How can you decrease costs, increase options, minimize disruptions, and maximize synergies on your next real estate deal without spending an extra dime? Plan ahead. Just as in financial investing, time can act as your most powerful ally or your strongest foe in the real estate process.
“Remember that your landlord does this every day,” says Kevin Carroll, first vice president with CB Richard Ellis. “If you start negotiating with him 90 days before your lease expiration, he knows that time is not on your side and you are less likely to move. If you wait too long, you lose leverage, which ultimately will cost you money in the form of a higher rental rate, smaller tenant improvement allowances, and less concessions.”
Smart Business spoke with Carroll about how to plan for success on your next real estate project.
When should businesses start addressing their lease situation?
The timing depends on many different factors, but the most significant one is the size of the tenant. Typically, the larger the tenant, the sooner they should start analyzing their real estate situation.
Smaller tenants should start evaluating their real estate situation a minimum of six months in advance of their lease expiration date. Larger tenants, those with size requirements of 50,000 square feet or more, may need to start as soon as one to two years in advance.
It is important that you allocate enough time to identify space, negotiate a lease, construct the premises, and coordinate a move in the event that you decide not to renew your current lease. Many companies start with the intention of renewing so they don’t begin the real estate assessment process early enough. Later they find out that there are better alternatives available and end up having to move quickly.
Why is it beneficial to begin the process early?
When companies are not in a rush, they tend to make smarter, better-thought-out decisions. Executives should take time to think about their company’s goals and objectives and structure a real estate situation that will facilitate achieving those goals. They should ask themselves questions about where the company is today and where it is headed in the future. Starting early gives them a chance to consult with others in their organization and determine how their business plan will affect their real estate requirements, such as location, future space needs, etc.
What professionals should be involved in real estate projects from the beginning?
I would encourage all companies to hire a real estate professional to guide them through the process and help them assemble the appropriate team of vendors.
In addition, companies need to identify an internal point person to handle the project, whether they are pursuing a renewal negotiation or relocation. That person may work with a team to develop and present alternatives to the business owner or a committee for feedback and final decisions. In the event of relocation, the team should clearly outline who will coordinate vendors for phones, data, furniture, the physical move, and other issues that will arise. Typically the ‘quarterback’ of the real estate team is a facilities manager in a large organization or an office manager or CFO in a smaller organization.
How can businesses ensure they follow the correct timeline throughout the process?
An organization can often follow a simple timeline marked with significant milestones, which their brokers can provide for them. This timeline includes discovering options in the market, analyzing proposals, developing space plans, estimating construction costs, selecting a property, starting the construction process, etc.
As most of the professionals in a company are already dedicated to their work, outside expertise can keep an organization on schedule while the company continues its day-to-day functions. Many of the vendors a company uses during the process will instinctively fill this need. For example, most architecture firms will provide a detailed schedule to their clients and make sure the company stays on track.
How can companies make up time if they start the process late?
Companies often start the process late because they are so focused on their core business that they do not take the time to devote to analyzing their real estate situation. If all the key players concentrate on the real estate situation, they can often make up for lost time. However, this shift in focus usually requires more attention and time than they can afford to pull away from the core business. Businesses should avoid this situation if at all possible.
In summary, what is the main point you would like to give to companies as their lease expirations near?
Get ahead of the game. Whether you plan to renew your lease or relocate, hire a seasoned real estate broker and educate yourself on the market. Outline your requirements and find out what alternatives are available that fit them. Tour spaces and solicit proposals from the landlords of the buildings you like best. At the same time, solicit a renewal proposal from your existing landlord. A broker will be able to guide you through the rest of the process to ensure a successful renewal or relocation.
KEVIN CARROLL is first vice president with CB Richard Ellis. Reach him at (404) 504-7918 or firstname.lastname@example.org.