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Leasing vs Buying Commercial Office Space?

February 24, 2010 Leave a comment

Many businesses reach a point in which they are curious as to whether it would be beneficial for them to purchase a building rather than continue to lease space. While every business is different there are a few common factors that should be taken into consideration when evaluating whether buying a building space would be better than continuing to lease space. We will take a look at some of the pros and cons to purchasing compared to continuing to lease space.

* Cash Outlay – Typically if you are planning to purchase a building, you can expect to make a down payment of between 10% and 25% of the purchase price, depending on the lender and your credit. When you lease space you won’t need to put down nearly as much. With good credit, the typical outlay is the first and last months rent which is only about 10% to 15% of the cash outlay required when purchasing a building.
* Opportunity Cost – With the large outlay of cash required to purchase a building, the opportunity cost of that money needs to be taken into consideration. What return would you expect to receive on that money compared to the return you would expect to receive if you invested the money back into your business or into other investments?
* Fixed vs. Variable Cost – When you buy a building, you have a good idea what your costs will be over the long term. This is especially true if you have a long term fixed rate mortgage. If you lease space, the market will dictate what you will end up paying for rent over the long run.
* Growth Considerations – The growth phase of your business should be a major consideration in making the lease vs. buy decision. If your company is relatively new and/or in a high growth mode, leasing would allow more flexibility and fewer constraints to that growth. On the other hand, if your company is mature and stable, buying space is great way to meet your future space needs.
* Property Management – You’ve heard the expression, time is money. If you own a building, it needs to be managed. You can either hire out the function or do it yourself. Many businesses with long term growth plans buy a larger building than they need and rent out the expansion space. All the more need for good property management.
* Appreciation – One of the primary goals of buying a building space is to generate long term increase in value through market appreciation. A good idea in a healthy market and usually successful over the long term. It is usually a good way to add to your retirement fund, but keep in mind that recent commercial real estate cycles have come in 10 year periods.
* Tax Factors – Lease payments are usually fully deductible, but many expenses of owning office space must be written off over longer periods of time of up to 39 years. The good news if you buy is that you get to take depreciation on the improvement portion of the property and can usually deduct all of your interest payments. When considering the tax factors it is always very important to consult with your attorney and tax professional about the legal and financial considerations to owning office space.
* Cash Flow Analysis – The devils in the details. In order to really understand the financial aspect of purchasing a building, you need to prepare a detailed comparative net present value cash flow analysis which takes into consideration your predictions on the future including holding period, anticipated appreciation vs. rental increase, interest rates, and cost of expenses increases. It is a good idea to do three different analyses, optimistic, realistic and pessimistic, to help determine your margin of error. It seems like a daunting task, but there some good programs available to help you do this analysis including:

The Next Step

While the evaluation of the leasing vs. buying space decision seems somewhat overwhelming, there is help. Getting advice and assistance from a commercial real estate professional who is involved in the business day in and day out can significantly improve not only the accuracy of any analysis, but in general simplify the process. Many of the lease vs. buy factors can only be decided by you, but having a helping hand in the areas where space expertise is important will assure you of making the best possible decision. Call The Sundance Company today to see how we can help you with your lease or buy decision.

About The Sundance Company
Established in 1976, The Sundance Company has the experience to help you with your commercial real estate needs in Boise, Meridian, Nampa, and the greater Treasure Valley. If your requirements include property management, leasing, real estate development, project planning, construction or space planning then look to us. The Sundance Company has more than 1.5 million square feet of retail, office, and industrial space available in prime Boise and Meridian locations.

Please check out The Sundance Company website to view property photos, search for office space or learn more about Sundance’s start-to-finish capabilities. If you prefer to talk to someone in person about your commercial real estate needs, then just give us a call at our Boise office, (208) 322-7300

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Commercial Real Estate Lease Types

February 22, 2010 Leave a comment

1. The Gross Lease – Though some sources break out the full service lease type from the gross lease in commercial real estate, they are more often the same. The landlord pays for: Taxes, insurance, and maintenance.

The gross commercial lease is used most often in multi-tenant and single tenant office buildings, industrial and some retail properties. The landlord collects fixed rents and pays the expenses out of them.

As costs increase over time, many gross and full service leases will contain escalation clauses that increase rents over time to offset tax increases and higher insurance and maintenance costs. It is important that a tenant shopping for space understand any escalation clauses in order to project rent expense into the future.

