Friday, June 29, 2018

What is Third Party Logistics (3PL or TPL)?

third party logistics TPLThird party logistics also known as 3PL  or TPL is when a company uses a third party business to outsource parts of the company’s fulfillment & distribution services, rather than secure their own industrial space for rent.

Third party logistics service providers commonly specialize integrated operations, transportation, and warehousing services that can be customized and scaled to a customers needs. For example when the delivery service requirements & demands for materials and products increase for an Ecommerce business. These 3PL services often go beyond logistics and may include value added services that relate to the procurement and production of goods. For example services integrated in portions of the supply chain. When integration occurs at this level the provider is now called a third party supply chain management provider (aka 3PSCM). 

Who Uses 3PL Services?

3PL services are used by over 80% of all Fortune 500 companies and over 95% of all Fortune 100 companies. Globally the third party logistics market is over $750 billion. In the U.S. the 3PL market is around $150 billion and growing at about 7% per year.

Types of Third Party Logistics Companie

Third party logistics companies can be any company offering and integrating subcontracted logistics & transportation services as well as freight forwarders and courier companies.

  • Standard 3PL – They offer the most basic logistics functions such as warehousing, pick & pack, and distribution
  • Service developer – Offer value add services in addition to basic services such as cross docking, tracking & tracing, packaging, security
  • Customer adapter – Basically takes over a company’s logistic activities however does not create a new service. Customer base is typically small.
  • Customer developer – Highest level of 3PL services. The logistics provider integrates with customer and takes over entire logistic activities.

Should You Hire a 3rd Party Logistics Provider?

There are certain logistics that you can probably do better and cheaper than an external 3PL however it’s beneficial to do a cost vs time analysis to determine what is right for your business. If you have the time, money, personnel, expertise, etc to lease warehouse space then take care of your own logistics. However if your core business is retail or ecommerce and you don’t want the hassle of renting warehouse space, committing to long term lease contracts, hiring and managing people, or having the additional overhead then consider evaluating a third party logistics company.

The nice thing about outsourcing is that if your company ever needs to expand or contract you don’t have to worry about finding more warehouse space. You can simply tell your logistics company that you need more or less space. In most cases when leasing warehouse space you will have to sign a 3 to 5 year lease. 3PL contracts are typically much shorter than that so you have a lot more flexibility and not have to lock in long term commitments. 

 

What is a Tenant Estoppel Certificate in a Commercial Real Estate Lease?

estoppel certificate definitionFrom time to time a commercial real estate property with tenants will be sold or refinanced. During the due diligence phase of the acquisition or during loan underwriting the landlord or lender will send a written request to all the tenants asking for written verification that their lease is in full force and effect and confirming the rent amounts being paid. This written statement is called an estoppel certificate. 

You will typically see estoppel certificate language in the commercial lease contract. This is not typically a negotiable item when negotiating commercial real estate spaces for lease. The property owner’s lender will require it because it provided proof of cash flow, which is what the lender or potential investor (aka purchaser) is concerned with.

From a tenant perspective there is really nothing to worry about. Having it in the lease does not impact you as a tenant. They only time the landlord will ask for this is when the property is being sold or refinanced.

Definition of Estoppel Certificate

By definition an estoppel certificate is a certified written statement signed by a party certifying for another party that certain facts for true. The delivery of this statement stops that party from claiming different facts later on. 

What Will The Estoppel Letter Include?

The tenant estoppel letter will vary. Depends on the landlord and/or landlord’s attorney. However below is the information they will typically need:

  • Lease commencement date
  • Dates that rents are paid
  • Confirmation that there are no defaults by tenant or landlord
  • If there are defaults then info of details and resolutions will be needed
  • Confirmation that the lease has not been modified and in full force and effect
  • If the commercial lease has been modified then need verification of modifications

Example Estoppel Certificate Language

Below is an example of the language you would see in a commercial lease contract regarding estoppel certificates.

Tenant shall from time to time, upon written request by Landlord or Lender, deliver to Landlord or Lender, within ten (10) days after receipt of such request, a statement in writing certifying: (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, identifying such modifications and certifying that the Lease, as modified, is in full force and effect); (ii) the dates to which Rent has been paid; (iii) that Landlord is not in default under any provision of this Lease (or if Landlord is in default, specifying each such default); (iv) the address to which notices to Tenant shall be sent, and (v) such other matters as may be reasonably requested by Landlord; it being understood that any such statement so delivered may be relied upon in connection with any lease, mortgage or transfer. 

Tenant’s failure to deliver such statement within such time shall be conclusive to Tenant that: (i) this Lease is in full force and effect and not modified except as Landlord may represent; (ii) not more than one month’s Rent has been paid in advance; (iii) there are no defaults by Landlord; and (iv) notices to Tenant shall be sent to Tenant’s Address as set forth in Article I of this Lease. Notwithstanding the presumptions of this Article, Tenant shall not be relieved of its obligation to deliver said statement.

Friday, June 22, 2018

Plain Vanilla Shell Condition Meaning in Commercial Real Estate

plain vanilla shellWhen buying or leasing commercial real estate you will often come across a space that is in plain vanilla shell condition. Other terms you may have heard are cold dark shell, warm shell space, grey shell, etc. As you can see it can get kind of confusing and to make it more interesting the definitions differ by market, situation, or whoever owns or is listing the building. The devil is in the details so it’s important that you know HOW the space will be delivered to you.

Ensure that the lease or sales contract clearly states the condition that the owner or landlord is going to deliver the space.

Definition of Shell Condition

The simple definition of shell condition is a commercial building (office, retail, or warehouse space) with an unfinished interior space. All that has been built are 4 walls, a roof, and a concrete floor. You will NOT see any hvac, lighting, ceilings, elevators, plumbing, interior walls, etc.

