Due Diligence Is Critical in Commercial Real Estate Transactions

November 15, 2012

Richard M. Neuman Commercial Lease, Landlord, Needs Analysis, Real Estate Broker, Site Selection , , , , , , , , Leave a comment


By Link LeGrand, CCIM Contributing Columnist

Financial due diligence is the process of verifying all statements of fact (or “finding where the bodies are buried”) for a property you are considering purchasing.  Proper due diligence is not a simple matter and normally takes weeks or sometimes months to complete.

One of the most crucial aspects of due diligence is determining the financial health of the property. This indicates whether the building is currently showing a profit, and if not, what actions you can take to make it profitable.

Income and expense statements
Statements of income and expenses are by far the most important part of your financial due diligence. These statements show what the seller collected in income from the tenants as well as what was spent to operate the property. At the least, you should obtain annual income and expense statements for the past five years.

Rent rolls
A rent roll is a list of all the units/tenants in a property and how much each is paying in monthly rent. It shows each tenant’s name and unit, the price per square foot and the total amount of rent paid. It also shows each tenant’s move-in date, lease terms, expiration date and whether the tenant has made a security deposit and, if so, how much.

Once you obtain this information, make sure the rent amounts stated on the reports match those shown on the leases, and compare all this information with the income and expense statements you received.

Tax returns
These may be harder to obtain as most sellers do not wish to disclose their tax returns to strangers. However, this information is essential in determining if the income and expenses shown on the tax return match those on the reports you were given. If they don’t, then either the seller has been misstating the income or some other mistake has been made.

Lease agreements
You should have an attorney review all the lease agreements on the property to determine the tenants’ rights as well as your right to either terminate leases or raise rents. You should also use an estoppel letter to verify the leases. This is a request-for-information letter that you would send to tenants to ask them for information on their leases. It will help you determine whether the document you were given is true and accurate and represents all the agreements between the seller and tenants.

Utility bills
This information should be listed on the expense reports, but you should compare it with the actual utility company bill and confirm the figures. This includes costs for electricity, gas, water, sewer, trash removal, telephone, cable and Internet services.

Property tax bills
Again, this information should be listed on the expense reports but you still should verify it with the taxing authority.

Financial due diligence is critical in determining whether you are buying a property with a positive cash flow or one that is going to cost you money every month. It’s well worth the time and effort.

Link LeGrand, CCIM is VP/Director at KW Commercial SA, Brokerage, Leasing and Development in San Antonio, Texas. Website: www.kwcommercialsa.com Email: Link@KWCommercialSA.com  Tel: (210) 789-5465

TV Studio Site Selection 101: Finding the perfect inefficient, windowless, cold, power hungry space.

October 2, 2012

Richard M. Neuman Needs Analysis, Real Estate Broker, Site Selection, Space Planning, Technology , , , , , 3 Comments


Broadcast studio facilities are technological wonders that produce some of our most enjoyable entertainment within its four walls. Behind the cameras and glamour, though, is a windowless, soundproof, power consuming hog that probably won’t win any energy efficiency or daylighting awards.

When selecting a building to retrofit for a studio facility, it’s more than just large space and tall ceilings to suit the needs for live television. Broadcast facilities face many idiosyncrasies and spoilers that challenge real estate brokers, and is magnified especially in horizontally and vertically challenged locations such as New York City.

TV studios are sized for different applications.  An “Insert Stage” is often a small studio useful for one or two-camera “talking heads”, satellite media tours or product shots. Its average size is 1,500 square feet +/- 1,000 sq ft. Larger stages suitable for audience talk shows average 3,500-15,000 sq ft behemoths and larger. This article focuses on large stages.

Brokers in site selection phase are generally searching for space with the following parameters:

Location, Location, Location – Talk shows often choose stages that are situated in areas where there’s access to high foot traffic, mass transit or easy parking. Talk shows will shoot 2-3 shows per day and must keep a flow of 200+ audience members for each production.  Location aides in filling audience seats when attendance might be low. Location may also be a factor in determining the on-screen talent’s decision to choose your stage such as ease of booking guests, commuting to or from airports, or ease of getting around town.