2. The Triple Net Lease – The triple net lease is used extensively in commercial real estate. It is popular for multi-tenant industrial and retail properties. With tenants whose expenses vary greatly, such as an industrial user of electricity, the triple net lease is best for the landlord.Tenants are resistant to triple net leases, as they have no control over increases in expenses and budgeting their costs is more difficult. This is especially true when it comes to repairs and maintenance. In a triple net lease, the tenants would be responsible for sharing the cost of roof replacement. This can be a large and many times unexpected expense.

Of course, fixed rent is lower with the triple net lease. If the building is a newer one, tenants may find triple net to be preferable to other choices. If establishing a new business, the triple net tenant in a new building can enjoy lower rent and expenses in their first few years. Once established, they may have grown to the point that larger space is necessary. The move can be to a different type of lease or another newer facility.

3. The Modified Net Lease – The modified net lease is a compromise between the gross lease and the triple net. The landlord and tenant usually set up a split of maintenance expenses, while the tenant agrees to pay taxes and insurance. Utilities would likely also be negotiated in the modified net lease.This type of lease might be used in industrial, retail or multi-tenant office properties. Tenant resistance to triple net leases, especially in older properties, makes the modified net lease more popular. It allows a compromise situation that shares the costs of building operation and maintenance.

The terms of a modified net lease are as varied as are building and tenant business types. The flexibility of this lease type makes for easier agreement between tenant and landlord. Many a lease has been put together because of creative modified net lease terms.

About The Sundance Company
Established in 1976, The Sundance Company has the experience to help you with your commercial real estate needs in Boise, Meridian, Nampa, and the greater Treasure Valley. If your requirements include property management, leasing, real estate development, project planning, construction or space planning then look to us. The Sundance Company has more than 1.5 million square feet of retail, office, and industrial space available in prime Boise and Meridian locations.

Please check out The Sundance Company website to view property photos, search for office space or learn more about Sundance’s start-to-finish capabilities. If you prefer to talk to someone in person about your commercial real estate needs, then just give us a call at our Boise office, (208) 322-7300

Deal May Bring Aquarium to Times Square

Leasing Industrial Spaces in the Boise Valley

February 17, 2010 Leave a comment

If you need large storage facilities, or a place to set up large-scale production, manufacturing, or a shipping depot, the cheapest type of space to rent is usually industrial space. But commercial industrial spaces can also be used in place of traditional commercial offices, usually at substantially cheaper prices per square foot.

There are many advantages to leasing commercial industrial spaces in the Boise Valley. Some of the benefits include:

  • Affordable, Flexible Leases: Large industrial space are usually less expensive to rent than finished commercial office space or established retail spaces. And, since industrial spaces are often used for a variety of purposes, leasing agents can be flexible when negotiating the terms of industrial space leases.
  • Cheaper to Renovate Than to Purchase a Building: If you need custom-designed facilities, but cannot afford to purchase and renovate your own building, most industrial complexes allow tenants to build-out, modify, or substantially renovate warehouses into custom office, production, or even retail facilities.
  • Flexible Zoning Options: Because industrial parks tend to be very flexible in terms of zoning, it may be easier to convert industrial spaces into manufacturing and retail businesses than existing buildings in areas zoned for other specific business purposes.
  • Add Usable Square Feet Without Increasing Rent: Since most large industrial spaces have high ceilings, many can accommodate a mezzanine or be split into two internal stories. Depending on how much you spend to add this space, you can add to your usable square footage without increasing your monthly rent.

The most important thing when considering any leased space is to look at as many spaces as possible before making your decision. By including commercial industrial space on your list of leasing options, you may just find larger, more affordable space to grow your business.

About The Sundance Company
Established in 1976, The Sundance Company has the experience to help you with your commercial real estate needs in Boise, Meridian, Nampa, and the greater Treasure Valley. If your requirements include property management, leasing, real estate development, project planning, construction or space planning then look to us. The Sundance Company has more than 1.5 million square feet of retail, office, and industrial space available in prime Boise and Meridian locations.

Please check out The Sundance Company website to view property photos, search for office space or learn more about Sundance’s start-to-finish capabilities. If you prefer to talk to someone in person about your commercial real estate needs, then just give us a call at our Boise office, (208) 322-7300

Sundance will consider “Exchange of Business or Trade Services” for lease space!