Because every tenant has specific needs landlords typically like to leave in cold dark shell condition, then offer a tenant improvement allowance to tenants during negotiations which will cover a portion or all of the improvements. This allows each tenant to customize the space to their liking.

Examples of Commercial Spaces in Shell Condition

Warehouse space in cold dark shell condition

warehouse space cold dark shell

retail space in shell condition

retail space shell condition

Retail space cold shell construction

cold shell construction

Office space in shell condition

office space cold dark shell

Office space in plain vanilla shell condition

office space in shell condition

 

 

 

 

Thursday, June 14, 2018

Tuesday, June 12, 2018

What the Definition of Ancillary Retail Sales & Services Means

ancillary services for retailWhen you are in the retail sales business you typically have a main service or product that you sell that may comprise of 50% or more of your total sales. Ancillary retail services are either different from, enhance, or support the main services/products of a company. They are essentially revenue generated from the sale of products and services that are NOT the company’s main line of business. For example when securing retail space for lease in Austin Tx your main business might be a hair salon however you also may offer nail services.

By introducing new services and products retail companies are able to create more growth opportunities. Most businesses have some sort of ancillary revenue, and in some cases what started as ancillary sales can become the main source of revenue. For example food and beverage sales at gas stations used to be an afterthought, however now at most gas stations food, snacks, and drink sales have surpassed gasoline sales.

Examples of Ancillary Services

  • Printing company that starts selling printer ink.
  • Ice cream company that decides to start selling ice cream scoops
  • Donut shop that sells coffee
  • Hair salon that starts offering nail services
  • Gas station that offers car washes
  • Business school that offers career guidance and placement services
  • Hospital that offers counseling services
  • Retail stores that offer delivery or installation services

Benefits of Offering Ancillary Products

  • Generate higher revenue per customer or member
  • Increase retention levels and repeat customers
  • Contribute to bottom line

How to Succeed With Ancillary Revenue Sales

  1. Define the target market for each product or service – Segment your customers based  on gender, age, habits, goals, needs, and objectives
  2. Determine the market demand for your demographics – Run demographic reports once a year and pay attention to population growth, % of people working, household income, etc.
  3. Identify products and services for your ideal market – Now that you know who you want to offer more services and products to think of products and services that will accommodate their wants and needs.
  4. Market the new ancillary services and products – do Facebook or Google advertising, start a facebook page, email marketing, set up products displays, etc…
  5. Have a sales strategy – Make sure your employees are trained on the ancillary services. Gather as much info as possible about your target audience and understand their needs, wants, and goals, as well as what motivates them to buy. Create processes for handling product inquiries and post sale communication.

 

Monday, June 4, 2018

Flex Space is the Future of Office & Storage Needs

flex space is future officeFlex space will never compare to the look and feel of traditional office space however across the country renting flex space is on the rise. And they are attracting companies in all types of industries including software and technology companies. For example in Austin Tx flex space is half the cost of traditional Class B office space.

What are Flex Buildings?

Flex office buildings are single story light industrial buildings with higher ceilings and with overhead doors and loading areas (e..g. grade level dock high) in the back. They were geared towards companies that used 18 wheelers and box trucks that transported products to and from the properties. They typically have surface parking and generous landscaping and are found in semi industrial business parks.

The flex buildings are designed to accommodate businesses needing light manufacturing, warehouse space, and office space.

Advantages of Flex Space

  • You pay rent on the square footage you actually use. In traditional office buildings you also pay rent on shared square footage (e.g. common areas, bathrooms, hallways, lobbies, etc.). With flex space your usable square feet equals the rentable square feet.
  • Rents are lower than traditional office space. Rents can be up to half the cost of traditional class B or C office space. In Austin for example flex property rents average $13 to $18 gross compared to $21 to $25 sf for class C office space.
  • You get more square footage for the money
  • Shorter term leases are more available – Most office space buildings want 3-5 year minimum leases. Depending on the market, condition of the space and landlord you have better chances of securing a shorter term lease
  • Can build out office space inside just as you would in a traditional office. Once you walk inside you can’t tell if you are in the frost bank towner or a flex industrial building. The office build out can look like any other class A office buildout. The only difference is the outside of the building.

Flex space is more accommodating to all types of companies whether they need office space, warehouse space, or both combined. They are no longer just for businesses that have shipping and receiving needs. If you are looking to rent 1,000 to 50,000 sf and would like to save a ton of money then make sure you check out what flex space options there are in your area.

What is Flex Warehouse Space?

flex warehouse spaceFlex warehouse spaces are single story buildings that can be used as both office and warehouse space. Users can either build them out with 100% office space or they can build out a little bit of office space and have the remaining be warehouse space. There is a growing trend toward flex warehouse space such as Austin, Tx because the cost of traditional office space has sky rocketed.

The buildings typically only have windows on the front and may have an overhead door in the back with either a grade level loading area or dock high loading. 

Types of business’s that typically occupy flex spaces are users that need office and warehouse space such as plumbers, pest control, electricians, mechanic shops, call centers, roofers, HVAC companies, etc. Because of how expensive office space is these days you are now seeing technology and software companies rent flex space and build it out to have 100% office.

Flex space is less costly than traditional office space. For example in Austin the lease expensive traditional office space ranges from $21 to $25 sf per year where as flex warehouse space will cost $13 to $16 sf per year. Also with flex space since there are no common areas your get more usable square footage. That means your usable sf equals your rentable sf. They only other cost you will incur is your monthly electric and janitorial costs.

In addition you are typically responsible for the maintenance and repair of the HVAC unit so make sure you negotiate a good warranty on it. 

If you have any questions about flex warehouse space or need help determining whether it’s right for your business feel free to give us a call at 512-861-0525