by: Peter D. Morris CRX, SCLS, SCSM, SCMD
Greenstead Consulting Group
Specialists in Commercial Real Estate Training and Consulting
In the first step we looked at how your real estate needs must fit into the business and marketing plan. Unfortunately, this is typically missed by most entrepreneurs.
In step 2 we aligned the real estate with the business needs of the company and discussed the need to balance risk. Now onto step 3.
Step 3: Space Criteria
This is when you will write down the exact criteria for the following:
The physical requirements of the space. Don’t limit yourself to just the overall size of the space, number of offices, etc. Instead, be very specific about things like floor loading, power requirements, water line sizes, window space, column spacing, clear height to the underside of beams, etc.
The geographic area for the location of the space. The building or area amenities, such as common areas, lobbies, number of elevators, security, after hours access, food service nearby, etc. Don’t forget to think about staff and customer parking and access needs.
In addition to the structural needs above, detail the criteria for an acceptable lease. Include the financial terms as well as other clauses such as co-tenancies you want and don’t want, and what you want if things go badly for the space or the business. There are dozens of points to consider. I recently worked with a medical doctor who had not completed this step before leasing space and then found himself with a significant issue that could have cost him his practice. As we worked through the issue what stood out to him were all the adjustments to the lease he didn’t know he could ask for. That is an area where we can help. We have a detailed process for establishing your criteria.
Think of your criteria requirements with two columns for each item. One column should be labeled “Ideal” and the other “Must Have”. This will produce a range and a minimum requirement for each item. Below is an example relative to area of the space, parking requirements and basic rent.
Area (Size) Ideal: 2,500 sf, Must Have: 1,900 sf
# of Parking Stalls Ideal: 12, Must Have: 8
Basic Rent per annum Ideal:$32.00 per square foot, Must Have:$36.00 per square foot
Never agree to any item that adversely affects the “Must Have” requirement in the subsequent lease negotiation stage. Using our example, if the space to be considered had less than 1,900 sf, fewer than 8 stalls or rent above $36.00 per square foot, we would eliminate that space from further consideration.
An Important Point About the First Three Steps
You may have noticed that the first three steps of the leasing process should occur BEFORE you begin looking at any potential spaces. These steps lay the foundation for both obtaining a suitable space and negotiating an acceptable lease — the two aspects of a good real estate transaction.
Take your time to handle each of these steps completely. The first three steps are the most critical, yet many entrepreneurs skip past them and start searching for a space. That is a huge mistake because these three steps are the most important in the entire process.