Do it yourself?
Not too long ago, everyone needed a lawyer to draft a lease or incorporate a company. Those days are gone thanks to web sites like LegalZoom.
Also gone are the days of relying on an accountant or H&R Block to file a tax return. While many people still hire accountants to prepare tax returns, far more people use tax preparation software to get the job done – and save a fee at the same time.
And let us not forget the mother of the “do it yourself movement” – Home Depot (or Lowe’s if you prefer). Those stores enable weekend warriors, handy men and women, and weekday office professionals to become carpenters, plumbers, electricians, painters, etc. Not only can you get what you need, but some friendly associate will tell you and show you what to do.
The threshold question to ask
So here’s the question we raise on behalf of the self-confident, entrepreneurial business executives who believe they can do anything and everything – “Do I really need a real estate broker to help me find space and negotiate a lease?” Our answer, which could be admittedly self-serving, is “it depends.” Here is why.
Pretend you are a capable professional in do-it-yourself mode. If you wanted to install a sink and vanity combination in your guest bathroom, you would go to Home Depot or Lowe’s with a list of questions and items needed. The same could be true with leasing office space – you need a list of what you need.
What you need to effectively find and lease office space
Here is a partial (but reasonably comprehensive) list of some of the things you need:
- Potential locations where you want to be, buildings having the space you need;
- Comparable rents for leases in the building you are considering;
- Comparable rents for leases in buildings nearby of comparable quality and size;
- The cost of expenses in the building (electricity, janitorial, repairs and maintenance, payroll, etc.) and an understanding of who pays for what expenses;
- The cost of real estate taxes for the building and an understanding of who pays for the taxes and how they are paid;
- The cost of interior tenant improvements needed to get your space in the condition you want it and who pays that cost and how;
- The average length of the lease term required (1, 3 or 5 years) and the ability to get options to renew the lease;
- Credit-worthiness of the landlord and its ability to pay for improvements and cover expenses;
- The reputation of the landlord as to property upkeep, responsiveness to tenant service requests, position on late payment of rent, etc.; and
- An understanding of contracts and lease documents, as the lease for office space can run from 10 to 75 pages of small (9-point font) print.
The stations along the journey
For the intrepid among you, there are web sites like Office Space, LoopNet or Kinglet that provide information on available office space. Craigslist also has information about available offices. So you can start your journey online.
Just remember the following: There are different types of rent structures used in leasing office space – full service, modified gross, triple net, net of utilities, etc. Make sure that you understand each of those structures so that you know what is covered by the rent and what is not.
Learning comparable deal terms
Like buying a car, unless you know someone who bought the car you want from the dealership you like, finding out what other tenants are paying in a building is tough. There are no really accurate databases available on the internet. This information tends to be hoarded by landlords and industry professionals. It is valuable information that people treasure and guard – unless swapping it with another industry professional.
Understanding operating expenses and real estate taxes
This is a “good news, bad news” situation. The good news is that you can look up a building’s taxes courtesy of the State Department of Assessment and Taxation web site. It’s free. What’s not free are property management trade association databases with expense information. They can run more than $1,000, and sometimes you have to be a member of the association to get access. But fear not, you can always ask a friend who is located in the building.
RS Means publishes comprehensive construction data for more than 85,000 construction items. It is an online service that will give you a free trial and then a subscription, which can be monthly or annually. The big challenge is understanding just what construction will be done and by whom. Instead of using RS Means, if you have a friend in the business who can do take-offs of space plans, then you are good to go.
Who’s your landlord?
There are various credit rating services that provide information on people and companies. While most landlords are single-purpose entities, many are publicly traded Real Estate Investment Trusts whose status can be determined via Yahoo Finance, which is free. A greater challenge is determining how well the building is maintained, whether expansion is possible, and what tenants think of ownership and management. You should contact existing tenants in the building for their feedback.
Who should review and negotiate the lease?
Apartment building leases are fairly standard and must meet certain state and local requirements, but commercial leases are a different animal. Unless you have had experience with commercial leases, we recommend that you find and hire someone who does – and preferably a lawyer. We worry about clients who want to rely on us for lease review, and one of us is a trained attorney and the other has a graduate degree in real estate!
Is the juice worth the squeeze?
That is up to the individual and how much time and expertise he or she has in this area. There are clearly internet-based tools out there to help – tools that did not exist 20 years ago. However, like Home Depot or Lowe’s, the tools may help with part of the process (finding a location or installing a sink) but not the entire process (like building a house).
And one other comment. Like the insurance agent compensated by the carrier – and not the client – real estate brokers are typically compensated by the owner of a building. Stated another way, someone needing to address the 10 issues outlined above can find trained, educated, competent assistance without writing a check for the services provided. The check is written by the landlord, who gets the money in the rent paid by the tenant being represented over the term of the lease.
That’s like Home Depot paying you to install their sink and vanity in your house. Why would you want to do it on your own when someone else can do it at no direct charge to you, the tenant?