The Stages of Leasing & Moving into a Commercial Property
February 26, 2013
Tips & Trends
From Rory S. Coakley on some of the latest real estate news and happenings.
There are many reasons why you or your company could be looking into a new commercial property, including starting a new business, expanding, relocating, and more. Relocating or moving into a new space is a very fluid process that has many ongoing stages. You’ll need to allow time for the search, lease negotiations, design, construction, permitting, and more—and if you’re currently in a lease, you’ll need to plan the exit of your current space to coincide with the move into your new commercial property. The timing is especially important because you don’t want to be stuck paying rent for two spaces.
Before You Start Your Search – Knowing What You’re Looking For
To start, there are four general types of commercial spaces you can choose from:
Once you’ve identified the type of commercial space you require, ask yourself a few questions:
- What size space do you need? How many square feet does your business require?
- How important is location? Is there an ideal area you’d like to be in?
- Do you receive packages at your location? Would you require loading docks, drive-in doors, or raised ceilings?
- Do you have special mechanical, plumbing, or electrical requirements?
- Are you a government contractor with location and security issues?
The Search for the Right Commercial Property
Depending on your requirements, the right space may take days, weeks, or even months to find. This is a very important component for the success of your business, so plan to spend time on it! If you put it off and don’t put the necessary time in, you could hurt your business, lose a contract, lose employees, or end up paying double rent.
During your selection process, you’ll need to go and see each space you’re interested in. You’ll want to narrow your choices down to 3 – 4, if possible, so you can prepare a comparative grid for easy analysis.
Below, we have a sample comparative analysis grid:
This grid will allow you to compare the spaces and make an educated decision.
Negotiating a Commercial Lease
Knowing how to negotiate a commercial lease is incredibly important to the success of your business. In fact, it’s so important that if you’re not already working with a real estate attorney during the acquisition of your commercial property, now is the time. We strongly recommend hiring a real estate attorney who regularly reviews commercial leases because this is a contract and you’ll be locked in for the full term—a single word or clause in a lease can be very expensive and restrictive.
Creating a Space Plan & Getting Government Approval
Depending on the size and complexity of the space and the necessary tenant improvements, the landlord may provide the services of a professional space planner or architect to prepare a space plan. However, many biotech, restaurant, and medical buildings require a specialty designer to meet certain specifications.
Once the space plan is complete, the architect will prepare a detailed set of construction documents and specifications. These plans will be extremely detailed and include separate sections for features such as mechanical, plumbing, electrical, structural, etc.—which means they may take weeks or months to prepare.
After the construction documents and specifications are complete, they must be submitted to the local jurisdiction’s permitting department for review and approval. Invariably, the government review agencies will require changes in the drawings, particularly in the areas of fire protection and life safety. Permitting can take anywhere from a few weeks to 4 – 6 months.
Getting Construction Bids & Selecting a Contractor
While your documents are in for permit review, it’s time to start getting competitive construction bids. Typically, two or more general contractors are invited to bid on the project, and they should be selected based on reputation, expertise in construction type, availability, and more. Like many stages of obtaining a commercial space, the bidding process will take time—it can take a few weeks or even months, depending on the scope of the work.
Once the bids are complete, create another comparative analysis grid similar to the one you created before to easily compare each contractor. After you decide on the best contractor for your project and budget, you should meet with him or her to discuss the details of the bid, the personnel they propose to manage the job, the overhead and profit, the schedule, and the subcontractors they plan on using.
Negotiating the Construction Contract
After the contractor has agreed to the business terms of the bid, he or she will present a constriction contract in a standard AIA (American Institute of Architects) form or a custom contract. Just like the lease, it is highly recommended to obtain the services of a lawyer who regularly reviews construction contracts, and this may or may not be the same lawyer who reviewed your lease.
There are many concealed conditions and surprises that can surface during the course of your construction contract, and the terms and conditions of this contract should govern most of these items.
The Construction Process
Once the government approvals and permits are obtained, you can begin construction. Again, depending on the scope of the work, this may take weeks or months to complete. It’s highly recommended that you hire a consultant who can check the contractor’s work and the adherence to the plans and specifications. This person could be the designer of the space or, ideally, an independent third party who has no dog in the fight. (It’s actually common place for the designers and contractors to dispute the scope of the work.)
After the project is substantially complete, it is customary to prepare a “punch list” of incomplete work, missing items, and/or defective work. The contractor’s last draw payment is typically not paid until the punch list is 100 percent complete.
The Final Step – Moving into Your New Commercial Property
This is the final piece of the puzzle, and it requires careful planning and coordination to avoid major glitches and downtime with computers, servers, phone service, etc. Coakley Realty just moved last month, and we enlisted the services of a moving coordinator who planned and executed the move.
Additionally, they handled the competitive bids on new phone systems, systems furniture, cabling contractors, and movers. Prior to the move, they met with our staff and informed them about the logistics of the move.
On moving day, they were on site coordinating all of the vendors and assisting our staff, helping the process go very smoothly—it was well worth the investment!
If you’re willing to take on the task of handling everything described above, more power to you! But if you’d like an alternative method of successfully completing your move, you can utilize the services of an experienced commercial leasing agent, like the ones at Coakley Realty. The landlords will invariably have a commercial agent representing them, so it’s incredibly beneficial that you do the same.
A good agent who is familiar with your desired location will have access to commercial space information sources, such as CoStar, LoopNet, and MRIS. He or she will also be knowledgeable about the rates and concessions offered in the buildings of interest—this will help your agent be able to negotiate business terms on your behalf.
Additionally, a seasoned real estate agent will have multiple contacts for real estate lawyers, construction lawyers, space planners, architects, contractors, moving coordinators, and movers. Commercial agents do this for a living, which means they will keep your move on track.
If you’re thinking about leasing a new commercial property, contact Coakley Realty today. Our highly experienced commercial real estate agents can help you successfully obtain and move into a new property. Contact us today!
Rory S. Coakley
Coakley Realty, Inc.
20 Courthouse Square, Suite 106
Rockville, MD 20850
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