February 15, 2010 Leave a comment

The Sundance Company recognizes these difficult economic times, and understands the importance of business relationships. If your business has a need for retail, office, or industrial space in the Boise Valley, we would be pleased to have the opportunity to work with you. With over 1.5 million square feet of space available for lease, The Sundance Company can meet most the needs of most businesses.

Sundance will consider “Exchange of Business or Trade Services”  for lease space! Please contact Michael for details at Michael@sundanceco.com or 208.322.7300.

Sundance will consider “Exchange of Business or Trade Services”  for lease space!

Why Do You Need an Executive Suite?

February 10, 2010 Leave a comment

There are many reasons why it is prudent to consider  executive suites for your office space needs!  Executive suites are both convenient and cost effective. Below are a few examples of both reasons.

Convenience

There are many factors that make executive suites a much more practical solution than simply leasing an empty office space:

  • You can find office space for whatever size requirement you have (excluding very large companies) in a variety of convenient locations!
  • You can lease one office or an entire suite of offices depending on your needs.
  • Don’t want to spend months searching for the perfect space and more time moving? Need to get to work right away? Executive suites are all ready for your company so all you need to do is walk in and start doing business!
  • Executive suites and virtual offices offer a professional location to hold meetings or meet with clients for businesses that are run from home.
  • Leases tend to be very flexible, and expansion can be easily accommodated.
  • You have the ability to change your location at short notice if the current office location is not working out.
  • With executive suites, you make no capital investment. All equipment and facilities come fully equipped and the use of all of them is included in your agreement!

You will have the services of trained support staff which frees up you and your employees to “get down to business” without having to worry about the hassles of running an office.

Cost

So, executive suites sound very convenient and all, but there must be a catch. They are probably much more expensive than regular office space, right? WRONG! In addition to being more convenient, executive suites/virtual offices are generally more affordable than traditional office space. Since all of the equipment and furnishings that you would need to operate your office are already included in your executive suite, you instantly save money that you would have otherwise had to spend in order to stock your office. Due to this, executive suite spaces can be up to 40% cheaper than the cost of leasing a comparable sized office space alone. In addition, you have the opportunity to cut other costs by taking advantage of on-site professionals, including receptionists, a clerical staff and IT.

New or fast growing companies will find it beneficial and cost efficient to lease an executive suite because it enables them to find the perfect space for the current size of their company — and plan for the future! It is possible to lease one or several suites for your initial employees, and then add on new suites as your company grows! That might be easier than either relocating offices every few years, or leasing a large office space thinking that your company will “grow into it.”

If an executive suite or office sounds ideal to you then please check out The Sundance Company’s Silverstone Corporate Plaza. The 120,000-square-foot, Class-A office condominium, located within the sought-after Silverstone Park, offers spaces ranging from 3,000 to 90,000 square feet and features an unprecedented combination of amenities including business concierge services, executive boardrooms, conference rooms, and covered parking. For further information about leasing/ownership please call 208-322-7300 or visit www.sundanceco.com

How to Lease Commercial Real Estate Office, Retail, or Industrial Space

February 8, 2010 Leave a comment

A lease, at its core, is a business relationship – an agreement between a tenant and a landlord. Although leasing commercial real estate may appear simplistic, perhaps even one-dimensional, it is crucial to take 7 essential steps. Otherwise, the process can turn into disarray.

1. Define your requirements: The first questions to tackle are as follow: “What am I looking for?” and “What would suit me best?” From prerequisites such as deciding location to determining the property’s prospective use, evaluating the space is critical.

2. Locate suitable property: After determining space requirements, a hands-on search begins. Locate suitable properties, survey the market, and narrow down the CRE contestants.

3. Tour properties: A property review and physical tour is the next step of commercial leasing. Since an expected lessee engages in numerous visits and tours, it would be beneficial to take notes on each property.

4.  Make a proposal to lease: The proposal process consists of five elements: preparing a RFP (request for proposal), issuing the RFP to suitable properties, reviewing the landlords’ responses, evaluating offers, and perhaps preparing a Comparative Lease Analysis.