Acoustics - While “Location, Location, Location” is often the rallying cry of most studio executives during site selection, “Audio, Audio, Audio” is the primary concern of most facility engineers during this phase. Sound and acoustics can be the biggest spoiler to any facility’s success and not addressed properly, can be the single studio killer.  Sound transmission from existing interior infrastructure and exterior noises must be analyzed for a studio to be successful.

Studios are acoustically constructed to mitigate sounds. Audio engineers check for a building’s acoustical properties, isolation, diffusion and absorption of reflected sound that could compromise audio heard through  speakers.  Sound and vibration will travel through poorly insulated walls, holes, broken seals and gaskets, windows and air vents.  In live television, there are no second chances.  Ambient sounds will be picked up by microphones and recorded or broadcast live so not every space will work.

Here are some issues I have encountered that have compromised audio including:
- Selecting a building near an international airport or heliport with the roar of engines and choppers overhead; Choosing a low floor near the rumbling of a subway directly below; Choosing a building with squeaky wood plank floors that amplify footsteps and squeaks from areas outside the studio; Selecting a building next to an industrial location with forklifts dropping pallets and backup warning tones beeping.

Yes, there are ways to minimize or eliminate these issues through construction, but the costs may be burdensome.

Column Free Space with High Ceilings - For the NYC RE brokers, I might as well have written wuh-wah-wuh-wah-wah. Existing expansive column free space with high ceilings is hard to come by here in vertical buildings as compared to other markets where success can be found in horizontal sprawl.

Column free space allows productions to construct large sets, sometimes several on one stage; backstage area, audience risers, and there are no impediments to camera angles. High ceilings allow optimal lighting grid heights which might be at least 20-25′, though many existing buildings have ceilings that limit grid heights at a maximum of 13′.  There also needs to be space above the grid for HVAC ducting.

Floors and Ceilings – Squeaky creaky wood floors contribute to ambient noise in television production. Concrete floor and ceiling construction to minimize unwanted sound transmission from above and below is more desirable.  Generous floor loads should be capable of supporting audiences and vehicles used in production.

Power – Studios are energy pigs.  Power consumption for studio lighting, equipment and HVAC is quite high. Brokers need to assess the studio’s planned needs and inquire what costs will be assessed to bring in additional power to the space.

HVAC – Lighting is hot, audiences generate heat and humidity, control rooms and engineering spaces also generate tremendous heat loads. Studio HVAC systems must be designed to cool down hot stages, as well as address heat generated in audience holding areas, control rooms, engineering and production spaces. Systems also have to be silenced so the whirring of air handlers are not picked up by microphones.  This is achieved by installing  large ducts so air handlers can be slowed down, lined ducts, bends in the ductwork to tamp down air volume and sound baffles at registers.

Production Space – These spaces can include production office space for long-term talk show clients, video control rooms, audio control rooms, set construction, props, scenic storage, lighting storage and dimmer room, engineering, editing rooms, voice over booths, audience holding area, wardrobe, make-up and hair, showers, green rooms, studio staff office space, graphics design, to name just a few.

Large Freight Elevator – Used to transport sets and vehicles from the ground to the upper stages.

Access to Fiber or Microwave Line of Sight – For facilities to transmit its signal to an earth station or video switching center, the building must have access to video fiber or line of sight from the roof to a microwave facility.

Summary
This is a specialty area that is much more involved than your typical commercial real estate search.  Brokers need to be engaged and versed in production to understand the full scope of the facilities needs in order to present space worth considering.

Richard Neuman is a broadcast facilities consultant with owner’s rep firm Relocation Management Solutions.  Neuman is former General Manager of NYC’s Times Square Studios and Vice President of Broadcasting, Facilities and Technology at News Broadcast Network.

When Should A Tenant Project Manager Get Involved? From The Very Beginning.

May 22, 2012

Richard M. Neuman Architectural and Design, Commercial Lease, Construction, Landlord, Needs Analysis, Project Management, Real Estate Broker, Site Selection, Space Planning, Tenant Representation , , , , , , , , , 4 Comments


How do you convince the Owner/Tenant to bring on the project manager early?  The Tenant Rep Project Manager or Owner’s Rep brings many things to the table before the project is in pre-construction. Plan reviews, scope writing, budgeting, etc.  It’s important that they get involved from the beginning, even before the design team to help guide the owner to good decisions and relationships.

