{ THE QUEEN{ OF COMMERCIAL REAL ESTATE } SHIFT+CONTROL }
THE BIG BENEFIT OF LEASING COMMERCIAL SPACE BY DARA RENNERT I PHOTOS BY MICHELE ASHLEE
Leasing versus buying is always a topic of conversation when first speaking with a business owner. There are pros and cons to both, both with large economic impacts. For many businesses, especially if they are just launching or securing their first space, leasing is truly the best avenue. When factoring in initial cash to start up, cost of renovation, future growth and expansion needs, and flexibility to relocate should the location not be ideal. Let’s dive a little deeper into each of these factors below. For a standard office or retail space in Monroe County, prices to lease can range from $12-$28 per square foot, per year, with annual rents from $36,000-$84,000. To purchase a 3000 sq ft building, prices can range $156,000 to $355,000. A security deposit for a lease is equal to the first months rent, so $3,000 up to $7,000. For a purchase, typically a buyer pays 20% down plus closing costs, so cash requirements range from $31,200 up to $71,000 plus additional closing costs. The cash requirement for leasing is significantly lower than purchasing, thereby allowing many new or small businesses the opportunity to open due to the financial requirement being much more attainable. Leasing provides an opportunity to many who, without this option, wouldn’t be able to open! Now, lets talk about the space itself. 316
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When touring spaces, there is never a turnkey situation. The space will need renovation for the new user to better suite their operations, esthetic and overall vision. The big question is, who pays for this remodel? It’s simple if a business is buying the building, they are paying themselves! So, on top of down payment, closing costs now, add in renovations. When leasing, there are always 3 options of who pays: the landlord, the tenant, or It’s a combination of the landlord and tenant. The latter option is the one
that I see most commonly. While each situation is unique and negotiations vary, one aspect remain constant-each party wants to contribute as little as possible to renovations! This is a reason why having an expert negotiator on your side is vital! Understanding what a landlord responsibility is typically, government requirements to obtain permits, renovation involving licensed professionals, etc. In a situation where the landlord delivers the space to the tenant fully remodeled, the responsibility and out of pocket costs
fall on the landlord. At times, the costs of the renovation will be added back to the monthly rent for the tenant to reimburse the landlord for the costs. In this scenario, the tenant is still benefiting by using the landlord’s money upfront and the payback term is over the 5 or 7 years of the lease. This tactic also helps new or small businesses open a location! A business has now been open for a few years and business is booming! They have hired additional employees and have now outgrown their space. For a tenant that leases, they will be able to relocate within their landlord’s portfolio. Whether the expansion option is the adjacent space, a different floor in the building or a nearby building, landlords with large portfolios provide a lot of growth options. By this point, the business has built a good relationship with the landlord and the landlord will be flexible while helping the business expand. If a business buys a building, they may have the option to add an addition. If not, they will need to sell the building and buy new, all at an expense of paying off the mortgage early, and all costs associated with the sale. All in all, landlords help small businesses get started! In my opinion, the biggest reason to lease versus buying for a small business is that landlords are invested in your success. If you don’t succeed, then they don’t succeed. Landlords
