How to Secure a Building in a Tight Market
The current commercial real estate market can be described in one word: tight. The supply of buildings is low resulting in low vacancy rates and high demand. When you are trying to secure a building in a tight commercial real estate market it is important to have a few things in mind; have a strong offer, provide as much information as possible, and offer a tour of your existing facility. Your offer should stand out amongst the others if you implement these three items.
The first recommendation on securing a building in a tight market would be to submit a strong offer to the listing broker and the building owner. This is becoming more and more critical because the supply of buildings is extremely low, while demand is rising. The owner will be receiving a lot of offers on the building, so to have your offer stand out you want to come in strong. What does a strong offer mean? A strong offer is one that comes in at or close to the owner's asking price and lease term, your use is acceptable for the property, acceptable tenant improvements, etc.
From firsthand experience, I recommend coming in strong when you are trying to secure a building in a tight market. I have personally been experiencing situations where a strong offer is a must. I submitted an offer for my client to lease a building that came on the market that same day. The listing broker informed me that he received another offer on the building, however my offer stood out more attractive for the owner because I came in "strong."
The second recommendation when trying to secure a building in a tight market would be to provide as much information to the owner as possible. Information in this scenario would be annual business tax returns, company history, and financial statements (profit & loss and balance sheet). In a tight market, you want to provide this information when you are submitting the offer to the owner. You should not wait until the owner asks for this information. It is almost becoming a must that this information should be supplied when submitting an offer. One reason that it is important to supply all the information immediately is because if the owner is considering an offer and is waiting for financials, he might receive another offer that is more attractive and supplies the financial statements, tax returns, and company history. You want your offer to stand out amongst the others the owner may be receiving.
Financial statements and tax returns are a huge part of securing a building in a tight market. A tight market with little supply of buildings and high demand for buildings is an owner's market. Owners can be more "picky" and selective in this situation. They want to have the tenant with the best possible financials and credit score they can find. In a tight market, owners have the luxury of passing up deals that they might have taken in a slower market because they know eventually a strong credit tenant will come along. I hate to sound like a broken record player, but again this is why it is extremely important to have financials prepared and ready to go when you are trying to secure a building in a tight market!
Offer Tour of Existing Facility
The third recommendation when trying to secure a building in a tight market would be to offer the landlord and listing broker a tour of your existing facility. Providing a tour of your existing facility is important in a tight market because if your financials are not the best and/or your use might be questionable, then this gives the landlord a better idea of what type of a tenant you might be. The owner would be more likely to change their mind by seeing your operation in person rather then having you or your broker try to paint an image in their head. I have seen deals made because the prospective tenant allowed the landlord to look at their operation and get a better idea of what type of tenant they would be. Offering to tour your existing facility not only gives you a better chance at leasing the building, it also gives an owner peace of mind.
In this current tight commercial real estate market there are a few key elements that might help you secure a building. I have found that having a strong offer, providing as much information as possible, and offering to tour your existing facility has always increased your chances in securing a building in a tight market. Owner's have the luxury right now to be very selective with their tenants, so you want to make sure that your offer stands out compared to all the others.
Finding a building in a tight market is extremely hard. Please call or contact me if you are currently looking for an industrial warehouse in the Los Angeles and Orange County areas. I would love to help you and your company find their next location.
-Kevin Romano, INCO Commercial Brokerage, Senior Associate
(714) 521-0800 Ext. 2