Tip 1: Utilize the expertise of a tenant broker
Real estate brokers make calls to landlord representatives to locate an array of spaces in the marketplace that are available to fit your needs. Quite often the best space for you has yet to appear on the market but is in the works. Find an expert broker to help you negotiate the best terms possible so you can save money and ensure your lease has the flexibility to accommodate your growth and success as a business.
You may not want to spend the time it takes to canvas the market for space or work with a broker to negotiate terms, but you should. Real estate is one of the greatest costs in a business budget so it is worth spending some time to see where savings can be realized. Your business is unique, so you need a lease that is tailored to how you plan to use your space now and in the future.
Typically, broker fees are part of market prices. If you do not use one, the landlord will often pay their own broker more rather than allowing you to save these costs.
Tip 2: Plan ahead
The time it takes to locate space and complete leasing arrangements largely depends on the specific needs of your organization and the specific space as well as the current market conditions. Here are some typical guidelines:
- Property tours and space identification – 1 to 3 months
- Letter of intent negotiation – 1 to 6 weeks
- Lease negotiation – 3 weeks to 3 months
- Improvements to space – 1 to 6 months
Tip 3: Budget accordingly
Nonprofits vary in size, budget, and location. As far as space goes, it’s best to budget about 200 square feet per person.
A recent study of the Denver Metro Area showed that nonprofit organizations are paying an average of $15 per square foot Full Service Gross (see below for what this means). So if you have a need for 5,000 square feet in Denver, you would likely spend $75,000 annually or $6,250 per month.
Read below for more information about additional costs you may want to consider.
Tip 4: Be strategic
Ask your broker to research and analyze all of the properties you are interested in. Your broker can easily look up pricing, leasing term, amount of space available, debt on the property, and other information that can help you negotiate the best deal.
It is important to identify all key decision makers at the outset. Answering the following questions will help streamline the process:
- Will your board of advisors or directors need to approve the property location and tour the spaces? Will they need to review the lease?
- Does your organization need to gain approval from a national headquarters?
- Do the employees need to be involved in the touring process?
- Do you have an attorney or fiscal sponsor that will need to review and approve the lease?
- Will there be a property search committee to help in the process?
Tip 5: Be informed
There are many factors to consider when budgeting for space rental, some of which carry additional costs.
First and foremost is the type of lease you are in. There are three types of leases available: Full Service Gross, Triple Net, or Modified Gross.
- Full Service Gross means that your quoted rental rate is inclusive of all taxes, common area maintenance fees, and insurance costs associated with the property. However, you must consider that most Full Service leases will not include your internet and phone service charges and some may or may not include janitorial costs as well.
- Triple Net means that your quoted rental rate is only a portion of what your monthly cost for the space will be. You will also pay “triple net“ fees that will cover the property taxes, common area maintenance fees, and insurance for the property. This additional fee generally ranges from $3 to $15 per square foot in addition to your base rent. You will also be responsible for your janitorial costs, phone, and internet charges.
- Modified Gross has a base rent just like a Triple Net lease, but you will only be responsible for paying your own utility costs like water, electric, gas, etc. You will also be responsible for phone, internet, and janitorial costs as well.
Other costs could include:
- Costs for building the space ( known as “tenant improvements”), which may include contractor fees, labor, materials, architect fees, permitting costs, etc.
- Employee and guest parking fees
- Moving costs
- New furniture
Tip 6: Be mindful of common misconceptions
We are going to stay in our current space and renew our lease, so we don’t need a broker.
Market conditions and rental rates are constantly changing. What your organization negotiated five years ago might not be the best deal for your organization today. By working with a broker to review your current lease and renewal options, you might be able to negotiate a better lease rate, discover options to expand your current space, or even get funds to improve the space with new carpet and paint, for example.
Someone on my board of advisors/directors is a residential and/or commercial real estate agent, so we will just have them find/negotiate our new space.
Board members are great assets to organizations and can provide excellent guidance and direction for a myriad of issues. In many cases, however, organizations need to be cognizant of conflicts of interest when using the services of board members. Double check your bylaws and bid protocols before requesting the volunteer services of your board members. If you hire an outside broker to work in conjunction with the board member, they will be able to provide a more objective perspective and take some of the burden away from the volunteer member whose time may be limited.
We have a good relationship with our landlord, and he/she is giving us a great deal so we do not need a broker.
If your landlord says he is giving you a good deal, engage a broker to market-test that it is true. Remember, the landlord is in the business of making money from real estate. Even if you are aware of what another tenant is paying, you do not know enough about their agreement to know how that price compares to one you could obtain. Agreements take into account lots of factors like financial strength, lease terms, improvements, etc. Your broker can do the work to arrange what may be a better deal for you.
This blog was written by Melissa Nochlin and Erinn Torres of Broad Street Realty. Nochlin and Torres specialize in finding real estate solutions for nonprofit organizations. Broad Street is a full service commercial real estate firm that represents clients nationally, with offices in Bethesda, MD; Manassas, VA; and Denver, CO.