Wednesday, October 30, 2019

What is a Full Service Lease?

full service office leaseA full service lease is a type of commercial lease in which the quoted rental rate includes all costs associated with renting the space such as the taxes, building insurance, electric, maintenance, janitorial and other operating expenses.

The landlord (lessor) pays all the building operating costs and bakes those into the rental rate, which depending on your market maybe quoted as a monthly (e.g. $2.91 sf/mo) or yearly (e.g. $35 sf/yr) rate.

Most Full Service Leases Include a Base Year Clause

Now keep in mind most full service leases also require tenants to pay for any increases in the building operating expenses that exceed the base year operating expense of the lease. A tenant’s base year is the actual operating expense portion of the quote rate that is established at the end of the 1st calendar year. For example say the full service lease rate is $35 sf. A portion of that $35 sf are the operating expenses………let’s say $10 sf. If the actual operating expenses are $10 sf at the end of the first year the base year would be $10 sf.

At the end of each following year the building owner will determine what the actual operating expenses are. If the operating expenses exceed the base year then the tenant will be billed any amount over that. For example if $10 sf is the base year and at the end of year two the actual operating expenses are $10.50 the landlord will bill the tenant an extra $0.50 sf.

What A Full Service Lease Does Not Include

  • Phone
  • Internet
  • Sales Tax
  • Tenant property and general liability insurance

It’s Important to Confirm What is Included in a Full Service Lease 

When evaluating commercial spaces it’s important understand the different types of leases and ask landlords exactly what is and what is not included in the quoted rate. The reason is that the meaning of full service lease is different depending on the market you are in. Also, the definition of full service lease can be different based on the landlord or listing agent that you speak with. 

It’s also important to find out what the actual operating expenses were for the last 2-3 years so you can budget for future increases.

If all of the talk about commercial lease types is confusing then you might want to consider hiring a local commercial real estate agent to assist you.

 

Tuesday, October 22, 2019

Considerations When Buying a Business That Rents Commercial Space

Some people prefer to buy an existing business rather than start a brand new company from scratch. In most cases the business you are buying has leased either office, retail, or warehouse space. Because of that you are not only negotiating to buy the business you also have to negotiate the remaining lease. One of the biggest mistakes people make when buying an existing business is not reviewing the current lease situation.

Commercial leases are going to be one of your biggest operating expense line items. If you make mistakes it could cost you dearly later on and ruin the success of your new endeavor. If you don’t know anything about leases then it would make sense for you to hire a local commercial real estate company.

To help guide you through the process below are a few things to review regarding the existing lease situation before signing a contract to buy the business.  

  • Get a copy of the original lease and all of the amendments, renewals, assignments, etc.
  • Make sure you understand the basic terms of the lease obligation and what you will be responsible for
  • How much lease term is remaining?
  • What is the lease expiration date?
  • What are the base rents due each year for the remaining lease term
  • What are the current estimated NNN?
  • What other expense lease obligations are there (e.g. electric, hvac maintenance, general liability and property insurance, etc..)?
  • How much has the electric been each month for the last 12 months?
  • Who handles the repair and maintenance of the HVAC units?
  • What is the sublease / assignment process?
  • What financials does the landlord need to see before approving the assignment?
  • How much is the security deposit?
  • Will a personal guarantee be required to secure the lease?
  • What Improvements and FFE that would convey with the lease?
  • What terms of the lease will and will not transfer to assignee (eg assignment and sublease option, renewal option, etc).
  • Is there a renewal option?

Those are just a few questions that you need answers to regarding the current tenant’s lease situation. If you are buying a business you need to know this stuff. If you don’t you risk the future success of the business.

Thursday, October 10, 2019

Best Office Space Furniture Stores in Austin TX

office space furniture austin txNow that you’ve signed your office lease it’s time to start getting it ready to occupy. During the construction of your tenant improvements (if needed) you want to plan the move, get the IT stuff (phone/data cabling & other IT equipment set up, get property and general liability insurance, and shop for office furniture. 

