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Benefits of Tenant Representation When Renting Commercial Real Estate

The following post is copyrighted by Austin Tenant Advisors – .

benefits of tenant representationOne of the most common questions we get is, “Why should I hire a tenant representative to lease commercial real estate?” Because we want our clients to feel comfortable and confident when renting office space, retail, or warehouse space we have compiled a list of some advantages of retaining exclusive tenant representation for your company.

Advantages of Using a Tenant Rep Broker to Rent Commercial Real Estate

  • Tenant representatives work exclusively for tenants, not for landlords or buildings
  • The most objective evaluations of buildings are obtained from tenant representatives, who have no interest in promoting one building over another
  • Tenant representatives offer state-of-the-art professional advice based on in-depth market knowledge and current experience, putting tenants on an equal basis with professional, full-time landlords
  • Client’s time is saved by not duplicating market research
  • Clients obtain objective evaluations of their alternatives, free from any personal bias
  • Costs affecting the transaction are analyzed, presented, and documented so that the final facility decisions can be approved by senior management, based on financial comparisons
  • Clients often win more concessions, minimize hidden costs, achieve greater lease flexibility, because of tenant representatives negotiating experience and familiarity with key buildings, landlords, listing agents, and market conditions
  • The groundwork for a workable future landlord-tenant relationship is established because tenant representatives act as negotiators, intermediaries, and buffers rather than as principals
  • Confidentiality is kept at all times so that your workforce is not aware of a pending relocation until the time is right to communicate
  • Tenant reps will have knowledge about and access to all available and soon to be available listings in the market via the relationships with landlord agents, paying a lot of money for the best MLS services, and because of being in the market full time.
  • Clients achieve buying leverage and buying power because of tenant representatives expertise and ability to create a competitive environment among candidate buildings
  • Landlord will be more likely to return your calls because of the tenant reps broker relationships and reputation in your metro area.
  • Tenant reps know what a good deal looks like because they do them every day. You will get the lowest lease rate and best terms possible
  • Tenant representatives can put together a professional team to carry out the move

If you are looking for a tenant representative in Austin Tx give us a call and see if we are a fit for your business.

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How Landlords Evaluate Prospective Commercial Real Estate Tenants

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How landlords evaluate commercial tenantsWhen renting commercial real estate (office, retail, or warehouse space) landlords have certain criteria that they typically look for in a good commercial real estate tenant. Financial viability is the key issue for landlords. They want to be assured that their tenants won’t go out of business before the lease expires or jump from building to building just to get concessions.

Landlords also look at the type of tenant. Will this tenant help to create a mix that will, in turn, attract other good tenants? Banks, large law firms, and major accounting firms, for example, fall into this category.

At the same time, landlords are sensitive to the size of the tenancy proposed. They may not want one tenant to dominate the building. Advertising and public relations companies, for example (often the first to be faced with downsizing during economic downturns), are risky as predominant tenants in a building.

Although landlords would prefer to deal solely with tenants that have the best credit, they also recognize that sometimes they must accept risk. In these instances, they may want to minimize the risk by spreading a concession such as free rent over the life of the lease rather than giving it all in the first part of the lease.

Financial information is critical and they WILL ask to see your company financials. Psychology plays a role too. Landlords also want to know the reasons why prospective tenants are planning to move, and what motivates them.

Even in a soft market, property owners must be sold on prospective tenants, and even existing tenants.

Factors Landlords Consider When Rating Prospective Commercial Tenants

  • Financial conditions
  • Amount of space needed
  • Occupancy date without lease assumptions
  • Parking demands
  • Potential for growth
  • Potential of attracting other tag along tenants
  • Potential use of amenities such as fitness center, deli, and banks
  • Degree of reusable tenant improvements
  • History in the commercial rental community
  • Reasonable flexibility of desired placement within the property
  • Timing of the lease acceptance
  • Whether the property was the first or second choice
  • Etc, Etc

As you look at commercial properties for rent and are comparing buildings and landlords, keep in mind that they are evaluating you as a potential tenant also. You want to make sure that you understand what landlords look for in a good commercial tenant so that you can prepare your company to meet the financial and other criteria that landlords have.

