Industrial Real Estate for Supply Chain Management

A search for industrial real estate unmatched to your supply chain management (SCM) program could be a futile effort.  Imagine operating from an industrial space to facilitate your supply chain vs. one that fails to.  To accurately match industrial real estate to SCM, establish criteria from your SCM program to commence a property search.  (I can meet with your c-level SCM executive to identify the criteria for a search and suggest towns likely to have properties to meet that criteria.)  A 5-point plan and 4-point evaluation rubric can guide both the creation of criteria and the search/secure effort:

1. Strategize. 2. Design. 3. Implement. 4. Operate. 5. Continual Service Improvement

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1. Strategize.  Identifying how your supply chain and staff operates guides the creation of criteria to commence a search/secure process, preferably by a Tenant Rep well-versed with industrial real estate.  Which of the key points below will fall into your space search criteria?

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2. Design. Implement the criteria from the Strategize phase into a virtual design of an ideal property; this vision drives your search and secure process.  This list of attributes guides the search – selection – secure effort.

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3. Implement.  CAPM. Plan the relocation as a formal project, run by committee, stakeholders, project team and project suppliers.

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4. Operationalize.  2-3 years lead time is ample to factor in all facets of relocation at a leisurely pace.  This lead time gives your secure effort negotiating advantage and time to revise a search effort if the property of choice becomes unavailable.  The actual relocation effort through go-live date could take 12 months to process.

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Your Tenant Rep should evaluate each property reviewed based on the search criteria plus the evaluation model applied by the CCIM strategic analysis model: a) market and competitive, b) site/location, c) political and legal, d) financial.  These criteria are integrated to produce attractive choices and guide the property bidding process.

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5. Continual Service Improvement.  Before final offers are submitted, arrange a formal meeting of all stakeholders affected by the move (warehouse ops team, mfg team, shipping/receiving team, SCM team, IT).  A thorough paper review and on-site walk-through of each location by these stakeholders will identify which property(ies) fall into choice order.  These staff members are your boot-on-the-ground team/managers who have deep knowledge of facility operations. Their perspective gives your search team valuable feedback on how to proceed with the final bidding process.

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The industrial real estate for your business plays an essential role in your enterprise’s SCM.  Precise search criteria support a simple, efficient and expedited search/secure process; any needs for property retrofit are identified during the property evaluation process.  I can help with all facets above, having experience and academics to support it.  If you’d like to discuss the industrial real estate needs of your enterprise, please ask your CFO to fill out the form at the base of “About Me” page, write “Industrial site search” in the subject line, with the CFO’s email signature in the message body.  I’ll reply within 24hrs to arrange an exploratory conference call within their calendar. ###

Too Much Space? Sublet, Divest or Move

Has your sales or business operations changed to need less commercial space than you signed [a lease] for? Is your rent bill using too much of your operating budget? If you face this problem, a prompt strategic approach to solving it is necessary. Look at the financial impact and legal exposure of your options. I explain below how to approach this dilemma, how to solve it and free up your operating budget.

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Assess the problem. What’s causing your business to use less space than you signed for? Were signs of change let go when you signed the lease, or is this a new emerging trend likely to stick? If a percentage of staff will be let go, how would you re-seat the staff kept to free up space to divest? Is additional rent more than you expected (and planned for)?

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How many years are left on your lease? If less than 4 years and space is in move-in condition, the space could be relet for a longer term at current market rate, ending your lease.

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What are your space and location alternatives? Finding the right building, in the right location for your business can be challenging. The scope of Tenant Improvements to the new space will dictate the base rent and lease term. What lease term can your business accept with some uncertainty of its future? (Note: Keep the math difference in mind that less construction cost equals fewer lease years, more construction cost equals more lease years (until rent exceeds construction cost)).

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Compare Lease Terms of Buildings. Key clauses to review are operating pass thru’s, expense stops and operating increases. Paying the difference between year to year operating expenses is best; paying increases over a base year gets expensive to your operating budget.

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Transaction model. The most effective way to compare deals is to prepare transaction models. (Your Tenant Rep broker has software to do this.) Modeling shows the financial difference between deals, some of which may look alike in the offer.