Shopping for office furniture is not as easy as you think. There are a bunch of different types of furniture to choose from AND you want to make sure you coordinate with the office colors and layout. Also you have to decide whether buying or renting office furniture is right for your business. For example if your in a short term lease then you might want to consider renting office furniture until you are in a long enough lease that it makes sense to purchase.

If you don’t have the time to deal picking the right office furniture then consider hiring a good interior designer that specializes in office build-outs. In many cases the architect you choose may also offer interior design services.

Services You Should Expect From Good Office Furniture Stores in Austin

  1. Free test fits to help you evaluate office spaces before signing a lease
  2. Free office space planning, interior design, and layout after lease is signed
  3. Sells used, refurbished, and new furniture
  4. Offers furniture rental services
  5. Office furniture delivery, assembly, & installation
  6. Office furniture moving and relocation services
  7. Local Austin warehouse or showroom to be able to see examples

Should You Rent or Buy Office Furniture?

If you are currently leasing office space in Austin on a short term basis then it would make more sense to lease office furniture or if subleasing an office with short term left try to negotiate to use the existing furniture. 

If signing a longer lease 4-5 years or longer then it might make sense to purchase. HOWEVER every company is different. It’s important to carefully evaluate your current and future needs as well your cash flow and determine which is the right decision for your company.

Lease Expensive Office Furniture in Austin

If you are on a budget your best bet is to purchase USED office furniture from one of the vendors listed below………or shop Ikea’s office furniture. I know many companies that still buy their furniture at Ikea even though they are not in start up mode anymore. Ikea’s office furniture is not as high quality as others however it will still get you what you need.

Office Furniture Stores Austin Tx 

#1 Office Furniture Now

Located in Southeast Austin at 4201 Supply Court, Suite 100, Austin, Tx 78744. http://www.officefurniturenow.com/

They have been selling and installing used, refurbished, and new office furniture since 1997. They offer consultations & space planning. They sell new office furniture and pre-owned furniture. They have a 20,000 sf warehouse / showroom full of office desks, workstations, chairs, and accessories. From modern office furniture in Austin to traditional they probably have or can get what you need.

#2 Smart Buy Office Furniture

 Located in North Central Austin at 8910 Research Blvd #F2, Austin, Tx 78758 https://www.smartbuydesk.com/

They specialize in laminate office desks that come in a wide variety of colors, shapes, and sizes. They have modern desks, contemporary, and traditional office desks. They also sell other types of new and used cubicles, office chairs, and accessories.

#3 Cox Office Furniture

Located at 8650 Spicewood Springs #140 Austin, Tx 78759 http://coxofficefurniture.com/

They operate out of a 17,000 sf retail store and focus primarily on selling  used office furniture (e.g. clearance, dented, and scratched), however they also sell some new furniture. 

#4 Texas Office Products & Supply (TOPS)

Located in Northeast Austin at 11055 N IH-35 Austin, Tx 78753 http://www.topstexas.com/

TOPS specializes in pre-owned brand name commercial quality office furniture from desks, cubicles, conference tables, and file cabinets

#5 Facilities Resource Inc

Located in central Austin at 11100 Metric Blvd, Suite 450, Austin, Tx 78758 http://www.facilitiesresourceinc.com/

They are a full service company that only sells, delivers, and assembles new furniture. They also provide project management, facilities management, and space planning services

#6 Workplace Resource

Located in downtown Austin at 1717 W 6th St, Suite 190, Austin, Tx 78703 http://wrstx.com/

These guys specialize in only high end new and modern office furniture. They do not have a warehouse however do have a small showroom in their office. If you like They work with over 200 manufacturers including Herman Miller, DIRTT, and Kimball.

Conclusion

Again shopping for office furniture is more of a process than you think. Also it’s expensive so you want to make sure you maximize the efficiency of every square foot. Whichever company you choose make sure you take advantage of their space planner.

Wednesday, October 9, 2019

Questions to Ask Landlords Before Leasing Restaurant Space

restaurant space leaseFor most restaurant owners their success or failure is determined the moment they sign their lease.