The Owner’s Rep manages who engage early and manage all aspects for the tenant. They understand the tenant’s perspective to guide brokers, vendors, consultants and the design and construction team.

The tenant improvement work letter or TI is the critical document that lays out how the landlord might build a space. Take a law firm for example. Lawyers don’t want their closed-door conversations heard in the next office or outside the conference room. Does the TI specify high Acoustical rating on ceiling tiles or acoustical treatments in the wall cavity? How about floor to ceiling sheetrock to minimize sound transmission? Does the TI specify the number of outlets per square foot? Lawyers typically have cpu, 2 monitors, cell and tablet chargers, dictation, phone transformer. How does the landlord address this when multi-outlet extension cords are often illegal? Did you provide enough power for paralegal cubes who often need at least six receptacles. Did you calculate the floor load for your high density filing system? Brokers don’t always address these issues during lease negotiations.

PMs guide the tenant by asking questions to help them understand the full parameters of the project and the full value of an owner’s representative’s services: what are your objectives for the project? what is your program; how did you arrive at it? have all the stakeholders contributed to that program? do you have an overall project budget including planning, design, engineering, energy analysis, permitting, temporary facilities, owner-furnished items, inspections, commissioning, furniture, fixtures and equipment (FFE) as well as construction? If so, how was it developed? Are there constraints on financing that have to be considered in project planning and execution? Do you have an overall project schedule? What are the constraints on that schedule? How might those constraints influence decision in the delivery method of design-build vs design-bid-build vs fast track with a CM at risk, etc.

By asking these questions, it gives a quick insight into to the status of the project and the owner’s resources and sophistication. It gives a platform to overview the value of an OR’s services, and gives the owner an immediate sense of what it would be like to have a PM on their side throughout the project.

OR/PMs are often referred to as “Construction Managers” and the downside to being labeled as such is the tenant thinks they don’t need you until the construction starts. And if the landlord handles construction, they don’t think you’re needed at all. It makes sense that the tenant could easily see value just in the perceptive questions being asked. It is a very small price to pay to avoid unwanted delays and claims.

Don’t Shut Out Employees During New Office Planning.

December 13, 2011

Richard M. Neuman Architectural and Design, Commercial Lease, Move Management, Needs Analysis, Post Move, Relocation, Site Selection, Space Planning, Tenant Improvement , , , , , , , , 6 Comments


Employees have feelings too, you know. Do these complaints sound familiar during move planning? “We don’t know what’s going on;  they don’t tell us anything.”  How about post move complaints? “Had they included us, this oversight never would have occurred.”

During the new office planning process, senior management often builds a wall not shown on any floor plan but physical nonetheless. It’s a barrier that shuns critical involvement by managers and staff.  While management believes that too much involvement will lead to an unproductive environment, often just the opposite is true. Excluding employees from the move process leads to poor planning decisions only realized after move in.

For a successful relocation plan, it is necessary to communicate with key leaders such as department heads from the beginning of space programming through physical relocation. A move committee should be assigned for the duration of the project and should include an outsourced project manager or move consultant who will manage, disseminate and coordinate the information as needed.  People like to know what to expect and department heads usually have good insight into how the changes can improve their workflow.

How many times have we heard that tenants often outgrow their new space before they ever move in due to poor internal communication that led to poor space selection and planning?  Space needs are more than the number of offices, conference rooms, cubicles, growth, loss factor and circulation. For an office to be sized and designed properly, it is important to consider the needs and working relationships of all internal departments BEFORE site selection. See Space and Adjacency- Maximizing the Efficiency and Layout of Office Interior Space.

The morale of the employees has to be kept high otherwise dissatisfaction leads to a disgruntled staff.  Most companies are so secretive that the first realization of problems occur when the employee’s first glance at a proposed seating chart. For many companies, this first encounter is not a pleasant experience. Employees should be encouraged to participate in the planning process so they get used to the new environment.

