Common Real Estate Mistakes Made by Business Owners

Real Estate Services for the Middle Market

By Troy Golden, Vice President, SCGroup Real Estate

Making real estate decisions is not something that a typical business owner has to do on a regular basis. Ill-informed or ill-timed real estate decisions can cripple a business with excessive costs or lack of required flexibility. We’ve identified the three areas that offer the greatest opportunity for improvement.

• Relying on a broker with a conflict of interest, who represents both landlords and tenants.
  It is best practice for tenants to rely on commercial real estate brokers who primarily represent tenants. This practice ensures that brokers remain true to their fiduciary duty. You would not have one attorney representing both parties in a legal matter. When so much is at stake financially and legally, you shouldn’t have one broker representing both parties in an office lease transaction.
   
• Not developing legitimate alternatives to the first choice in a space search.
  The biggest mistake that tenants make is not developing legitimate alternatives to their first choice, whether they are interested in new space or a lease renewal. Brokers often hear, “I don’t want to move, and plan to renew my lease for another term.” Even if you don’t tell your landlord, he will often draw that conclusion from your actions. Once the landlord understands this, a tenant loses his negotiating leverage. Even tenants who have no reason to move must develop alternatives to their current situation. Otherwise they risk spending money needlessly because they have forfeited all leverage in negotiating the terms of their renewal.
   
• Not hiring a broker to help with a lease renewal.
  Tenants often say, “We don’t want to move and intend to renew our lease. Why would we need a broker?” Landlords hire professional leasing agents to negotiate the highest returns for the investment in their building. If the agent or landlord can sign a tenant at a higher rate, it improves the landlord’s bottom line. The key to a successful renewal negotiation is creating competition between your current landlord and surrounding landlords in the area, while maintaining a controlled and organized process. Tenants need to have an experienced advisor providing the proper market research and negotiating skill that will create leverage for them. Tenant representation brokers can save you significant amounts of time and money on lease renewals. The right broker will understand that you don’t want to damage your relationship with the landlord. He will deal with every landlord in an aggressive, yet fair and professional manner.

Contact Us – For any of your commercial real estate needs.

Steve Stoner
Managing Principal
SCGroup Real Estate
sstoner@scgroupre.com

Tel. 630-656-1352

Business Confidence

I just heard a great commercial on the radio (I apologize to the sponsor but I can’t remember what it was advertising).  The announcer said that a company had leased 17,000 extra square feet.  When the company owner was asked what he would do with the extra space – his response was “outgrow it.”

Do today’s entrepreneurs have that confidence?  Are they making the investments in people, equipment and inventory that will help them grow or are they hunkered down waiting for the economy to fall off of the cliff (again)?   Unfortunately, most of our clients and prospects fall into the latter category.  They’re happy to be alive after the last couple of years, business has stabilized or picked up, but they’re reluctant make any sort of investments that are dependent on sustained demand for their products and services.

Part of it is clearly a concern about the inability of our political leaders to articulate a path to the future.  Of equal concern is the almost daily and conflicting information about where the economy is headed.  Stagnant capital markets don’t help either.

At one point in the recent past, Apple Computers had more cash than the Federal Government.  Until Apple and the rest of corporate America are comfortable investing that cash in their businesses, growth will be very slow indeed. 

Recent Case Studies

• A steel recycler with a new business idea needed industrial space that was configured to meet its unique design requirements.  After several months of research, we realized that there were no suitable buildings available.  We identified a piece of land that met the client’s supply chain requirements and structured a three-way sharia compliant financing of a 25,000 square foot building.
   
• A 4,000 square foot consulting firm was looking for space that better suited its workspace requirements, was located on a more reliable power grid, was more centrally located to key employees and had stable professional ownership.  SCGroup Real Estate helped them locate a space and negotiate a transaction in the Lombard, Illinois submarket.
   
• A 3,000 square foot client located in Schaumburg approached us to assist in evaluating the feasibility of a blend and extend transaction (see SCGroup Real Estate’s September newsletter).  After review of the current lease and the market for new space, it was our recommendation that the best course of action for now was to do nothing and reenter the market in nine months (when there is less remaining term on its lease).