5. Space planning and architectural evaluation
6.  Negotiate the lease contract: Negotiating may be tedious and frustrating. It is important to meticulously examine every aspect of the deal to avoid future problems. A checklist, legal involvement, and realization of tenant’s resources are discussed thoroughly in this category.

7.  Close the transaction The mutual execution of a lease.

If you or your company is in need of office, retail, or industrial space in the Treasure Valley then your first call should be to The Sundance Company. Established in 1976, The Sundance Company has the experience to help you with your commercial real estate needs in Boise, Meridian, Nampa, and the greater Treasure Valley. The Sundance Company has more than 1.5 million square feet of office, retail. and industrial space available in prime Boise and Meridian locations.

Please check out The Sundance Company website to view property photos, search for office space or learn more about Sundance’s start-to-finish capabilities. If you prefer to talk to someone in person about your commercial real estate needs, then just give us a call at our Boise office, (208) 322-7300

10 Commercial Real Estate Terms You Need to Know

February 3, 2010 Leave a comment

Whether you own or rent your office space, property costs are one of the largest business overhead expenses. That’s why it’s important to comprehend the full ramifications of taking over the title to a property or entering into a lease agreement. Before you sign a lease, work with a commercial real estate broker with a proven track record, and consult with an attorney skilled in real estate law. You should also familiarize yourself with some common real estate terms:

  • Appraisal: a written report by a state-licensed professional that includes an unbiased analysis of the property’s value and the reasoning that led to that opinion. An appraisal report is required for any property sale.
  • Broker: an agent who brings together a buyer and a seller, or a landlord and a tenant, in a real estate transaction. All brokers must be licensed by the state in which they work. Most work on commission, and the landlord or seller usually pays the fee.
  • Build-to-suit: a method of leasing property in which the landlord makes improvements to a space based on the tenant’s specifications. The cost of construction is generally factored into the lease terms. Most build-to-suit provisions apply to long-term (10-year) leases.
  • Concessions: benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling, or upgrades (also called “build-outs”), and reduced rent for the initial term of the lease.
  • Escalation clause: a clause in a lease that allows the landlord to increase rent in the future. Rent increases dictated under an escalation clause may be charged in various ways, including:
    • A fixed increase over a definite period
    • A cost-of-living increase tied to a government index, such as the tax rate
    • An increase directly related to increases in operating the property
  • HVAC: an acronym for “heating-ventilation-air-conditioning” system. In a commercial building, the landlord generally is responsible for maintaining the HVAC.
  • Lease: an agreement by which the owner of a property (the “lessor”) grants the right of possession to a tenant (the “lessee”) for a specific period of time (the “term”) for a predetermined amount of money (the “rent”). A “leasehold estate” is the space occupied by the tenant. Common types of leases include
    • A straight, or flat, lease, which stipulates that the same periodic payment (usually monthly) be made for the entire   term of the lease.
    • A percentage lease, which uses a percentage of the net or gross sales to determine the monthly rent. This is most often used in retail properties and with a minimum base rent.
    • A net lease, which requires the tenant to pay maintenance, taxes, insurance and so on, along with a fixed rent. This is also called “net-net-net” or “triple net.”
  • Lien: a legal claim filed against a property for payment of a debt or obligation. If a property owner fails to pay a creditor, for example, the creditor can place a lien on the property. A lien can halt the sale of a property.
  • Sale-leaseback: a transaction in which an owner sells a property to an investor, who then leases the property back to the original owner under prearranged terms. Sale-leaseback deals offer the original owner freed-up capital and tax breaks and the investor a guaranteed return and appreciation.
  • Sublease: a lease given by a tenant for some or all of a rented property. For example, if a tenant rents 20,000 square feet but only ends up needing 10,000 square feet, they may want to sublet the extra space for some or all of the remaining term of the lease, providing they continue to occupy and pay rent for the property.

About The Sundance Company
Established in 1976, The Sundance Company has the experience to help you with your commercial real estate needs in Boise, Meridian, Nampa, and the greater Treasure Valley. If your requirements include property management, leasing, real estate development, project planning, construction or space planning then look to us. The Sundance Company has more than 1.5 million square feet of office and industrial space available in prime Boise and Meridian locations.

Please check out The Sundance Company website to view property photos, search for office space or learn more about Sundance’s start-to-finish capabilities. If you prefer to talk to someone in person about your commercial real estate needs, then just give us a call at our Boise office, (208) 322-7300