Critical information is not about move committee input but factual logistics such as “Our Sales Group cannot be separated from the Marketing Department” or maybe they cannot move on a particular date because it may disrupt a pending company-wide initiative.  A project manager collects, communicates and is responsible for coordinating these details that don’t really fall under any particular discipline on the team.

It is this kind of communication and education about the process that leads to a successful outcome. Even planning for simple issues like hanging pictures, certificates, bulletin boards, etc., help to make for a smooth transition.

Including the staff who will be moved reduces anxiety and allows for questions and concerns to be addressed in advance.

Avoid Costly Change Orders By Planning Your New Office Electrical and Data Outlets

October 20, 2011

Richard M. Neuman Architectural and Design, Construction, Electrical, Furniture, IT & Telecommunications, Needs Analysis, Office Equipment, Space Planning, Tenant Representation , , , , , 1 Comment


Architectural floor plans are just as important for the commercial tenant to review and approve as it is for the trades to build the space from.

One page often overlooked by tenants but is of critical importance is the Power and Communications plan.  If not coordinated early with the furniture vendor, the IT team, architect, general contractor and electrician, it can be the single source of pain, frustration and costly change orders that will have rippling effects on your fit out, purchases and schedule.

The design team will consult with the tenant to get a general idea of power and data needs for each location.  Architects then identify the locations of these receptacles by placing symbols on the plan that represent the general location, type of receptacle, power amperage and data needs as indicated in the legend.

However, these are placeholders, and it is up to the tenant to verify the exact final location in the field during construction.

Furniture Placement is of Critical Importance
Placement of new or relocated furniture is often an unknown factor early in the project. In a perfect world, the furniture would be picked well in advance of construction so outlets can be placed exactly to the furniture specifications ensuring they are at the correct heights and not blocked by casegoods, modesty panels, file cabinets, table legs, etc.

In the real world, however, construction often begins well in advance of the tenant first stepping foot in a furniture showroom.  Tenants are not aware at the outset, or don’t want to hear, that furniture lead times can be as little as six weeks from the time the order is placed. Furniture vendors will complain, and rightfully so, that tenants delay furniture purchases causing pressure by the tenant to expedite the delivery to meet the turnover of the space by the landlord.  Then, surprise, the furniture rep calls that the furniture arrived but that outlets have to be moved because they are either misaligned or blocked. And nothing is more aggravating than having office furniture installed, only to find the power and data is on the opposite side of the room, per plan.

The ripple effect caused by delayed or poor furniture planning can include rewiring, wall and sheetrock repairs and repainting. If wallpaper is used, the entire wall will likely have to be rehung.  Often, data and electrical cable lengths may not be long enough to be relocated since the were lengths were cut to fit, thus adding additional cable runs or electrical junctions added in the ceiling. All this adds up to to costly changes and delays that could have been avoided with proper planning early in the process.

Inventory Your Power Needs
Copy machines – Power requirements can vary so confirm the unit is either 110v or 220v.  Also, check if there is a finisher and cost accounting unit plugged in which will require additional 110 power receptacles.
Offices – Inventory your desk equipment power needs.  Code enforcement in many municipalities do not allow extension cords so appropriate receptacles are required.
Cubicles – Ensure your furniture vendors specifies enough power receptacles. Also, many slim-line furniture systems have receptacles hidden behind door flaps. However, the wall depths may not be deep enough to accommodate power supplies for computers, speakers, calculators.  Check with your rep.

Run at least 3 Ethernet wires per location
We recommend at least a triple run of ethernet wire per location; one for a computer, one for a phone and one for a peripheral. Many Phone/IT vendors will advise, though, that an IP phone can accept a physical computer connection and the third wire, therefore, is unnecessary.  However, if the phone fails, the computer connection in the phone can fail too.  It’s cheap to run wire during construction and the third, or fourth wire is inexpensive.

Why Banks Require Environmental Site Assessments (Phase 1, 2, 3) When Purchasing Commerical Property

September 29, 2011

Richard M. Neuman Environmental, Needs Analysis, Site Selection , , , , , , , Leave a comment


Businesses and lending institutions often require a Phase I Environmental Site Assessment (ESA) to be conducted prior to any transactions of land or building purchases, new development and bank loans.  The purpose for conducting an ESA is to assess any current or historical land use practices and to identify the presence of any hazardous substances or petroleum products on or adjacent to the property of interest.  Conducting an ESA limits the potential for the owner or lender of the property from being named as a potentially responsible party.