Why?

Because most get in a rush to find retail space for lease and overlook important clauses and/or make mistakes during the negotiations. Part of that is just knowing what to ask landlords. Having information about the space, previous tenants, neighboring tenants, etc is key to ensure that you negotiate effectively and mitigate your risks.

To help get you started below is a list of questions to ask landlords before signing a restaurant lease.

When do I start paying rent?

You need to negotiate enough time to build out the space and/or enough time to ramp up sales before you start paying rent.

Depending on the existing condition of the space restaurant build outs can take up to 6 months, and you ideally don’t want to have to pay rent during that time.

Can I sign the lease as an entity rather than personally?

Creating an entity for your restaurant creates a layer of protection for the business owners. In the event you are not able to pay your rent or meet other lease obligations the landlord can only go after the entity assets (other than a guarantee if exists). 

This is especially important when you operate more than one location. Ideally you want each location under a separate entity. That way if one location defaults it will not effect the other locations.

If you sign the lease personally the landlord has the ability to go after your personal assets to recoup any lost rent.

Do I have to sign a personal guarantee?

If you are a brand new business then you most likely will have to sign some sort of personal guarantee in which you will be liable for debts/damages in the event the entity is not able to take care of.

However you can negotiate to have limits or caps on personal guarantees. For example you can negotiate to have the personal guarantee limited to the landlords unamortized cost of doing the deal (tenant improvements, lease commissions, etc.), limited to a certain dollar amount, or limited to X number of months of rent (base and/or nnn). You can also negotiate to have the personal guarantee amount burn off after x months, years, etc.

At the end of the day you still may have to sign a personal guarantee however try to negotiate to limit your personal exposure as much as possible.

Why did the last tenant leave?

If the last tenant was a restaurant then it’s important to find out why they left. Did they go about of business, relocate, etc? Where they bought out? Why did they go out of business? Make sure you try to get the whole story.

Are their any liens on the space?

If the space was formerly occupied by another restaurant and they went out of business there could potentially be existing liens. What means is that tenant owes creditor(s) money and until those liens are paid no one can operate another restaurant.

Would be a good idea to get this in writing by the landlord.

Can I get an exclusive clause?

Ask to be the only restaurant in the shopping center that is allowed to serve the type of food that you do. You are already going to have competing businesses around your shopping center. You don’t also want competing restaurants in the same retail center that you lease space in. 

Make sure the landlord is not able to lease space to competing restaurants and no other tenant is allowed to sublease space to competing uses.

If they do make sure their is some sort of financial penalty.

Am I able to get a liquor license?

Find out if the location is capable of getting a liquor license, and if so find out how much it will cost. The last thing you want to do is sign a lease only to find out that there is a church nearby or that the city is not issuing anymore liquor licenses, or that the cost is grossly too high.

There maybe certain areas in the city that do not allow licenses or there could be a cap on the number of licenses that are issued. Do your homework.

Can I change the type of restaurant later on?

What if your original concept does not work out or you decide to retire and sublease the space? If so you want the ability to change the concept or type of food that you serve. Landlords like to control their tenant mix and don’t like deviating from the use they originally approved. However, do your best to insert some sort of clause that allows you to change the food concept with landlord approval.

Can I assign my lease to another restaurant user?

What if you want to retire and sell your restaurant? During lease negotiations it’s important to limit the limitations on the sublease and assignment clause. 

Who pays for repairs of the HVAC units?

In most restaurant or retail leases the tenants are responsible for maintaining and repairing the HVAC units. That is why during the initial lease negotiations it’s important to find out how old they are and require that the landlord have them inspected and repaired (if needed) by a licensed hvac technician. Also if the existing units are old you want to get the landlord to provide some sort of warranty for repairs and replacement.

Obviously this is not an exhaustive of list of questions to ask and discuss with landlords with renting restaurant space, however it should get you started.

If you have any questions feel free to give us a call at 512-694-7803