Commercial/Industrial space lease advice? N00b!

[81MC]

Hi braintrust,
I’m just preliminarily wanting to look at renting a medium sized industrial/commercial space to gauge the possibility of me going to work for myself. But I’m totally green with something like that, anyone have any advice on what is/isn’t fair price, utilities, lease terms etc?

Obviously I’d have to make sure the complex is zoned for the scope, but beyond that I wouldn’t really know what to expect. Any words of wisdom would be awesome.

[OMG!WTF!]

I'm not sure what the going rate is for commercial space. But my question would be can you just move into any inside space and start doing what you do? Or do you require renovations, upgrades, equipment to get going? Those improvements can be worked into a lease in a number of different ways that really make a huge difference over all. Also a lease like this may require some personal guarantees which might take some of the fun out of it.

[you&me]

Originally Posted by 81MC

Hi braintrust,
I’m just preliminarily wanting to look at renting a medium sized industrial/commercial space to gauge the possibility of me going to work for myself. But I’m totally green with something like that, anyone have any advice on what is/isn’t fair price, utilities, lease terms etc?

Obviously I’d have to make sure the complex is zoned for the scope, but beyond that I wouldn’t really know what to expect. Any words of wisdom would be awesome.

I would start by looking at some of the brokerage websites for listings to get a feel for the costs for your your particular need. CBRE, Colliers, Loopnet and even the commercial section of the Realtor.ca site... Again, this would be early stages, information gathering level information.

Once you narrow down some specific properties or areas, you can check zoning on the city website to see if your intended use is acceptable or at least discretionary in those locations.

Based on the state of the commercial RE market, I would expect a lot of flexibility from a landlord beyond the posted rates & asking prices. This can include anything (and everything) from lower rent, partial op cost coverage, improvements to the space, etc. You'll get a better feel for this once you see how much availability there is for the type of space you require.

Beyond all of that though, I would caution you to make sure this is something your business really needs at this point. A commercial lease can be a big commitment and isn't something you should take lightly. These are, of course, real, hard costs that you and your business will have to bear and a consideration that should not be taken lightly. Without knowing what you need or want to do, I would encourage you to start the business and only look at commercial space once you've grown to a point of needing it... This could range from growing into a space, or even just getting all of your other ducks in a row (website, vendor / suppliers, etc), again, depending on what you're doing...

GL!

[morgin]

Find a commercial real estate broker who specializes in the type of space you are looking for to help you out. Usually (but not always) their fee is covered by the Landlord. There are a few on this board, hopefully they will chime in. Do not do it alone.

[topfiverecords]

Expect to have to go out of business after receiving the property tax bill.

[Fuzz]

Will you be needing to excavate a secret basement? I know some German diggers, very discrete...

[Galakanokis]

Originally Posted by Fuzz

Will you be needing to excavate a secret basement? I know some German diggers, very discrete...

Doesn't every club house have a secret basement?

[blankall]

What kind of business are you starting? Have you considered shared or virtual office space?

[CaptainYooh]

Before you start talking to commercial realtors, you should do some homework. I suggest doing a simple reverse pro-forma spreadsheet to determine how much you can actually afford. Remember, cashflow from doing business on your own could be irregular, while lease payments are monthly. I've drafted one out for you using $100,000 annual gross revenue as a guide and some basic assumptions for profitability and costs. It is very simplistic, but it should get you started in the right direction.

The key here is to determine the A-M-C-T amount. After that you can play with three variables at the bottom: space you need, net rent and operating costs to narrow down on how much space you can afford to rent and pay for, so that you can tell your broker exactly what you need and can afford. Using the assumptions in my example, you can afford a 1,450 sq.ft. space at $22/sq.ft. total lease cost. Industrial lease rates are pretty good now. Good luck.

[Nsd1]

Not sure if J Pold still posts here but I think they where in commercial real estate, maybe send him a PM.

[81MC]

Wow, thanks guys!
Not gonna lie, I’m not sure the difference between commercial vs. industrial space requirements. The type of work would require a decent sized bay, ideally with an oil interceptor already in place. Other than that, not much to begin with.
I haven’t done any feasibility assessments or the like, bit of a pipe dream at this point. But the nature of work would absolutely require a shop space.
Thanks again

[guzzy]

agreed. Bet a broker. Look for a shorter term sub-lease. This will also allow you to save costs in the short term. If you grow your company you can either renew where you are or move onto something that better suits your needs. Doesn't lock you down for 5 years and you can get getter rates through a sub

[Sliver]

So. Many. Costs.