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Personal Guaranty and Good Guy clause. If there’s a default of rent payments, the person guaranteeing the lease is responsible to pay. Good Guy clause versions are a) keep the rent paid through the lease term or b) leave the space broom clean, pay all rent due through the last due date, return the keys to be legally released from further lease obligations. Work to secure (b) because it releases you from rent you will not/can not pay and gives the Landlord back a space to relet without paying to evict you.

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Sublet terms. What legal rights does your Landlord have to list your space for sublet? The time frame to list affects how quickly you can dispose of the unneeded space. Remember the leasing commission [and any construction costs] you’ll pay to sublet.

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Delivery of Space and Move. Sublet of the vacant space or moving should be done during the least intrusive time of your business year. Expect to take 45 days to plan the move and another 30 days to execute/close it. That time needs to be compatible with your subtenant or your new Landlord.

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Sublet. Sharing up to 3,000rsf of unused space is a quick solution; costs are limited to a background check, a credit check and fees to Landlord. If you’ll be compatible sharing the common areas of the space, pursue a space share.

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If you must separate the vacancy from your space, expect to pay an architect and construction costs. Only choose that option if costs are dramatically less than your potential moving costs, future additional rent and escalated rent you’ll collect from the subtenant. Always review at least the two most recent years of signed financial statements from the Subenant and talk to 2-3 creditors to ensure they can afford to pay you their rent.

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Divest. Sometimes, there’s a market for your vacant space to the Landlord, either in whole or as part of an adjacent space. However the market exists, hire a Tenant Rep broker and Tenant Rep attorney for a consulting fee to ensure your lease is amended with less space to bill for with your interests in mind.

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I trust this post has been a simple read for you and helpful if you’re faced with this issue. I’ve helped companies deal with this issue in the past. If BREG can help you, please click “Request A Consultation” link in the upper right of the screen. Enter “Sublet, Divest or Move” in the subject line; please include your name, email address and telephone number in the message body; I reply within 24 hours. Thanks for reading and listening. ###

Lease or Buy

The space your business operates from represents an investment of available cash to bring a product or service to market to generate a return on investment. I have preached for many years that real estate is a tool to operate a business. This tool must be flexible in use and marketable to relet or sell when its no longer useful to your business. Space size and price do not offer enough of a means to compare options to choose from. Factors to consider include physical space, price, acquisition costs, holding costs/benefits, tax effect, return on investment. Merely looking for space within a budget leaves you vulnerable to taking ill-fitted space that you’ll live to regret using. A savvy Tenant Rep will show you the qualitative and quantitative modeling of how to look at your space options to decide which deal meets your operating needs. Such modeling has worked well for my clients since the late 1990’s.

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Lease, Renew or Relet

You can choose to move to lease, exercise an option to renew or to relet space within your building at new terms. Critical questions to ask are space amount, engineering of use, layout, construction and space equipment costs, moving costs, budget and cost of capital, tax effect, flexibility of use (sublets/assigns, expansion or contraction rights). Each space considered should be presented in column format to facilitate a decision of accept, fine tune terms or drop the space from consideration. This format also enables preparing fighting alternatives to secure the deal you need. Overall, this method of comparison uncovers fine points of options to root out the right one for you. Give your business enough time to conduct this search and analyze project at a leisurely pace, relative to market conditions. Signing the term sheet of the deal testifies that the choice made from the search process is to move, exercise an option to renew or draft a new lease for your space met the operating needs of your business with a predictable outcome.

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Purchase. Purchasing calls for placing available cash for acquisition costs, construction and property management, mortgage and property taxes; all other costs being equal if leasing. Analysis performed by your Tenant Rep shows how your investment will perform as compared to placing the money in other investments and how the real estate adds value to the business. If you’ll lease the unused portion of the property, the Tenant Rep prepares a financial model about how the net profit from Tenant(s) would be invested to enhance investment yield. A financial model for purchasing space shows how your cash will work for you plus net proceeds of sale, projected over a holding period.

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Sale-Leaseback. If you own your property and are considering to unlock its cash value from a sale-leaseback, a financial model will show the present value of the property, the interest rate to pay rent, any operating costs, how investor’s holding period may affect your rent responsibilities. Tax impact influences your consideration to complete a sale-leaseback transaction.

