Multi-Tenant Retail FAQ's

We get lots of questions on how Build to Suit Lease's work with Multi-Tenant Retail locations. Here are some frequently asked questions and answers.

What are the advantages of leasing new space, as opposed to previously occupied space?

There are several significant advantages, including:

Because the interior perimeter walls for new space are typically not existing, you lease only the amount of space you need - no more and no less.

New space is designed exactly to your specific requirements, allowing you to lease less space than you would need for an existing space that does not as efficiently meet your needs. It also results in greater functional efficiency and productivity in the day to day operation of your business.

The selection of colors and finish materials allows your space to reflect who you are, and to help establish your own business identity.

New space is typically located in areas vibrant with growth and activity, often with better roads and more convenient access for employees and customers.

The heating and cooling system for new space is designed specifically for that space, and employs modern equipment in top condition, resulting in better performance than is possible with a system that has been patched together over the years as older space is remodeled, often resulting in thermostats in inappropriate locations or shared with adjoining space, oddly split and unbalanced heating and cooling zones, and marginally effective equipment.

New buildings reflect modern ventilation design practices, ensuring a continuous and adequate supply of fresh air and a healthy environment.

All plumbing, mechanical and electrical equipment is of course new and employs the latest technology, offering quiet, more reliable operation.

The roofing system is new, ensuring that rain and snow do not mean stained ceilings and the aggravation and risk of property damage.

New space is more attractive and inviting than previously occupied space, for both employees and visitors. There are no stains, fraying or wear patterns in the floor covering; no holes, patches, marring or mis-matched coloring of the walls; no defects, fading or accumulated grime on the ceiling system and heating ducts; no musty or stale odors; no peculiar layouts reflecting years of floor plan adaptation; no cracking or potholes in the parking lot; no faded, stained or mismatched paint on the building exterior - in short, nothing that reflects poorly on the image presented by your space to your customers.

New space complies with laws governing access for the disabled, removing the risk of your becoming involved in disputes or claims arising from access issues.

What is involved in leasing and building out new retail space?

There are six main steps:

Establish the terms of the lease.

Prepare plans for the improvements.

Obtain a building permit.

Construct the improvements.

Install equipment.

Move in.

How long is your lease document?

Our lease is typically only about seven pages long (rather than the 40 to 50 pages often comprising commercial leases), and is widely regarded as a clear, concise and fair document. Although the lease is very straightforward, unless you are experienced in commercial real estate, we recommend that your attorney review it as a matter of good business practice. Because we do not employ our own attorneys for most leases, we are able to quickly prepare the lease (usually within a day or two of request), and promptly respond to any comments you and your attorney may have.

Do you charge percentage rent?

No, we do not. We believe that a tenant's success is more a measure of the tenant's own efforts, rather than a measure of anything the landlord has provided that isn't already adequately compensated for by the minimum rent. (See the glossary entry for a definition of this term.)

How long is the lease term?

Because each space is designed to the unique requirements of one particular tenant, and involves a substantial expenditure for that purpose, the minimum term is typically five years to allow a reasonable earnings period for that investment. The term may be longer for very specialized spaces, while for space that has already been improved, the term may be much shorter.

Is a lease guaranty required?

A lease guaranty is typically required only if the entity signing the lease (often a corporation or limited liability company) is legally distinct from the entity or individuals who are operating and funding the business, or if the party signing the lease is relying on the credit of a third party. Lease guaranties, like loan guaranties, are very common and do not reflect poorly on the character of the parties involved, but simply represent a means of managing risk.

Design How does the design process work?

In most cases, the process is comprised of an initial meeting with our design team to convey your requirements, resulting in a draft space plan within a day or two. This first draft is then revised to incorporate any refinements and comments that you have until it exactly meets your needs. Then the architectural, mechanical and electrical design consultants add the construction details required for a building permit and for proper construction. During this time we will also coordinate with you the placement of electrical and data outlets and other functional details.

Our goal during this process is to minimize the time required on your part to professionally design improvements tailored to your specific needs.