Process of the ESA
Determination of environmental condition and identification of potential contamination on a piece of land is one of the most important steps in a real estate transaction. Phase I and Phase II ESA’s notify potential buyers of property contamination problems before purchase, insuring that the buyer will avoid liability and/or costs associated with cleanups. Phase III ESA services aid the property owner in cost-effective remediation efforts.

Identifying Contamination
The likelihood of contamination is usually identified during a Phase I environmental site assessment. To establish the presence of actual contamination on site, a more comprehensive investigation is undertaken.

Phase I
The purpose of a Phase I Site Assessment is to identify, through research and visual inspection, any environmental problems resulting from the use of hazardous materials.

Tasks include:

  • Evaluating storage, handling, treatment, and disposal of materials and waste.
  • Investigating site for evidence of underground storage tanks or spills.
  • Researching history of the facility, soil type, and ground and surface water.
  • Reviewing the regulatory files on sites surrounding the property and/or properties.

Phase II
When a Phase I investigation uncovers questionable conditions, a Phase II sampling study is required which evaluates potential sources that may be contaminated, such as air quality, soil and water. Samples are collected including soil, water, and other hazardous materials. A written report detailing the results is written outlining applicable regulations, recommendations, and cost projections.

The process of a Phase II ESA involves sampling and assessment of soil, groundwater, and surface water as well as the assessment of buildings and structures. Depending on the planned use of a piece of land, different environmental criteria are applied in the assessment. Where necessary, an environmental cleanup involving remediation of soil, surface water, groundwater and sediments is undertaken. In industrial settings, an assessment and decommissioning of process equipment is often required. Where possible, recycling is attempted. Depending on analytical results obtained from the laboratory a Phase III Environmental Site Assessment may be recommended.

Phase III
Remediation procedures for environmental problems that are identified during the Phase I and Phase II investigations may include excavation, disposal, bio-remediation, or any other treatment of conditions subject to regulatory action. A Phase III includes the design, regulatory filings, and actual remediation or removal of hazardous materials such as underground storage tanks, waste drums contaminated soils, and asbestos.

Project Managers Streamline the Relocation Process to Success

September 28, 2011

Richard M. Neuman Move Management, Needs Analysis, Post Move, Relocation, Site Selection, Space Planning, Tenant Improvement, Tenant Representation , , , , , , , 2 Comments


A business relocation is hugely complicated and highly stressful which can lead to extremely expensive mistakes being made by ill-informed managers and owners. Most owners simply appoint someone from in-house such as the CFO, Office Manager ar IT Manager who more than likely won’t have the necessary knowledge or experience to manage a build out and relocation.  If you factor in all the time that managers often put into such a major undertaking, engaging a professional Project Manager / Move Consultant can actually save money.

Vendors are often appointed on an arbitrary basis because your broker or friend “has a guy” or who thinks they know someone who can get a good deal.  These early mistakes result in a breakdown in contractor decisions such as architects, general contractors, interior designers, IT and IT suppliers, cabling specialists, security system installers and furniture suppliers.  Tenant’s often lack proper communication and phasing when they tackle a project on their own leading to delays and cost overruns. Any rescheduling of construction work is bound to have an impact on non-construction tasks and is likely to impact all the other trades.

A project manager will help you get the right staff and get it right such as developing proposals and leveling bids for materials and equipment to be ordered. They manage the landlord, design team, the movers and guide the tenant and its employees at every stage.  If not handled properly, mistakes will be made, things will go wrong and delays are bound to occur. If relocating offers the promise of a leaner, more efficient operation, hiring a project manager will streamline the process to success.

Mistakes Tenants Make When Leasing Office Space

August 16, 2011

Richard M. Neuman Commercial Lease, Landlord, Needs Analysis, Real Estate Broker, Space Planning , , , , , 1 Comment


Hey, we all make mistakes – but when it comes to leasing office space for your business, mistakes equal dollars – sometimes big dollars. Here are the nine most common mistakes tenants make when renting office space, as well as an insider’s take on how to avoid making them.

