Everything Is Negotiable

admin  /   February 27, 2019

If there is anything I have come to understand over these past 30 years of my Industrial Real Estate Consulting and Brokerage career, it is the concept that in selling and leasing Industrial real estate most everything is negotiable in a transaction. Also, a successful transaction needs to result in a “Win-Win” for both sides for there to be a relatively peaceful closing. Having enough general knowledge of the key elements of any transaction is critical.

Everything of importance has a dollar sign attached to it. If you understand this concept you can make a well informed decision on how to approach Tenant Improvement Allowance, Base Monthly rent, Annual Rental Increase percentages, Rent Abatement concession, Sale terms and conditions, Building Warranties, Building condition, Property Insurance, Property Tax obligations, Commissions, Closing costs, Title Insurance….to name a few.

It all depends on what side of the transaction you are sitting on. Your approach to underwriting a successful sale, purchase, lease, sublease or assignment will vary based on your vested position. Having enough ammunition and general knowledge on your side of the deal can make for a sound negotiation and well informed decision.

This “Handbook” is not my attempt to address all the issues you will come across, because every property is unique and has its own set of elements that will impact its market value. Condition, age, functional obsolescence, features, occupancy, warranties, compliance, governmental costs, etc. will all ultimately filter into how the underwritten value is achieved and negotiated. Most of my past clients were very busy running their day to day activities hovered around the economic and operational issues of the business. A business real estate decision would only surface when a lease was expiring (every 3-5 years), a sale or purchase was considered once or twice in their business lifetime.

Many of my clients, when the industrial real estate decision reared its head, were not prepared or current with the economics of the market, changes in governmental legislation, financing issues, market trends, environmental issues and probably most importantly….deal point negotiation.

“Having enough general knowledge of the key elements of any transaction is critical.”

Every Industrial real estate transaction being contemplated needs to address a number of key questions in order to qualify the internal decision to make a move:

  1. How much “urgency” is there in the decision? You need to determine that the need to make a change or decision is essential.
  2. Determine what your economic and operational objectives are.
  3. Meet with your CPA or CFO and qualify yourself or your company internally before you go out to market for help.
  4. Have you determined what your monthly cost of occupancy is currently and what will this cost be be 6-12 months from now (rental increases, CAM charges, insurance premium increases, property reassessment, etc.)?
  5. Has your facility need changed geographically due to costs, employee or customer demographics, and availability of utilities, rail service or dray-age costs?
  6. Is functional obsolescence negatively impacting production, efficiency and profitability?
  7. Does it make sense to hire an Industrial Engineer who can evaluate your current floor plan and if necessary draft a more efficient space plan in order to maximize space?
  8. Once all the internal due diligence is complete, a determination can be made as to whether a lease, purchase, sale, sale leaseback or sublease should be the facility course of action.
  9. Market knowledge is essential. Contact a qualified Industrial Real Estate agent and let that person know what your objective is, now that you have done a significant amount of homework.
  10. Interview a couple Industrial real estate agents and determine who you can trust and who will look after your best interest.
  11. Sit down with your agent and chart your “Critical Path”. This outlines the time line, target objective, areas of responsibility and economic goals for the plan. A coordinated team effort is very important.

Time moves faster than we appreciate. I recommend my clients consider a minimum 12-18 month lead time once they have made the determination a move is necessary. A move comes in different size, shape and structure. Surrounding yourself with a qualified team who you can trust is the final and most important part of this business real estate decision you are moving forward with. This team will help you stay organized, serve as a sounding board and make certain nothing falls through the cracks. Even small mistakes or oversight can be costly if you are not careful.



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