The post How Landlords Evaluate Prospective Commercial Real Estate Tenants appeared first on Austin Tenant Advisors.

Is a Long or Short Term Commercial Lease Right For Your Business? – Pros and Cons to Consider

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Pros and Cons to Consider

commercial lease short term or long termOne of the most common questions I get asked is whether a business should sign a long term commercial real estate lease or a short term lease. For a small business or startup that is renting office, retail, or warehouse space getting this right is important as the success or failure of the business could be determined by the decision. Unfortunately there is no wrong or right answer as every company has different needs. Short and long term commercial leases both have certain advantages and disadvantages that you should analyze and discuss with your commercial real estate agent before you begin negotiations with a potential landlord.

 Advantages of a Long-Term Commercial Real Estate Lease

  • More Leverage in Negotiations – You have the ability to negotiate better concessions such as a lower initial rental rate, lower annual rental increases, more money for tenant improvements, free rent, renewal options, and expansion options such as right of first refusal/offer. The longer the landlord has to recoup their initial rental costs the more concessions they typically will concede to. Concessions are possible with short term leases however harder to negotiate.
  • Predictable Rental Costs – You will be able to lock in rates and forecast rent costs since you will know exactly what your rents will be from year to year during the lease term regardless of existing market conditions. With shorter lease terms you will likely be paying premium rents and higher yearly increases.
  • Better Able to Plan for FutureLonger term commercial lease ensures you will be able to stay in one location for a set time period. It doesn’t matter if the building is sold you will have the peace of mind of not having to deal with office space stuff for a few years.

Cons of Long Term Commercial Leases

  • Takes Longer to Negotiate – Longer leases can be more complex and cause negotiations to last a bit longer
  • Less Flexible – Unless you negotiate to have some solid expansion or renewal options if you end up growing too quickly there may not be any space available for you to expand into. This means your only option will be to sublease the space and relocate. If you go out of business you will be stuck with trying to get out of the lease.

Advantages of a Short-Term Commercial Real Estate Lease

  • Flexibility – For startup companies or business that are growing quickly you never know if and when you will need more or less space. If you decide you don’t like a particular location or space or you get that big deal and need to hire 30 more people you can easily pick up and relocate with a short term lease. 
  • Contingency – It’s a know fact that most companies fail within the first 12-24 months of being in business. Having a short term lease will give you the ability to cut your losses and not have to pay the landlord a large sum of money to cancel the lease.

Cons of Short Term Commercial Leases

  • Future Plans Less Predictable – When you are in a short term lease you typically are not able to negotiate renewal or expansion options which means the landlord can lease the space to someone else after your lease expires. 
  • Rents Typically Higher – The landlord may charge a premium on rent with a short term lease especially in a hot market.
  • Less Negotiation Leverage – You won’t have as much leverage to negotiate rental concessions such as free rent, tenant improvement allowances, etc.
  • Hard to Find Space – In a hot market many landlords will not do short term lease deals which makes finding short term office space very difficult.

As you can see there are many Pros and Cons to signing short term and long term commercial leases. It’s hard to do however it’s important that you think of your business needs 1, 2, 3, 4, and 5 years down the road. If you are not sure you want to remain in the same location or expect future growth, or are just uncertain about the future of the company then a short term lease might be the best option. If your business is more established, financially stable, and not expecting to expand rapidly then you are better suited for a longer term commercial real estate lease.

The post Is a Long or Short Term Commercial Lease Right For Your Business? appeared first on Austin Tenant Advisors.

Austin Coworking Day is September 27th 2017

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Austin Coworking DaySeptember 27th, 2017 is officially the first annual Austin Coworking Day thanks to Mayor Steve Adler and other community leaders. Out of the 40 locally owned and operated coworking facilities in the Austin Metro area 18 of them have agreed to open their doors for a FREE day of coworking. Also, to give people a taste of what coworking spaces have to offer there will be events, coaching, and special workshops. For your reference here is a complete list of coworking spaces in Austin.

