial (could also be net of janitorial only or net of utilities only). This includes base rent, taxes, insurance, and common area maintenance. It also includes whichever service is NOT listed within the rent (i.e. net of janitorial implies that the utilities are included.) This is also sometimes called a modified gross structure; however, modified gross has been used loosely and now can refer to nearly any structure between triple-net and full-service.
Finally, some retail leases call for a percentage (or proportion) of gross sales to be paid as rent. This can be in addition to a base rent, or it can be the only form of rent paid. It can be a percentage starting from the first dollar of sales or it can be only after a certain amount of sales in given month or quarter (known as a “break point”.)
AGM Commercial professionals can help evaluate the various opportunities in a market, and perform an analysis to show you what the final true total cost would be. This allows our clients to make fully informed and educated decisions that are best for their given business.
What is a core factor (AKA common area factor or add-on factor)? Also, what is the difference between usable and rentable square feet?
A core factor, also known as a common area factor or add-on factor, is a percentage that is added to the actual space that is being leased. It is used to account for portions of the building that are used in common by all tenants such as lobbies, bathrooms, sprinkler rooms, etc. A core factor is most common in multi-story office buildings, but it can exist in single story buildings as well. In most multi-story office buildings, the core factors will range from 12% to 13%, but some newer buildings have run as high as 15%. If a single story building has a core factor, it is typically a nominal percentage (less than 2%) to account for a sprinkler and/or electric room. As an example, in a building where there is a core factor of 13%, a tenant leasing a 10 x 10 room would be leasing 100 usable square feet, but 113 rentable square feet. Rent and all other charges would be based on the rentable square feet.
Can AGM Commercial help me negotiate with my current landlord to extend my lease or expand?
In a word, absolutely (we do it all the time). Since AGM Commercial’s professionals are involved in so many transactions, we are aware of the variables involved in any deal. There are benefits to a Landlord to deal with an existing tenant, and we are often able to maximize those benefits for our clients. While many tenants who are renewing simply focus on trying to lower the rent, there are other financial factors that can play as big or bigger a role in determining the total rent that will be paid over the lease term. These other factors include: improvement allowances, base year expenses, leasing down-time, and rental abatement, among others. In addition to our knowledge, the simple fact that a broker is involved brings leverage to our clients by simply making the Landlord know that our client is educated to the market and will be armed with accurate information. One important note: we are most effective when we are brought in at the very beginning of the process. If we are brought in later in the process, certain elements of the transaction have often already been discussed, and it can be much more difficult for us to be as effective as possible.
What does it cost to use AGM Commercial?
It costs nothing out of pocket for our clients to have our representation. Our commission is nearly always paid by the Landlord, with whom we eventually conclude a transaction. Nearly all Landlords have a listing broker with whom they have a commission agreement. AGM Commercial simply takes a portion of the already agreed upon commission. Therefore, while our commission is “built-in” to the rent, it is a cost that would be paid by the Landlord in any case. The only difference is that the fee is shared between AGM Commercial and the listing broker instead of being paid in full to the listing broker.
Can AGM Commercial help me sublease my current space or somehow terminate my existing lease?
Absolutely. Our clients often find their circumstances changing, and facilities that were needed a short time before become superfluous. Many of the steps we take to dispose of excess facilities are similar to the steps we take when marketing a property directly for a Landlord (commercial listing services, email broker marketing, direct tenant prospect, etc.) Once we have generated interested parties for the facility, we are able to strategize with our clients as to whether it is more advantageous to sublease the space directly to the prospect, or to engage the property owner and attempt to create a deal whereby the Landlord completes a transaction with the tenant prospect and terminates our client’s obligation. In either instance, we strive to create the best possible outcome for our clients given their beginning set of circumstances and goals.