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Comparing to lease, buy or sale-leaseback shows your cash outlays, productivity of staff from space design and location, and shows tax impact.

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If a change of the real estate for your business is on your horizon of projects, I encourage you to contact me to talk it out. Please click “Request A Consultation” link in the upper right of the screen. Enter “Real Estate on My Horizon” in the subject line; please include your name, email address and telephone number in the message body; I reply within 24 hours. Thanks for reading and listening.

Did You Plan for No?

In the midst of negotiating your deal for space with key stakeholders’ talking to secure their position in the deal, have you planned for them to say “No” to your critical/important needs or worse, act out to meet their needs?? Finding these issues out now could derail/end your deal unexpectedly; that’s to be avoided.  Most stakeholders of a deal don’t prepare for such contingencies…yet such preparation is essential to close the deal. Making compromises (that may include agreeing to split the difference) in the midst of negotiating can harm or eliminate meeting critical/important needs. Negotiating is a conversational debate among stakeholders to meet their needs of doing a deal. Maintaining positive relations is key to stakeholders agreeing that a deal is worth doing.

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Naturally, any negotiation will factor in time to compensate for general disagreements, even some issues may need tuning or re-engineering to realize interests. However, no interests should be compromised or deal terms’ forced to re-trade that harms anyone’s critical/important interests.

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While negotiations are being planned, consider the risks that key stakeholders may say no to your critical and important needs. What would your options be to meet your needs AND stakeholders to meet their needs? (Consider these steps akin to your attorney preparing you for trial.) Here are brief recommendations to assess risks before all stakeholders talk to negotiate.

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i) Identify the key stakeholders.
ii) What’s important to them (you included)?
iii) Brainstorm what they or you may do if neither gets what’s important to them.
iv) How likely are options in brainstorming likely to occur?
v) How do unilateral actions affect stakeholders?
vi) How do unilateral actions affect you?
vii) As you perform the preparatory process, has it inferred that you forgot to identify/address any issues/interests you were planning to negotiate for? If so, return to analyze/fix what’s missing, then walk through all steps, including this one, to ready yourself to negotiate. If you or stakeholders do not meet your needs, an option should be to drop the deal.

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Now you’re ready to negotiate that includes talking out options if your /their needs are not met. The outcome is a positive choice for all stakeholders involved. My negotiating practices have used this method successfully for 10 years. If I can be of help to you securing your next piece of commercial space, please click “Request A Consultation” at the right of the screen, write “Planning For No ” in the subject line; add your comments, name, email address and direct dial number to reach you; I reply within 24 hours.) Thanks for reading. ###

Deal Get What You Need?

Before you sign a lease or contract for new space for your business, do the negotiated terms get what you need? Just because the deal is market competitive (and perhaps a good one), is that deal good for your business? Don’t sell yourself on a deal that didn’t get what you should have. (The deals to my past customers were always good for their needs and at market competitive terms.)

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Brokers’ efforts are often driven by their need to generate commissions to feed the overhead of their business. Landlords make deals to realize property returns on investment and feed overhead cost s of building operations. Clients and Tenants respectively often give up too much to secure space they need.

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How can your broker secure the terms your business needs to operate with? They learn about the issues important to you, what your interests and positions are of those issues, identify creative ways to secure your needs with the landlord or seller, and educate you of the risks of picking the wrong deal or property you ask them to secure. (Note: Savvy realtors have staggered payouts coming to them regularly, affording them the ability to engineer deals that are right for their clients and market competitive.

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I suggest taking 2yrs to secure the space you want for every 7500rsf of office space and 15Ksf of industrial you need. The conversation begins to identify who the stakeholders will be for the move, a consensus of important issues among stakeholders, what the interests are among those issues, what interests are critical, important or tradeable. Your broker’s job is to identify creative options of how your interests will be secured, solving your issues, how to get the seller’s issues secured and how the agent will be paid to represent you. There’s a methodical process to prepare for negotiation and a methodical way to negotiate that keeps all stakeholders happy with each other.