I just completed an OHS inspection on my business. You obviously have to (and should want to) comply with everything they demand, but holy crap that can be expensive. I installed a safety shower/eye wash station ($2k), sent two people to first aid courses, sent one person to an OHS course, spend ~20 hours updating our policy book and hazard/risk assessments, bought upgraded coveralls, goggles, signage, forklift maintenance, adding improved railings around our mezzanine, new first aid kit (ours wasn't OHS approved), and the list goes on. Thousands of dollars when it was all said and done - we're a better/safer company for it, but it didn't come cheap.

Running a business, there are always surprises like this. We were just trucking along when the OHS guy showed up and six weeks later we had spent a lot of money.

Also expect to spend a lot of time on weird government requirements. I have to do a monthly survey of manufacturing for Stats Can, as well as a super comprehensive annual one. Other things like that pop up often enough that it equates to several unbillable hours of your time just to stay on top of what's required of you.

Your rent is one thing, but I have yet to go a year without an additional bill from my landlord for over-and-above rent items that he needs to be compensated for. Can't remember the term, but you have to pay the bill.

IDK, make sure whatever it is you're going to do is going to spit out a lot of money. There are a lot of hands out that you have to prioritize ahead of your own.

If I were you, I'd find a shop that is slow and sublet directly off a guy and operate out of the corner of his shop. How do you find a guy looking to sublet? IDK, maybe start knocking on doors. You should consider a space that allows you to fly under the radar somewhat and walk away from the whole thing without worrying about leases and all the other crap that goes along with being more official. At least until you have established yourself somewhat and can know that you're going to be successful.

[Locke]

Pretty good advice from Sliver there in my experience.

Only other thing I'd probably throw in there is that if you're looking to do something industrial maybe look just outside the City, theres lots more available.

One thing I also noticed in my own hunts for Business Space (not industrial) was that most of whats on offer is absolutely enormous. They dont want to rent you 1000 sq/ft they want to rent you 35,000 sq/ft so look around at what works for you, but I'd strongly second the recommendation of trying to sublet something thats already ready to go.

[J pold]

Lots of great advice in here already. I'm a real estate broker and would be happy to provide some ideas but as many have said it's best to determine if a new lease is something you really need right now.

CaptainYooh proforma is a great start.

For a new business finding a short term "as-is" sublease is generally your best bet from a cost perspective. The industrial market is stronger than the office however and there isn't much supply of quality industrial subleases available.

Feel free to shoot me a PM if you want to chat further.

[Locke]

Originally Posted by J pold

Lots of great advice in here already. I'm a real estate broker and would be happy to provide some ideas but as many have said it's best to determine if a new lease is something you really need right now.

CaptainYooh proforma is a great start.

For a new business finding a short term "as-is" sublease is generally your best bet from a cost perspective. The industrial market is stronger than the office however and there isn't much supply of quality industrial subleases available.

Feel free to shoot me a PM if you want to chat further.

Where have you been hiding??

This is also excellent advice because your business basically doesnt exist/has little to no history so its going to be tough to start taking on liabilities.

[TurdFerguson]

As mentioned, it's all the little things. Death by 1000 cuts. Do your best to model all your monthly costs, be generous and pad them out. Leave contingency for annual surprises. If you get your own lease or sub-lease, know exactly what you're on the hook for and what you're not.

property tax
insurance
cleaning
security
snow removal/maintenance
operating cost overruns on the building
fist + last month of rent
Tenant Improvement costs/allowances on move-in.
move out conditions and costs
agent fees if you find yourself wanting to get the space back on market
Utility and potentially after-hour HVAC costs (depending on the building)

it all adds up and are typically costs you have little control over.

In this market, I'd say its easier to find more space then it is to get ride of extra space, so don't get yourself into something too big too fast.

/2 cents

[bizaro86]

I know the standard is that tenants pay property taxes and everything else, but I think if I was signing a new lease I'd be pushing back on that pretty hard. Let the owner bear the "city council can't get commercial taxes fixed again next year" risk.