Austin coworking spaces give members the ability to work, connect and collaborate with others rather than working in isolation at home.  Each location in Austin has its own vibe and unique look so to find the one that best suits you you might consider visiting a few of them if you have the time.

If you are interested in learning more about coworking just go to the Eventbrite invitation here and claim your free ticket.

Below is a map of the participating coworking spaces in Austin

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What are the Advantages of Signing a Longer Commercial Lease?

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advantages of longer commercial leasesWhen negotiating commercial real estate leases many business owners or companies focus on shorter term leases as they have the idea that it will give them more flexibility and reduce their costs & risk. While this may be true in some cases there are also a lot of businesses that would benefit more by signing a longer term lease. There really is not right or wrong answer as it just depends on how long your company has been in business, how financially stable it is, how many employees you have now and in the future, and what your business needs will be within the next few years.

What is a long term commercial real estate lease?

First of all let’s be clear what I mean by a long and short term commercial lease as everyone has their own definition. Long term leases are typically 3-5 years or longer. Short term leases are typically 3 years or less.  A new business or startup may think that a 2 year lease is a long time, however to commercial property owners and/or their agents 2 years would be considered short term.

What are the benefits of signing a long term commercial lease?

  1. Lower rental rate – Longer lease means you have more leverage to negotiate a lower starting office space rental base rate and lower yearly increases. There is also the potential to freeze the rental rate for a period of time. If you are a month to month tenant or your lease term is less than 3 years then landlords will typically charge premium rent, especially in a strong market.
  2. Rent abatement – This means free rent, like when you get to occupy an office space and not have to pay rent. Depending on the market you are in you can sometimes negotiate to receive rent abatement to help offset any tenant improvements, moving expenses, or just to incentivize you to rent their space. The longer lease you sign the more rent abatement you could negotiate. Now keep in mind if you are in a very strong commercial real estate market which some may refer to as a landlords market don’t expect to get much, if at all free rent.
  3. Tenant improvement allowance – The more lease term you have the more tenant improvement (TI) allowance you typically can negotiate. The longer lease gives more time for the landlord to recoup their initial investment since they give you the TI allowance in year 1. If you sign a shorter lease the landlord may not give an allowance and you will have to cover 100% of the cost or they will give very little.
  4. Relocating is expensive – Having a longer lease in place helps you avoid the time, money, and inconvenience of bouncing around every other year. The larger your company gets the more expensive and time consuming it is to relocate. It’s easy to move a small boat however when your trying to move a tanker there is a lot more time, money, and risk involved. It’s easy for a new business or startup to bounce around the first couple of years especially if they only have 1-10 employees. After that it is more complicated.
  5. Stability – 1-2 years goes by very quickly! A longer term lease means more stability for the company and for the landlord. If you signed a 3-5 year lease then you are protected for the duration and cannot be forced to move until your lease expires (unless you negotiated a renewal option). If you are a month to month tenant in a hot commercial real estate market and in a property that is 100% full then you are at risk as the landlord starts looking for longer term tenants to replace you. If another business comes along and is willing to sign a longer lease don’t be surprised if the landlord forces you to relocate………..or makes you sign a longer lease.
  6. More leverage in negotiations – As mentioned above signing a longer lease gives you more leverage in negotiating concessions and gives landlords more time to recoup the cost of giving you those concessions. It also tells the landlord that you are confident in your business. If you are only focused on signing a 1 year lease it could give the Landlord the impression that you are not confident in your business. If you are a startup that is confident, however it makes sense to sign a shorter lease in the beginning, then you need to make sure you articulate that to the landlord.  You need to sell the fact that the Landlord should take a gamble on you and let you sign a short term lease as you plan on being a big fish later on.
  7. Expansion – If you are a growing company then signing a longer lease will give you leverage in negotiating expansion options. Options such as right of first refusal (ROFR) or must takes can be negotiated. With a shorter lease landlords will typically not give expansion option concessions. For example if you rent warehouse space with 30,000 sf and you plan on growing in a year or so you can typically negotiate to get a ROFR on any adjacent space. That means if any other company wants that vacant space the landlord has to offer it to you first.

