Columbus, Ohio

Published in Columbus Business First – May 2007

Whether looking to expand your business or for the perfect location for a new restaurant, leasing retail space can be a daunting task for small businesses. From triple net leases to negotiating a letter of intent, one can easily get lost in the myriad of details found in commercial real estate transactions.

To sort through the process, an experienced team cannot be underestimated. Just as you have a certified public accountant to handle your finances and an attorney to lookout for your legal interests, a commercial real estate agent can help avoid common pitfalls.

Beyond locating real estate opportunities, your agent is there to negotiate terms on your behalf. Because the agent is supplying a tenant, these services are typically paid for by the property owner and are already built into their rent structures.

But where do you begin? Here are a few pointers to start you on your way:

• Start with a solid business plan. Like any major purchase, landlords employ a tenant screening process to ensure business sustainability. To this end, you will most likely be required to provide a copy of a business plan, which should already be part of the thought process when starting a business. Not only does it give investors and landlord's confidence in your business operations, it also shows that you are motivated and have a well planned course of action.
• Don't put financial documents away just yet. The same documentation you provided to the bank for your business loan may also be required by the property owner. This includes tax returns, savings, retirement accounts, lines of credit, assets and any other information that may complete your financial picture. The stronger your position and the more information you provide, the more negotiating power you have when it comes time to put lease details together.
• Know what you are paying for. In most retail centers, the majority of the landlords operating expenses are absorbed by the tenants. As such, the most common type of lease you will encounter is a triple net lease, often listed as a price per square foot followed by NNN.

In addition to base rent, the tenant pays a prorated share of property taxes and insurance and common area maintenance charges. Common area maintenance charges are not usually negotiable. You should, however, try to cap controllable operating expenses and keep them to a minimum during your lease term. Charges include maintenance of the building exterior, parking lot, walkways, and/or green areas surrounding the building as well as property management fees.

Additionally, the tenant is responsible for anything inside the space such as utilities, while the landlord is most likely responsible for exterior expenses like roof repair and the building structure.

• Understand how the space will be delivered. The landlord's obligation is usually to deliver what is commonly referred to as a white box. The definition of white box is somewhat nebulous. At a minimum, you should seek a bathroom compliant with the Americans with Disabilities Act, a drop ceiling, distributed HVAC, electrical outlets, poured concrete floors, and walls that are ready for paint. In second and third generation centers, these items are almost always in place.
• Just ask and you might receive. In new centers, especially with end-users, such as restaurants requiring an extensive build out, it may be worthwhile to request a “white box” credit from the landlord. This will help alleviate the financial strain of your construction costs.
• It may take a while for the business to reach positive cash flow. Negotiating a lower base rent for the first couple of years and higher rates thereafter provides a cushion in the early stages of business development.

Also, request a free rent period between 30 and 90 days that allows time to open your doors without having to worry about paying rent.

• Be prepared to provide a personal guarantee to secure the lease. Starting a business is a risky venture and landlords protect themselves by requiring personally backed lease agreements. On the most basic level, this means you are legally liable to pay any remaining rent balance should you close before the lease expires.
• Negotiating all terms concisely and efficiently is accomplished using a letter of intent. This outline details all requests in a formal proposal to the landlord.

  It helps avoid miscommunications that can occur and helps avoid complicated matters down the road. Once the terms are agreed upon by both parties, the landlord prepares the lease for your review.

  Always have an attorney review the lease to ensure you are protected and that the basic terms are outlined.

  Micha Bitton is a commercial real estate broker on the retail team at Colliers Turley Martin Tucker in Columbus. 614-827-1904 | mbitton@ctmt.com

About Colliers Turley Martin Tucker

One of the nation’s largest privately held, full-service commercial real estate firms, Colliers Turley Martin Tucker (CTMT) handles more than $5 billion in annual real estate transactions and manages over 212 million square feet of industrial, office, and retail space. CTMT has approximately 1,200 associates of which 450 are licensed real estate professionals throughout its regional offices in Cincinnati, Columbus, and Dayton, OH: Indianapolis, IN; Kansas City, MO; Minneapolis/St. Paul, MN; Nashville, TN, and St. Louis MO.

For more information about Colliers Turley Martin Tucker, visit our website at www.ctmt.com.

Contact Information

Micha Bitton
CTMT - Columbus
614-827-1904
mbitton@ctmt.com

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