Want to know the secret to getting better locations, lower rates, greater incentives, and smoother transitions for your real estate projects? Start early. Tenants give themselves a huge advantage when they start planning real estate projects well in advance with the help of a skilled tenant advisor.
“Once a real estate need is identified, the project should become part of the company’s long-term planning objectives” says Henry Jaffe, advisor with CresaPartners.
Smart Business spoke with Jaffe about how to improve the success of your real estate projects through early planning.
When should you start a real estate project?
Many factors influence when tenants should begin a project. In general, to ensure the greatest costs savings, tenants should begin any real estate project at least 18 months prior to the lease expiration. Build-to-suite projects should realistically start 18 to 24 months before lease expiration. The start date on new construction projects are primarily driven by the type and extent of the building and the local permitting requirements.
Why should tenants start real estate projects early?
The most educated and informed tenants will ultimately structure the most favorable terms for their contemplated renewal or relocation. Time can be tenants’ most useful negotiating leverage tool. A competitive environment increases their leverage and ultimately decreases potential total occupancy costs by up to 20 to 30 percent. This means, for example, if a company leases 24,000 square feet for $20 over five years, it saves from $480,000 to $720,000. Waiting to begin the process will eliminate options and weaken tenants’ negotiating position.
Also, working on an extended timeline ensures that there is a proper cushion at each step of the process. When tenants have their space secured well before their lease expiration, they can still meet their projected deadlines, even if the build out or other components of the process experience delays. This keeps tenants in a secure position where they can make the best decisions.
What professionals should be involved in real estate projects from the beginning?
Companies can make sure they begin real estate projects on time by assembling a competent, focused project team. Dedicated experts ensure accountability. The composition of the project team depends on each situation. Due to the complexities of commercial real estate transactions and the significant financial obligation at stake, businesses should consider hiring a tenant advisor to help guide the project and involve the appropriate professionals.
- Tenant advisor: The lead on the team and the person who has ultimate responsibility for the success of a project. He or she will develop the plan for the project and put together the best team to implement that plan, making sure that the ultimate solution best supports your business.
In addition to the tenant advisor, the following professionals could be involved in the process:
- Space planner: These professionals determine companies’ actual space requirements and how they fit into prospective locations. Bringing space planners onto the team early in the process ensures that businesses have a clear idea of their true real estate needs and that the space truly meets their operational needs.
- Project managers: They take responsibility for the schedule and budget in a project. They will participate in the planning phase and oversee the construction and relocation portion of the project, and play a vital role in ensuring that the construction allowance is sufficient.
- IT professionals: It is vital to include the company’s IT group in the process from the very beginning. Often this group is engaged late in the process, which leads to increased costs or, worse yet, project delays while waiting for phone or data services to become functional.
- Facilities or operations managers: Some companies employ them to oversee their buildings and grounds. When businesses have these professionals on staff, tenant advisors work in tandem with them to complete the real estate project.
- Executives: It’s essential that high-level executives play a key role in real estate projects from the initial stages. Their guidance ensures that the project meets the overall business needs of the organization.
What are the first steps in a project?
After a needs analysis is completed that defines tenants’ operational objectives and financial goals, an opportunity analysis is created displaying current market conditions, relocation alternatives, renewal opportunities and potential space savings.
A needs analysis clearly lays out the big picture of what companies want to achieve from a real estate standpoint relative to their business objectives. This could include goals like increasing square footage, decreasing real estate holdings, or integrating a new space program.
An opportunity analysis helps tenants craft an action plan based on a comprehensive awareness of their options within their market. This deliverable provides companies with a decision support tool to pursue the best solution for their business.
HENRY JAFFE is an advisor with CresaPartners. Reach him at (610) 825-6546 or email@example.com.