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Searching for the Perfect Site and Space for Your Business – Part 2

By Christopher Seepe

Less Obvious Considerations (or things you may discover after committing to a location)

In Part 1 we talked about the importance of landlord and lease issue considerations.

Rent: I’ve lost count of the number of times a business owner has said they want the lowest rent they can get, because rent is such a high cost of their business operations. This is entirely the wrong perspective. If you knew you could generate $3 million per year in revenue if you were at the corner of main-and-main, would you not be happy to spend $250,000 a year in rent, even if the space was only, say, 2,500 square feet in size (that is, $100 per square foot gross rent)? It’s not about how much the gross rent is, but rather how much the rent is relative to your projected business income. (Of course, you’ve got to figure out what you think your projected income will be.)

Local Traffic Generators: Will companies like Wal-Mart, Tim Horton’s (especially drive-through) and other potentially high-volume traffic generators impact your business?

Property Taxes: Whether renting or purchasing, property taxes can be substantial. When leasing, these taxes  can represent 50% or more of the total “additional” rent (also called TMI—taxes, maintenance, insurance—or CAM—common area maintenance) you might have to pay.

Will your Business Impact Anyone Around You? Will your neighbours, whether commercial, industrial, or residential, react to the chemicals, odours, vermin and pests, noise and other operational aspects that arise as part of your business? How will the community react if, for example, a rehabilitation facility that assists criminals who have paid their debt to society to re-enter society was opened near a school or busy playground? What is the impact on the value of nearby homes if you opened your automobile repair garage next door?

Access to Labour Force: Can you find the labour locally that you need to operate your business? Do you need highly trained staff? Are there the appropriate schools in the area to train them?

Supportive Municipality? Is the municipality friendly towards your type of business? Are their government incentives to encourage you to locate there? For example, new graduate doctors are prized by many municipalities and will pay their full tuition fees to locate a business in their town for a guaranteed period of time.

New Developments? Talk to the municipal planners. Find out redevelopment is planned before you locate your business there. Are there new buildings or undesirable operations/services planned?  Imagine the consequences to your restaurant business If the city places a new sewage treatment plant next to it.

Rights on Title? Are there rights of way or easements—a creek, protected wildlife or plants/trees, shared driveway, etc. —that run with the land that may impact or prevent you from operating your business. There may be conditions of sale by a long ago owner that prevents certain types of uses.

Condo by-laws, Landlord Permission: Rarely considered but potentially very important, some commercial buildings are condominiums, with condo rules, regulations and a board. Will the building operator, property manager, landlord or condo community of owners—or simply other tenants—welcome or reject your business?

Building and Business Insurance: These are separate insurance policies and both are absolutely necessary. Will your insurance company insure the space or charge a hefty premium because of “perils” they see that you don’t.

Weather: Is your site area prone to specific types of hazards—flooding, high winds (even tornados), mud slides, and so on? Most people are not aware that almost all insurance companies in Ontario will not insure against external flooding.

Talk to your Prospective Neighbours: They know the very local history. Is, or was, there a stigmatism with the property. For example, was somebody murdered on or in it? Have an uncommon number of businesses failed in a short period of time? Why do they think that happened?

Local Expertise: You may think this entry is somewhat self-serving but it is not. Absolutely nothing can replace or equal the professional advice, experience and expertise that a well-established local realtor estate expert can bring to your decision-making process; their insights, local history, traffic patterns, familiarity with local authorities, how things “really” get done, and so much more. And a lawyer specializing in leases (no, family lawyers are not good enough) will keep you from falling into many of the pitfalls that new business owners regularly fall prey to.

Summary: Your location is likely to be the most important decision you make for your business. It can be your best competitive advantage or be the best advantage of your competitor.

Christopher Seepe is a commercial realtor, and maintains www.multiresidentialexpert.com, a website dedicated to providing expert advice and sharing his personal investment and ownership experiences to those investing, or looking to invest, in multi-unit residential, income generating properties in southern Ontario, Canada. You can contact him directly at cseepe@multiresidentialexpert.com

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