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The 2yrs lead time gives your broker the ability to find the best options for you to consider, secure the deal that’s best for you and is market competitive. The next time you begin to think about a need for commercial space, hold a holistic view of your assumptions and begin to create objectives. From that you will be ready to meet a savvy commercial realtor to help you identify and secure the terms worth signing for. I have worked this way for 10+ years. If I can be of help to you, please click “Request A Consultation” at the right of the screen, write “Interest-Based Negotiation ” in the subject line; add your comments, name, email address and direct dial number to reach you; I reply within 24 hours.) ###

Tenant Rep – Project Manager

Is your Tenant Rep steering your space change(s) to reach its objectives, keeping to schedule and budget?  Changes to commercial space is Project Management.  A structured, proactive approach to project management could assure the project realizes its objectives, perhaps ahead of schedule and under-budget.

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Tenant Rep services are about meeting client needs plus project management, similar to a corporate real estate director.   Meeting the objectives of change requires a seasoned project team with project leader.   Having managed many change events, I offer a comprehensive perspective to assess, plan and monitor a seasoned team to manage a project. My services include:

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• Agreement on objectives between us;
• Scope of Work that gets you the deliverable you expect;
• A cogent plan, subject to field conditions, to deliver the Scope of Work;
• Competent project team and project manager to execute the plan;
• Astute, timely, monitoring the project to keep scope, schedule and budget on track;
• Brief yet detailed recap that project objectives were met, comforting you to accept the deliverable received, agreeing to close the project.

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If your Tenant Rep is not giving you these services, ask why; once you experience structured project management you’ll ask yourself why you waited to.  See my education and experience at LinkedIn to understand how I can serve dual roles as your Tenant Rep and Project Leader, from initial conversation to post project support.  If you have an initiative you’d like to discuss or would like some free advice, click “Request A Consultation” link, fill out the form and send; I reply within 24 hours to learn about your specific real estate needs. Thanks for reading. ###.

Learn Real Estate Costs Ahead of Needs

Small-Mid size users of commercial space (5K-100Krsf) often analyze their space needs just before starting a search; such timing would likely cost your business the wrong space size, overpriced deal terms and bloated operating costs. Also, merely comparing market rates to your rent [or mortgage] does not accurately measure the economics of your space. Do you know how much your occupancy costs take as a percentage of revenue [generated from the space ]?

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The costs to operate space are: rent (or mortgage and property taxes), utilities, IT network and phones. The one-time costs to expand/relocate can include: movers, architectural and/or project management services, construction (beyond landlord’s work), furniture & fixtures, voice and data wiring, phone and computer equipment. If changes to your space are in-review [among executives], knowing both the revenue generated from the space and its occupancy costs will help expedite planning and decision-making within budget.

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A triumvirate of academics and experience are blended to deliver this service; it sets me apart from conventional real estate analysts. i) a complex understanding of commercial real estate, ii) academics and hands-on experience assembling/interpreting the economics of business operations, iii) training/experience with spreadsheet software.

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I often performed this analysis for clients as commercial realtor; I was a virtual real estate department to emerging businesses with 5-100 employees in metros New York and Atlanta, 1995-2007. (Figures and space needs came from collaborating with the Comptroller and CEO). The results enabled me to source the right spaces and negotiate the sharpest of terms a landlord could afford; those business terms matched or cut the client’s projected occupancy costs.   I deliver this service in five steps:

1. Identify gross revenue from space / current occupancy costs (by category) = % occupancy costs claim from revenue.
2. Estimate future space needs and occupancy term; scrub to market conditions.
3. Project revenue from new space. How much more revenue could be kept as profit if occupancy costs were less?
4. Identify space costs for the next occupancy term via a projection of entry costs, rent and operating costs (mentioned above).
5. Compare sales projections to projected occupancy costs to reveal how much space is needed and what to budget for it. Add one-time relocation expenses outlined above.

(Note: Your results from this service will be most effective when completed two (2) years before operating from new space (up to 20Krsf; up to 4 years prior for 100Krsf). The lead time positions your business to negotiate from strength.)

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I can work directly for your company, collaborating with your Comptroller, or as subcontractor to the CPA firm you work with. I work per diem or by project; I estimate 24 hours per assignment; the work is completed in 5 consecutive days. If you’d like to talk with me, please click “Request a Consultation” at the mid right of the screen and fill out the form; I’ll reply to you within 24 hours. I trust that the content of this post was helpful to you. ###