# Looking at a retail location...



## FatboyGraphics (Sep 20, 2009)

I am looking at moving into a retail location. My business is team uniforms with sublimation, and outsource screenprinting and embroidery.

I hope to get into embroidery sooner rather then later.

But anyway...I also sell sports equipment and apparel as well.

I'm just looking for any pointers that anyone can provide.

Anything I should or should not do.

Thanks,
Steve


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## binki (Jul 16, 2006)

Know your lease terms. Net, double net, triple net, gross monthly, CAM. 

Read the contract carefully. When you lease you will be personally responsible even if you rent with your biz name unless you strike that clause from the lease. 

Be sure you understand what you are responsible for. In net leases you could be responsible for the exterior, HVAC, plumbing, doors, windows, etc. CAM covers your exterior maintenance as a proration with others on the same property. Increases are unlimited unless you get it in writing that it is not. 

Negotiate your lease increases in your contract. Right now times are tough and you should be paying half of what you would have paid 3 or 4 years ago. Don't accept the first offer. Make counter offers and try to get concessions. Look to get an allowance to put in fixtures, flooring, painting, etc. Look to get free rent. Around here it is not uncommon to get 6 months free. This is normally done as a 50% discount for a year so really it is 1/2 rent for a year, not 6 months free. Negotiate your deposit. Try to get it to $0. 

Try to get your rent to be the LOWER of a fixed price or % of your gross sales. I would use 8% as a guideline. 

If there are anchor stores on the property get it in writing that if they leave you get a discount on your rent. If I were in a location that had a supermarket and the market left I would insist on a 50% or more reduction in rent until they got a comparable biz in there. 

Make them prove traffic numbers if they quote them. 

Talk to the other tenants to see what they think about the property. 

Good luck.


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## FatboyGraphics (Sep 20, 2009)

I should have asked this question last week....that was my first mistake.

I made a offer on a place, 1220 sq feet, $1000/month, 3 months free for 3 years.

They came back with $1100 for the 1st year, $1200 2nd , $1400 3rd year
$2000 security deposit
1 month free, 2nd and 3rd month $500/month

I went back with $1000 1st year, $1100 2nd year, $1300 3rd year
$1000 security deposit
same first 3 months

what i like most about the location is the lay out is perfect, other then paint (and retail set up), i can move right in and have a great layout.
hard wood floors, bathroom, nice size front area, 1 nice office, another room that would be a great printer/press room. a Back "warehouse" area, and 2 storage closets. 

It's a small strip mall with 9 spots and 5 of which are empty. I think i should have gone back with better terms now.


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## Louie2010 (Feb 26, 2010)

If you didn't sign anything, you can still renegotiate. Just tell them you are still looking around at other locations.

binki has already given you some good advice. One thing I would add is to try and get some options added to whatever lease you sign. For example you are looking at a three year lease. Insist on two three year options with only moderate increases. That way if your business is doing well after the first three years you won't have to worry about a large rent increase if the center is then full compared to half empty as it is now. With two three years options you would control the property for the next nine years. Options give you all the leverage, because you control them. You can choose to exercise them if you choose, or not to if you don't. For that matter if business is slow, you can still try and renegotiate the option rents before you exercise them if you didn't want to pay the predetermined rents.


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## Louie2010 (Feb 26, 2010)

Also, always try and get your CAM lowered if you can. Plus I would insist on your CAM being capped for the term of the lease, (and options)

If the center is half empty, you should be sure that it is a good move for your business. There might be better location for you.

Being half empty, you should be able to get anywhere from three(I wouldn't take less) to six months free rents. Being a small independent, I doubt you would get much if any build out money. Too many small independents don't last and ownership usually won't want to give money unless it was a regional chain or national tenant. I would put my efforts towards free rents, rather than build out money. You can mention how much you will have to spend in build out during negotiating the need for free initial rents. 

With most commercial leases you are going to be responsible for the heat and air units. You might want them inspected first before signing. Also put a clause in the lease that if need of repair in the first six months the landlord would be responsible not you. You don't want to move in and then this summer have to replace an air unit that wasn't working properly.


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## FatboyGraphics (Sep 20, 2009)

i was told the rent included everything.
I would be responsible for the HVAC maintenance agreement. But getting the HVAC checked out and a clause in there is a good idea...thank you.


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## helenh (Dec 30, 2007)

FatboyGraphics said:


> I should have asked this question last week....that was my first mistake.
> 
> I made a offer on a place, 1220 sq feet, $1000/month, 3 months free for 3 years.
> 
> ...


Not sure what area you are in, but sounds a bit high.
My tenant pays 2,200 for 4,000 square feet. My questions would be are you SURE you want a retail location, just remember every month when you open your doors you now owe 1,220, plus, plus regardless. If your business is very strong then go for it.