1. Not Hiring a Project Manager  Companies often find that handling construction and move management along with their daily job responsibilities can be overwhelming.  Tenant project managers shoulder the responsibilities of site selection, hiring a broker, overseeing the space plan and build out; leveling furniture and telecom bids while directing installations and mitigating costly change orders.  Most importantly, they collaborate with the tenant’s staff on a detailed phased move plan that ensures minimal disruption to the employees. Project Managers like Relocation Management Solutions catch problems architects unwittingly miss; contractors unintentionally cause and issues vendors, movers and the tenant may overlook.

2. Lack of Planning Believe it or not, many tenants aren’t clear on what exactly they need. If you’re out looking for ten thousand feet but you actually need twelve thousand, you’ve got problems. Have a project manager and architect do a space program and figure out what size you need. A lot of architects will do this for free as a favor to your tenant rep PM or broker. Between a good project manager, architect and a good broker you can get clear on things you might not be thinking about, like floor load capacity – do you have a safe or a lot of equipment – then you need re-enforced floors. Do you need extra electric to your space? Have special telecom needs? Knowing these details up front will save you time, money and aggravation down the road.

3. Lack of Tenant Representation  There’s really nothing better than hiring a tenant rep broker to be on your side. A broker understands the ins and outs of the market; they can negotiate for you, and best of all, can narrow down the buildings that would be best for your particular business. Their know-how and advice are indispensable, and they can prevent you from leasing a space that you’ll just end up leaving a few months down the road. Such is also the case with an attorney. Many tenants hire lawyers that don’t specialize in commercial real estate – this is a mistake. Like your tenant representative, you need an attorney that understands the monster that is commercial real estate.

4. Lack of Document Inspection Leasing an office space means a whole lot of paperwork. One of the most common mistakes tenants make is that they’re not careful enough with what they sign. Landlords think long and hard about how to make as much money as legally possible on their buildings. The long lease they give you is not designed to be fair. It is explicitly constructed to make them money. Further, the ownership documents need to be vetted too. Make sure your space is legally zoned for commercial purposes and for your use in particular, and that it conforms to various safety codes and is built in accordance with the prevailing rules and regulations. Have the HVAC (air and heat) unit in your space inspected before you sign the lease. Landlords will routinely say in the lease that the unit is in good working order. But they often presume this to be true but don’t actually check. If you take possession and the HVAC unit needs to be replaced, it will cost you a big chunk of change.

5. Rent and Security Deposit Before agreeing to the monthly rental, many people do not benchmark similar properties, and end up paying rent through their nose. It is important to compare similar office properties and find out the going market rent in that area before entering into negotiations with the owner. This is Real Estate 101 for tenant rep brokers. Hire them – they know what they’re doing. The security deposit must also be based on demand, supply and the regular market norms. However, if the owner of the office space seems to be in a tearing hurry to rent out his place, you can always negotiate with him and save yourself some money. Again, this is where a tenant representative comes in handy; he/she will do all of this dirty work for you!

Landlords typically want the security deposit as a letter of credit (“LC”) from a bank as opposed to cash or a check. The reason for this, at least in NYC, is that if a tenant goes bankrupt, the court takes control of cash and it goes to all sorts of creditors before the landlord gets paid. An LC, on the other hand, remains with the landlord through bankruptcy proceedings. Note: it takes a long time to get an LC. Don’t think it will happen over night. 2–3 weeks is common.

6. Not Checking Lease Terms A tenant must read and understand the lease terms carefully. Are you comfortable with the notice period? Let’s say the landlord has the right to relocate you to another floor or space in the building (something that is common for smaller deals) – how much notice do they need to give you? What if the lease says 30 days…can you really pack up and execute a move of both your physical stuff and your technology in 30 days? Probably not. Do you have a sublet and assignment provision? Is it fair?

