91% OF RENTERS MAKE THIS MISTAKE
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#1 MISS IN COMMERCIAL REAL ESTATE
The number one mistake our clients is made in commercial real estate is not understanding who represents who in a real estate transaction. Also tied to this fact or tens of thousands of dollars typically. Let’s back up a bit. If you’re a person looking to open a bar you typically start driving down the street and call on a few signs. The only problem is this person is the listing agent for the owner of the property. In every single state in America this person has a legal fiduciary obligation to put their interest before their own as well as everyone else is especially the other party to the real estate deal, you.
Listing agents are typically very nice in commercial real estate when they talk to the public because if you come unrepresented they keep the large Real Estate Commission that was going to go towards having your own agent represent you. Then making you aware this is not in the best interest of their client so they cannot tell you this. This very simple point is difficult for very smart and successful people to understand even.
In addition the damage is geometric sense without an agent you have no idea to ask for rent abatement, tenant Improvement or build out that the landlord may be more than willing to pay but if you don’t know to ask for it they will not offer it. Lease length, lease commencement, rent abatement, TI, NNN’s, a percentage of sales — all things that can be toggled in a commercial lease deal.
COMMERCIAL REAL ESTATE 101
Commercial real estate moves much slower than any other type of real estate. It’s also denoted by its traditionalism more so than any other form of Real Estate; in layman’s terms there is a latency affect in this slow moving section of real estate. The syntax and processes to do a commercial lease are different than anything else in real estate. A commercial sale can be similar to a residential sale, just more moving parts on a longer timeline sometimes even years.
Much activity can be spent and wasted in commercial real estate, seeking a lease or commercial purchase as this world is almost a secret world with its on , lingo and order that things are done in. Typically the wait time to get into a property can be days as in commercial real estate the listing agent will typically meet you at the property. This is the opposite of residential real estate wear the listing agent typically never meets the client although they do speak with the other agent
5 BEST COMMERCIAL REAL ESTATE TIPS
Make sure you have an agent and that you tell anyone that you were talking to that you are represented. Regardless if you find the property or not you will need your own agent which if you are the tenant you don’t pay for, to represent your best interest in a legal agreement that will typically be at least three years. Even real estate agents get attorneys to look at their lease when they get their own office spaces so you can imagine the risk and naivety of a non-industry person signing a 50-100 page lease that’s being explained by someone who has a legal obligation to not act in your best interest. The Listing agent/company/brokerage always represent their own clients and this is the time where that is being done, the nuts and bolts of the deal being constructed and agreed upon. Also, you’ll typically never see this Listing Agent again.
1. Time is one of the most important things in a commercial lease meaning lease length. In general most commercial leases are three to ten years. A longer lease length gives you more negotiating power as you are in the saddle longer for the owner and they may be willing to do more for their tenant for the commitment of a longer relationship.
2. Sublease, make sure you can sublease. Most language will say you can but it is at the approval of the landlord this needs to be defined more specifically that businesses of your same type and other types will be approved conceptually if they meet the same Financial criteria to be approved
3. The landlord of a commercial space we want a p&l of your business as a basis for approval of your lease. If you have not been in business for years and can’t produce a profitable p&l statement you will be going off your own personal recognizance is meaning just like if you were getting your own personal one bedroom apartment. Your credit, how much money you have in the bank as well as liabilities will all be looked at in a personal business application — cars boats and other things will be tallied as well as other sources of income, letters of commitment and from investors.
4. Business plan – this is a big misconception and real estate that you need a business plan if you’re getting a commercial lease. A business plan is for a loan or to attract investors. A business plan is also for a new business so this business does not have any Financial records 2 considered for approval of a lease so the business owners will be qualified on their own personal financial makeup — just like a normal apartment lease.
5. Make sure you ask your agent what the market is. If you’re looking for commercial retail is the market flooded with this? In Austin currently there are tons of commercial retail options second-gen spaces to brand new spots apartment communities where owners are willing to do a lot to the right businesses.