naseef advisory group | colliers las vegas

7 Mistakes to Avoid

When Looking For A New Business Location

Naseef Advisory Group

providing professional commercial real estate services

The Seven Biggest Mistakes to Avoid When Looking For A New Business Location
Economic impacts of thE LEasE There are generally seven economic impact items in a lease. Every clause in a commercial lease has some economic impact to either the landlord or the tenant. Every issue in a lease has legal significance also. You must be aware of both sides of all issues in a lease so that you can negotiate effectively. The Brokers Role: The broker should negotiate all of the business terms of the lease.

Tom Naseef, SIOR, CCIM | Sr. VP Jeff Naseef | Marketing Specialist Debbie McLaurin | Executive Assistant Services: Tenant Representation Acquisitions Dispositions Lease vs. Own Analysis Lease Analysis Lease Administration Strategic Real Estate Planning

1. BasE REnt / LEasE typEs The Greater Las Vegas area landlords generally use 3 different lease types: Full Service or Gross: In this scenario the landlord covers all of the propertys operating expenses and pays the tenants Electricity and Janitorial. Modified Gross: This lease is similar to the Gross lease except the tenant pays for their own electricity and janitorial services. Triple Net (NNN): All of the propertys operating expenses are passed thru to the tenant. N = Taxes N = Insurance N = CAM The landlords preference and the property type, Office, Industrial, or Retail is what will determine in most cases what type of lease will be used. Having your broker complete a Lease vs. Lease Analysis will help define the variations in each lease and occupancy cost. Common factors affecting the rental rate are the Market Place, Tenants Financial Strength, Lease Term, and Size of the Space Leased. Your Lease Type will determine the Minimum Base Rent.

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2. REnt aBatEmEnt Landlords are providing all kinds of incentives these days to compete for tenants. Every landlords situation is different. Just because we hear about this deal or that deal, the bottom line is that at the end of the day the tenant wants to make sure that the landlord can perform the agreed upon lease terms such as providing tenant improvements and the continuous maintenance of the property etc. If you beat the landlord down too much it might back fire on you later. 3. REnt EscaLation factoRs The concern of the landlord is the necessity to maintain a fixed profit or return on investment in inflationary times, while the tenants main goal is to ensure that the landlord only recoups expenses to which it is entitled. Rent escalations may include the following: Consumer Price Index Negotiated fixed percentage increase Operating expenses Building Use After Hours Cost NNN Cost

6. options to REnEw oR fiRst Rights foR Expansion Options or expansion rights are negotiated in advance. Landlords positions are always no since the only one that benefits is the optionee. However it is important to most tenants to have the flexibility. It usually does not cost the tenant anything but could save a lot if rental rates rise down the road or if your business needs to expand. 7. REnt to REvEnuE Ratios This tool allows a company to compare what the rent to revenue ratio is by industry standard. This will demonstrate how your current situation compares to the companies RRR. This can help in determining the size and type of space that will be needed in order to maintain the companys profitability expectations. In todays volatile commercial real estate climate, most property owners are represented by a commercial real estate broker that specializes in Landlord Representation. Their fiduciary is to the landlord. In most cases the landlord expects to pay all of the brokers commissions and that a prospective tenant is usually represented by a Tenant Representative. Having your own representation can help you avoid costly mistakes. If these 7 items are not negotiated correctly it could have a major economic impact on your business

4. tEnant impRovEmEnts When a lease provides that landlord will improve the premises prior to commencement of the term, the parties should address the following issues: Work letter This addresses what items a landlord will provide to improve the premises. (Exhibit to the lease) Specific Dollar Amount Available for each rentable square foot leased.

Naseef Advisory Group

providing professional commercial real estate services

Tenant Concerns Landlord markup, Building Standard, whose contractor, preliminary plans, Construction Drawings, Lease Commencement, and overage cost. 5. mEasuREmEnt of spacE Commercial lease rent is usually expressed as dollars per square foot per year or month. Methods of measurement vary by building type and market. Terms such as Rentable and Usable square footage can adjust the tenants operating cost by as much as 15 to 20 %.The Load Factor, Loss Factor is the difference between rentable and actual usage of the premises square footage. Most professional landlords use the BOMA method. This can be subjective and it is important to know what the landlords methodology is in advance.

Jeff naseef
Marketing Specialist Tel +1 702 836 3731

tom naseef, sioR, ccim Debbie mcLaurin

Sr. Vice President Tel +1 702 836 3720 Executive Assistant Tel +1 702 836 3751 Debbie.McLaurin@colliers.com

Jeff.Naseef@colliers.com Tom.Naseef@colliers.com

accelerating success.

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