7. Underestimation of Negotiating Leverage Tenants have a tendency to think that the landlord is all-powerful, but that’s not the case. Ultimately, a landlord is in a service business, and his business is to keep his building full. If this means he has to negotiate with his tenants to fill his spaces, he will. This is especially true for small tenants – even if you’re a five person firm in a million square foot building – you have more value than you think. 90% of the tenants in New York are small tenants. There are only so many big corporations out there

8. Working With a Biased Broker Tenants sometimes feel that if they’re hiring a big real estate company, they’ll be better represented. The big firms that represent both tenants and landlords will argue that they know all the angles. While this is true, the reality is that their loyalties always lie with the landlords. When it comes down to it, a big firm will side with the landlord over the tenant.

9. Too Little Time Tenants drastically underestimate how long it takes to either renew a lease or to move. Depending on how much space you have and how complex your technology is, it could easily take 6–12 months to negotiate your deal – double or triple that if you’re really big.

Why only Nine and not Ten?  Stay tuned for more.

Portions Republished Courtesy of Bert Rosenblatt & Andrew Stein, Vicus Partners, LLC

Learn more about Project & Move Management Services at www.relocationmanagement.com

Selecting and Preparing Your New Office – Checklist

August 4, 2011

Richard M. Neuman Needs Analysis, Site Selection , , , Leave a comment


Entering into a new commercial lease can be simultaneously exciting and scary.  Ideally, start looking for space one year before you plan to move in because if a remodel is necessary, the process could take anywhere from about six months to a year.  Most landlords will want rent payments to begin shortly after the lease execution, so a compromise may be necessary.  A real estate broker and/or project manager can facilitate this negotiation on your behalf.

Once you’ve identified one or more spaces you’re interested in, you’ll develop a program to identify your ideal workflow that maximizes functionality.

Adding any new walls or changes in the electrical or mechanical infrastructure will require a permit.  The permit process usually takes about three months including the time for architectural services required for the permit  for an interior remodel. Construction can begin once a permit is obtained.  Construction on a relatively small interior project (approximately 4,000 square feet) may take anywhere from one month to six months, depending on the scope of work.  If everything within the space is demolished and re-built from scratch, the construction timeframe may total nine months for a space this size.

When permitting a project, most municipalities will require that existing code violations be corrected which may add cost.  The architect or designer will be able to estimate construction costs at the beginning of the project before you commit to a lease.  Once the design is partially complete, the architect may ask a general contractor to provide a more accurate cost estimate of the project, which most will do for free in the hopes of being hired for the project. When the construction drawings are complete and submitted to the building department, they are given to one or more general contractors to provide a hard bid, a process the architect and project manager help facilitate. Additional costs, called change orders, may arise, so it is recommended to add a 10% cushion to the original bid.

Landlords often provide a tenant improvement (T.I.) allowance which can be applied to your remodel costs as an incentive for you to lease their space.  This allowance is actually more like a loan, as the money fronted to you at the beginning is tacked onto your monthly rent.  It is not uncommon for landlords to offer an allowance anywhere from $10 to $25 per square foot for second generation space, or as much as $50 per square foot for shell space in which much of the allowance must go towards mechanical and electrical infrastructure.  An allowance is more common when it is obvious a space requires a remodel, however, if a space is in “move-in” condition, then an allowance may not be offered.

ACTION CHECKLIST FOR SELECTING AND
PREPARING THE NEW FACILITY		 Recommended Timing
Before Move
✔  Develop facility / site criteria. 12 months
✔  Select  a commercial real estate broker (in most cases). 10 months
✔  Identify properties that best meet your requirements. 8-10 months
✔  Tour buildings. 8-10 months
✔  Narrow  the alternatives 8-10 months
✔  Begin the space planning process. 8-10 months
✔  Develop a Request for Proposal(s) and distribute to landlord(s) and architect(s) 6-8 months
✔  Select property and request leases. 4-6 months
✔  Architect performs test fit to ensure space program and workflow is consistent with requirements 4-6 months
✔  Analyze and evaluate proposal responses. 4-6 months
✔ Ensure any negotiated lease changes have been incorporated into document, sign leases 4-6 months
✔  Check lease for accuracy, send to attorney for review. 4-6 months
✔  Contact your insurance company to add the space to your policy. 3-6 months
✔  Finalize  space plan and interior color selections 3-6 months

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