Ready to find a commercial property? Remember your NUCLEAR options
Some of you reading this column own or lease your business location. Many readers are investors who acquire income properties. Finally, you may make your living in some aspect of commercial real estate – brokerage, lending, escrow, title or a contracting trade.
Today, I will delve into a concept that will help you clearly define requirements for commercial real estate whether you are a business owner, a commercial real estate investor or a commercial real estate professional.
Remember this word: NUCLEAR (need, urgency, catalyst, loyalty, expectations, authority and resources.
If you are considering leasing or purchasing a location, making an investment or representing an occupant or an investor, these seven categories can adequately guide your efforts.
Urgency. I walked a building last week with a food manufacturing company that just landed a Walmart contract. The operation must ramp up significantly in the next 90 days. Clearly, this falls into the category of urgent. Maybe you recently sold an income property and have parked the proceeds into a qualified intermediary with the idea of affecting a tax-deferred exchange. Certainly, you have two timeframes that provide the motivation — 45 days from the close of escrow and 180 days to redeploy the money into a like-kind investment.
Catalyst. What is causing you to consider market alternatives? Does your lease expire soon? Just get a huge piece of business? Acquired a competitor and now you must meld two cultures?
Loyalty. Trusted advisers can make the process of weighing your options much easier. I always suggest a team that includes a commercial real estate professional, a commercial insurance broker, a business banker, a CPA, a transactional attorney, a material-handling specialist and specific subcontractors. If your team is missing a professional – ask for a referral.
Expectations. As recently noted, the inventory for manufacturing and logistics space is skimpy therefore property owners are quite bullish. Please make sure you’re not assuming a COVID-19 discount when the indications are otherwise. A close look at recent transactions and current availabilities would be a good place to start.
Authority. Are you the decision-maker? If not, are all the stakeholders and shareholders in sync with your direction? The last thing you want to create is a squabble while looking for a property.
Resources. Leasing a building is similar to the way in which you would apply for credit. Let’s say you are looking for a building of 100,000 square feet with a monthly asking rent of $75,000 and a 10-year lease. Simple math would suggest a monthly rental of $75,000 multiplied over 120 months. Therefore, you’re asking a landlord to extend a $9 million loan to your company. Can the enterprise foot the tab? How can you secure the owner’s risk, perhaps with an enhanced security deposit? Personal guaranty?
Get yourself prequalified for financing in the event you are searching for a business home to buy. Your lender will be able to quickly determine your ability to purchase.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at email@example.com or 714.564.7104.