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  • Writer's pictureAlan Lupiani

Commercial Leasing - LOI, ROI, WTF?

Hi Commercial Lease Seekers!

Commercial Leases are being signed faster than you can say, "How may months free was that?" Business owners are taking advantage of the pandemic plunge in commercial vacancies and are on the hunt like a wild game safari. I have experienced this first hand over the last month. Navigating the commercial lease jungle terrain can be like taking a first walk on Mars for many first time lessees.





I compare the commercial lease experience to playing a game of Tetris. You just have to keep your bundle of pixels going until you can get to a satisfactory result. There are many ways to address the range of cost and pricing variables involved in commercial leases, but the first part of getting there is simply understanding the terms, conditions and process of a commercial lease. I won't get into all the variables here in this post, but I have shared a letter below to a customer who is starting the process of making an offer on a commercial lease. I can expand on all of these topics in future posts. This may be a good way to help you understand the first part of the process.




LETTER (in part) TO COMMERCIAL CUSTOMERS

"Now that both of you have seen the space, the next steps will involve assessing your overall financial situation and future profitability in the near term (next five years) in order to make an offer for the space.


To do this, I suggest focusing on your income statement and how it matches up with the possibility of leasing the space. If you can conservatively project earnings that will meet and/or exceed your objectives based on your ROI (return on investment) for the next five years (lease term), then leasing the space may be a possibility.


Estimated ROI (Return on Investment). Assessing the many projected cash outlays (negotiable) to make the space functional will help.


These costs include:


Building specific improvement landlord:

assessments of the : 1)roof 2)electric 3)gas 4)sidewalks


Administrative:

1)architectural plans 2) Lawyer fees 3) Building expeditor permits with city


Demolition:

1) Labor cost/days required. 2) Hauling costs 3)Permits 4)Asbestos additional remediation


Buildout:

1)Construction costs including: materials, labor, permits, electric, gas, plumbing, tiling, roofing


Taxes/Insurance:

1)Yearly Real Estate Taxes 2)Liability Insurance: $1M personal and advanced injury $2M general aggregate.


Rent:

1) yearly rent 2)months free for buildout 3) months required up front to secure the space

4) yearly escalations.


Based on this brief overview, my customers can now begin the process of analyzing their business model to see what they should offer as a starting rent in their LOI (Letter of Intent) to the landlord. The second half of this letter (not printed here) addresses different offering models that may win a landlord approval and set the tenant up for a positive long term leasing solution. If you would like to know more about these strategies to successfully obtain a commercial lease, please feel free to contact me at alan@modernspacesnyc.com or call 917.613.8135 and we can get the ball rolling.


Now is the time to lock up a solid market rate commercial lease!






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