Being in the industry since 1998, at DDI we’ve seen it all. Would you fathom signing a lease without knowing if the space ACTUALLY worked for you?! Well it happens, and more often that you would imagine. We’ve also seen tenants sign a lease, start planning for their build-out only to determine it costs 3X what they had budgeted and they immediately start chasing their “American Dream” in the red.
Prior to signing a lease (or even a Letter of Intent) we strongly encourage you to engage a firm to provide you with budgeting and consulting services as they relate to various real estate opportunities you are exploring. This empowers you (and your real estate broker) during the lease negotiation process and helps you understand what your costs are going to be. Lenders are also encouraged by these studies as they know the owner has a well thought out and accurate pro-forma as it relates to pre-opening expenses.
During lease negotiations, which scenario is going to work better in your favor??
You: Mr. Landlord, we anticipate the cost to build-out our suite is going to be about $55/psf, so we would like you to contribute $30psf.
LL: Well, we’ve overseen several build outs in this center, it’s got great bones, no updates are needed and it shouldn’t be more than $30psf and we are only prepared to offer $15psf.
Or Option 2:
You: Mr. Landlord, we had Company X conduct a budgeting and consulting services on Suite L at 1699 S. Colorado Blvd. Based on our drawings, existing structure, permitting requirements, etc. it is going to cost us $55psf to build out this space. This is significantly greater than we allocated within our pro formas and as you can see, it will greatly impact our ability to make money, threatening our long term viability in your center. We would like to create a long term partnership and would ask that you help offset this by contributing $30psf to the tenant improvements.
It doesn’t take a MBA to see that Option 2 would result in stronger position. We encourage you to contact DDI today to ask about a Pre-Lease Execution Consulting Study.