These advantages were not meant to mean that every company should sign a long term lease. However it’s important to really understand where your business is now, and where it is headed. If you are a startup or just not that confident in the success of your business then you will have to work harder to find commercial spaces that are open to doing 1-2 year leases. At the end of the day it’s important that you do what is best for the business and if that means doing a short term lease then so be it. However if your business is stable and you are confident in the future growth then you can receive some great benefits of committing to longer leases.

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What Can Be Negotiated in a Commercial Lease?

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what is negotiable in commercial leaseRenting warehouse, office, or retail space will be one of your largest expenses when running a business so it’s important to negotiate the commercial lease as best as you can. Market conditions change often so business owners are better off having a commercial real estate agent help them find and negotiate commercial space for rent. Some business owners who are seasoned and have leased commercial space before they may have a better idea of what to ask for. However new business owners are much more disadvantaged in commercial lease negotiations because they don’t know what can be negotiated in a commercial lease.

To help you get started we have listed the most common items that can be negotiated when leasing commercial real estate. If you have any questions or would like help renting Austin commercial real estate feel free to give us a call.

Things That Are Negotiable When Renting Commercial Space

  • Rent commencement date
  • Base Rent
  • Yearly Rent Escalations
  • Operating expense caps
  • Use of the space 
  • Exclusive use rights in the building
  • Lease term
  • Renewal options
  • Expansion options
  • Sublease options
  • Right of first refusal on vacant space
  • Right of first offer on vacant space
  • Rent abatement
  • Tenant improvement allowance
  • Landlord construction management fee
  • Space planning allowance
  • End of lease restoration
  • Signage rights
  • Parking spaces
  • Security deposit
  • Personal guarantees
  • Termination options
  • Repairs & maintenance
  • Relocation clauses

These are just a few items that are negotiable in a commercial lease. The impact that each has on your business will differ greatly from another type of business. It all depends on the type of business and your current and future business needs. It’s important to understand the impact that each one of the negotiable items above will have on your business NOW and in the future. It doesn’t matter how great your business is now or how great and successful you think it will be in the future. You should always assume worst case scenarios when negotiating commercial leases.

If you have any questions about what can be negotiated in a commercial lease feel free to give us a call to discuss at 512-861-0525

 

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What is Triple Freeport Tax Exemption When Renting Warehouse Space in Texas?

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triple freeport tax exemptions texasWhen reviewing warehouse spaces for rent sometimes a landlord will tell you that their industrial property location has Triple Freeport Tax Exemptions. If you are a seasoned company that warehouses and distributes goods then you may know what this is, however most businesses really don’t understand what it means or how it could benefit their company. If you want to rent warehouse space it’s important that you ask your agent or the chamber of commerce economic development contacts about any potential economic benefits especially if you are warehousing goods and/or plan on employing a lot of people.

So What does Triple Freeport Tax Exemption Mean?

If a warehouse rental property is marketing that they have Triple Freeport Tax Exemptions it means that all 3 taxing authorities (County, School District, and City) have agreed to give tax breaks on all eligible inventory that you have in your warehouse space. You do not have to pay inventory tax on any goods that move in and out of Texas within a 175 day period from the date of acquisition or brought into the state.

Here is an example:

  • Day 1 your inventory is acquired or arrives in Texas
  • Days 2-174 – Inventory is manufactured, stored, assembled, or serviced
  • 175th Day – All the inventory is moved out of Texas

Inventory Tax that you Owe? ZERO

Why do Cities Offer a Triple Freeport Tax Exemption on Eligible Inventory?

Because they want to attract more commercial businesses to their city. More commercial businesses mean more warehouse space is leased and more jobs and tax bases are created. If cities want to attract more manufacturing and distribution companies they have to be able to offer Triple Freeport in order to remain competitive with other neighboring cities. If you would like to learn more about Texas freeport tax exemptions click here.

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