1. How far in advance should I start looking for space?
In a balanced or renter/buyer market,
To Lease: 4 months prior to the expiration of your current lease – First month for market research. Second month to identify and narrow down your options. 3rd month to get the lease negotiated and signed. 4th month to overlap your last month of existing lease and allow for a smooth and orderly transition from your old space to the new space. You can adjust the delivery time if you have complications, such as an equipment-intensive manufacturing company that requires HVAC and electrical modifications, or other tenant improvements that require permits and construction.
To Buy: 6 months prior to lease expiration, first month, to inquire about market value. 2nd and 3rd month to explore the market and identify various options – 4th month to negotiate and obtain a contract – 5th and 6th month to do your due diligence, arrange and finalize the financing – and close the property. If it’s hard to satisfy, you may want to add another month or even two. You can adjust the lead time if your requirements are not typical of conventional construction and you need unique or special hard-to-find features (ie no interior columns, 35′ ceilings).
2. Identify the zoning you need and define your geographic boundaries.
Each municipality has a zoning ordinance that specifies which businesses can operate in differently zoned areas. You can go to the link at the bottom of this article to determine what zoning you need. MuniCode provides online ordinance presence for numerous municipalities. It is critical that you first identify where your business can legally operate and then narrow your search to those areas. If you don’t do this, it will be a very costly and time consuming mistake. I cannot stress this enough.
You need to identify where you want to be located. Throughout my professional career as an industrial specialist I have found that, other things being equal, the final location of the space is strongly influenced by the proximity to the personal residence of the business owner. Other factors to consider are: distance to major interstate highways, airports, shipping ports, rail service, labor, public transportation, and markets served. A good idea is to determine how far you will go in all directions. This helps make the search viable.
3. Determine if you need loading docks
If you are a distributor you need loading docks. You may also need doors at street level. If you are a manufacturer or service provider, you may not need charging docks. There are several types of loading docks. Truck boxes, built-in, platforms, 30″ docks and 48″ docks. Be sure to select a building with the correct height, quantity, and configuration of piers. Do not forget the size (dimensions) of overhead doors. It won’t do you any good to have a 14′ tall truck that needs to get into the building and doors that are only 12′ tall. You may also need a ramp. Consider how long it will cost you to not have a necessary feature in a time and motion study.
4. Determine the ceiling height you need
If you are a dealer, the higher the ceiling height, the better. Determine if you stack 2, 3, or more pallets high. Typically you need 24′ to stack 3 pallets high. This may vary depending on the size and weight of your products. Be sure to account for headroom, not just overall height. Sprinkler systems, roof structural members, and HVAC often reduce headroom. If you are a manufacturer or service provider, you may want lower ceilings; especially if you are going to air-condition the entire space. The fewer cubic feet you are cooling, the lower your electric bill will be. If you need a lot of lighting or electrical drops, a lower ceiling is also beneficial.
5. Determine the amount of office and warehouse space you need
Allow for future growth. Having to move again or having a space close by results in inefficiency and higher costs in the long run. Lease/buy 10-30% more space than you need and rent it out until you need it. Think long term. Plan for success. Make sure the building you enter has enough parking. Occasionally, office space will be built without permits and the result may be a shortage of parking. This will create problems with the city trying to obtain an occupational license, as well as problems with the neighbors. Typically, you need 1 parking space for every 200 square feet of office space and 1 parking space for every 800 square feet of warehouse area. Confirm this with your architect and building codes.
6. Mechanical issues – HVAC – fire sprinklers – rail access
This is where the planning pays off in a big way. Modifying the building before you move in is much easier than doing it while you occupy the space. Mechanical and electrical engineers should be consulted when evaluating potential buildings.
7. Define your budget
Once you have an idea of market values and how much cash you have, you can work backwards and figure out how much space you can lease/purchase.
Buying Example: Assuming the following: You have $1,000,000 in cash and the buildings are selling for +/- $70 per square foot. Conventional financing requires a 20-25% down payment: $1,000,000 is 25% of $4,000,000. Dividing $4,000,000 by $70 per square foot results in a 57,000 square foot building. The lender will generally require that your cash flow be 130% of your debt service. Keep in mind that you will also have to pay taxes, insurance and maintenance. There are tax benefits to owning and appreciation can be an added bonus. Real estate values can rise and fall with business cycles, and timing of entry and exit strategies are crucial to maintaining and maximizing value.
Leasing Example – This is largely determined by your cash flow. Rents can be quoted in several ways. Industrial lease rates can be gross, modified gross, net, or modified net. The difference is how much of the variable costs (taxes, insurance, and maintenance) the tenant is exposed to. Other lease terms, such as annual increases (can be a fixed or variable percentage or based on a CPI consumer price index), utility cost liability, insurance, and insurance deductibles are examples. of other expenses that must be taken into account.
8. Determine Truck Parking and Yard Needs
There are two things to consider for parking: one is the number of employees you anticipate having immediately and in the future, at the new location. The second consideration is what the building codes require.
How many and what type of truck deliveries do you receive per day, per week per month? Make sure the property you choose can handle the volume of transportation without disruption from other tenants or property limitations.
9. Determine if and how much external storage you need
If you need external storage, be sure to choose a property with the correct zoning designation. What you store outside plays a big role in how much soil you need and where it’s allowed. Parking cars is very different from storing construction materials or hazardous materials. You may need a 6 foot high visual barrier, drainage, paving, landscaping, or a parking lot that is lighted to certain specifications. All of this can significantly increase the cost of relocation.
Allow enough ground to accommodate additional growth. Plan for success.
10. Use a corridor or find the space myself?
How much is your time worth? Is it better to run your business and let a professional do it for you? You can do both, okay? Do you have experience in real estate negotiations? I often get calls from people looking for, say, a 10,000 square foot building and they need 30,000 square feet or 1,000 square feet. After driving around making call after call only to find out the building is for rent and not for sale, the wrong size, the wrong zoning, partially occupied or unavailable for 6 months, it gets infuriating.
The seller/owner are usually the ones who pay the brokers. Be sure to discuss representation at the beginning of the relationship. Real estate agents have a legal obligation to disclose and treat the public fairly.
The link to the zoning ordinances online is http://www.municode.com
This is a brief summary of what to consider when searching for a new location.