Leasing Commercial Property – Improvements

Leasing Commercial Property – Improvements

Nearly all properties require some measure of Improvements and customization before you can open your business.  When looking for properties to lease, the following are some things to consider regarding improvements to Retail and Office Spaces.

1) Do Not Fall in Love with a space so much that you do not see the gaping holes in the floor/walls/windows, etc., or think that the water stains on the ceiling won’t come back to haunt you, or estimate that those “cosmetic repairs” will be cheap and easy.   Eyes wide open, be realistic, and assume the worst.

2) Do not say, “I’ll save money by doing most of the work myself.”  You will not.  Your involvement should be limited to design and construction decision making, as well as the very difficult task of facilitating communication and collaboration between all of the many people that will be involved (see below) in the process.  As fun as hammering nails can be, your main focus must remain getting your business up and running.

3) Hire a Professional:  Not only will trying to do the improvements yourself end up costing you more time and money in the long run, in many cases, it’s illegal.  Yes, illegal.  As in, if you do it and get caught, you may be fined, forced to stop all work, and find yourself forever on the City’s bad side.  Most commercial renovations require a General Contractor, and that GC is not your handyman neighbor, but someone who is licensed by the State.  Ask for references, check out their other projects, and make sure you talk to at least three before settling.  A good one is worth every penny and a bonus.

4) Get a Number: Once you get serious about a space, bring in your contractor candidates to  inspect the building and provide you with a bid for the work that needs to be done.  Add 25% to whatever they tell you, and you’ll be in the ball park.  Scratch that… add 40%.  If that ball park figure will leave you with nothing in the bank when your business opens, walk away.  This is difficult to do, especially if you have been looking for the right space for ages, the location is perfect, and everything else works.  Remember, a beautifully renovated space does you no good if you cannot purchase the inventory and furnishings necessary for your business.

5) Hire More Professionals: Once you sign a lease, and are ready to get started on your improvements, you will also need to hire a licensed architect to create drawings of your proposed improvements.  Depending on the scope of work required, you may need a licensed structural engineer.  All of your proposed improvements must first be approved by the City.  Upon approval, the City will issue a building permit.  Only after the building permit is issued and paid for, may the work begin.  The City must inspect and sign off on each phase of work as it is completed to ensure that all improvements meets code requirements.  All of this takes time and, as you can see from all of the licensed professionals you have to hire, money.  Keep all of this time and money in the back of your mind as you are deciding which space to lease.

6) Ask Who Benefits?: You can learn about a potential Landlord by observing how they take care of, or do not care of their asset.  Your Improvements, more often than not, add considerable value to their asset.  You have to be very careful to do the right amount of Improvements necessary for your business to thrive, but not so much that the only person who really benefits in the end is the building owner.  Over the term of your Lease, your improvements must pay for themselves and then some.  Do the math before you sign anything.

7) Work with a Commercial Real Estate Broker: This is your number one step when looking for commercial real estate.  Your broker can get you into the spaces you want to see.  Your broker knows contractors, architects, engineers and people at the City.  Your broker will help you negotiate for a wide range of Improvement-related items in your Lease, such as a Tenant Improvement Allowance or free rent while improvements are being made.   In the end, your broker will help you determine the most important of all: which spaces are not worth the Improvements, and which spaces are.


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