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## FatboyGraphics (Sep 20, 2009)

Louie2010 said:


> Also, always try and get your CAM lowered if you can. Plus I would insist on your CAM being capped for the term of the lease, (and options)
> 
> If the center is half empty, you should be sure that it is a good move for your business. There might be better location for you.
> 
> ...



In regards to it being a good location.....My business is about 70% online 30% local...i'm working to grow the local with the youth organizations and local high schools, the location is actually almost perfect for that. Other locations that may be better, are out of my budget, they are asking $22 per square foot, compared to this place that is asking $13 per square foot.

It is on a busy road, but it is in the back end of town that the local community only goes. But it is a block away from a high school, almost right across the street from a youth organization football/lacrosse/soccer field, and other fields very close. So for my purpose, it is a great location in my opinion.

Plus there is a Chinese food and a sub shop in the same strip location, so what else could i as for.


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## FatboyGraphics (Sep 20, 2009)

helenh said:


> Not sure what area you are in, but sounds a bit high.
> My tenant pays 2,200 for 4,000 square feet. My questions would be are you SURE you want a retail location, just remember every month when you open your doors you now owe 1,220, plus, plus regardless. If your business is very strong then go for it.


I understand and i have asked myself that same question many times. But i feel the only way i get my business where i want it is to get a retail location to be out in front of the community. 

With where i want my business to go, a home based business isn't best suited for it I feel.


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## Louie2010 (Feb 26, 2010)

FatboyGraphics said:


> i was told the rent included everything.


Unusual for a center not to have CAM. There is common are maintenance and eclectic that usually gets shared based on sq. feet leased. Often management fees can be added also. Just make sure it is not in the lease and you missed it. Don't go by what they say, go by the written lease.

One thing that will help, is to do a LOI with all the verbal agreed on specifics. Give the signed (by both parties) LOI to your attorney. That way he/she can make sure nothing major (that you hadn't agreed to) gets snuck into the lease.

I would strongly recommend having an attorney that specializes in this area review any lease before committing.

Also, don't forget to insist on options. I can't stress that enough. Now it is a renters market, lock up the property while you can get better terms. Without options you have zero leverage in three years. You might be faced with the option of paying a large rent increase, or look to make a rushed move of your newly established business.


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## Louie2010 (Feb 26, 2010)

helenh said:


> Not sure what area you are in, but sounds a bit high.
> My tenant pays 2,200 for 4,000 square feet. .


Rents vary tremendously between regions of the country, locations even within the same town, types of properties, and size of space being leased.

For a nice strip center in a good location, those rates actually sound low to me. However without knowing location, conditions, etc it is irrelevant.


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## FatboyGraphics (Sep 20, 2009)

Louie2010 said:


> Unusual for a center not to have CAM. There is common are maintenance and eclectic that usually gets shared based on sq. feet leased. Often management fees can be added also. Just make sure it is not in the lease and you missed it. Don't go by what they say, go by the written lease.
> 
> One thing that will help, is to do a LOI with all the verbal agreed on specifics. Give the signed (by both parties) LOI to your attorney. That way he/she can make sure nothing major (that you hadn't agreed to) gets snuck into the lease.
> 
> ...


In my reply back, i did ask about snow removal, and trash as neither were listed in the agreement.

Also, originally it stated that after the 3 years, the option for a 5 year lease was there at the same rent increments, which means year 4 would be $1600, $1800, etc...well thats just crazy in my opinion. I asked for it to be changed to, after the 3 years, Lease can be renegotiated.

I don't understand the whole penalizing someone for staying there, which in my eyes basically it is.


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## Louie2010 (Feb 26, 2010)

That is why you need to negotiate options now while you have the leverage. If this is a nice well kept center the initial rent sounds very fair. (of course this is without me have any knowledge of the specific area, but just "in general" rents for nice centers). They are basically asking $10.80/sq ft. This is probably low for them, but since they are so empty they are starting there. However their rent bumps are out of line, and probably they are just trying to get back to where they once were as quickly as possible. They are bumping you close to 10%/ year, that is way out of line.

If I were you, and I really wanted this location this is what I would do. I would insist on six months free to start, but I would be realistic and settle for three, but no less than that. 

I would agree to the $10.80/sq ft, but no increases the first two years, and only a modest .50/sq ft increase the third year. Remind them that inflation is currently almost nonexistent. That would put you at about $1150/month in year three.

Then I would require two three year options, at no more than .50/sq ft bumps each year. You could try for less, but you have to offer some future increases for them if you expect them to concede for longer lower rents initially. Remember that they have zero leverage with the options. You might take the lower rents, and then leave after the initial terms of the lease. They have no guarantees from you.


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## Louie2010 (Feb 26, 2010)

Also, don't commit to a five year option, insist on two three years options instead.


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## FatboyGraphics (Sep 20, 2009)

Thanks so much for your thoughts...it's helped alot.


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## Louie2010 (Feb 26, 2010)

Your welcome. I hope it works out for you.


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