Do you provide help in selecting interior finishes and colors?

Yes, we provide an interior design consultant to help select coordinated colors and finish materials that are compatible with your preferences and design objectives.

How is the area of my premises measured?

We measure to the centerline of demising walls separating adjoining suites, and to the inside face of exterior walls.

What is a typical load factor for your buildings?

Most of our multi-tenant retail buildings have a negligible load factor, typically between zero and one percent. You therefore pay rent essentially only on space that you can actually occupy. (See the load factor glossary entry for a definition and discussion of this term.)

Will I have my own restrooms within my space?

Building codes generally require that you have one or more restrooms within your space.

Will I have my own exterior entry and service doors?

Yes, each space typically has one or more entry doors, and one or more rear service entry doors.

Will I have my own thermostats?

Yes, each space has one or more electronic thermostats accessible within your space, controlling only your space. You will not share a thermostat with an adjoining space.

What is your sign criteria?

Each tenant may install a sign on the building fascia above the premises area, sized to fit the available space and generally comprised of individually backlit channel letters mounted on a raceway.

How much will it cost to build my space?

This depends on the type of space, the level of improvement and finish, and the construction market at the time priced. We can provide accurate estimates of cost based on preliminary plans, followed by firm pricing based on detailed construction drawings.

How much of the construction cost will you fund?

See the information on this website for individual properties to determine each property's tenant improvement allowance. Typically, the base tenant improvement allowance is $35 per sq ft, which is included in the quoted rent. Additionally, we will typically provide a supplemental allowance of up $20 per sq ft, for a total allowance of up to $55 per sq ft.

One of the principal advantages of leasing rather than owning real estate is the minimal capital investment required, and our TI structure helps preserve this advantage by providing allowances which in most cases (for typical retail shop space) result in our funding most or all of the tenant improvement cost, leaving more of your funds available as operating capital.

How much do you add to construction costs for a developer fee?

We do not add any markup of any kind: no developer fee, no construction management fee, no administration fee, and no overhead fee. The only costs included in our pricing are direct costs that we actually pay to third party vendors. We consider our services to be an included, integral part of any lease with our firm. Additionally, all costs underlying our pricing are available for your review.

An acquaintance tells me he can build my space for much less than you have estimated.

How can that be?

For those not experienced in commercial real estate, construction cost estimates are probably the single most common source of confusion and disappointment, and can often lead to disastrous results when the real costs aren't determined until it is too late to change course. Estimates are often given freely based on incomplete plans and specifications, with no meaningful definition of scope, without verification of current labor and materials costs, and sometimes for the purpose of enticement.

Our estimates include consideration of all sources of cost, not just the actual construction. Before relying on any estimate, consider the experience and reputation of the estimator, whether it is based on a defined set of plans and specifications, and whether it includes consideration of:

Direct construction costs based on current market conditions

Any equipment or installation services that you are not separately providing

Architectural, mechanical and electrical engineering fees

Municipal sewer and water connection fees

Building permit and plan review fees

Impact fees

Who pays for the impact fee applicable to my space?

(See the glossary entry for a definition of this term.) Unless your specific use results in the levy of a fee separate from that levied on the building shell (which is rare), we consider the impact fee to be part of the building shell, and do not include any part of that cost when determining the cost of the interior improvements.

What is a grease trap, and will I need one?

A grease trap is a device, typically installed underground, which separates cooking grease from waste water and prevents it from entering the public sewer system. You will need one only if you have a kitchen and use grease or oil in the preparation of food. We can help you determine if the local municipality requires a grease trap based on your menu.

Is a grease trap available, or do I need to excavate the parking lot to provide one?

We typically pre-install several grease traps for each retail building. If you are required to use a grease trap, you simply connect to one of these existing facilities, and reimburse us only for our actual original cost.

How much does a grease trap cost?

It costs much less for us to install several grease traps during construction of the building and site than it would to excavate a finished parking lot and install a trap after completion of the building and site. Our cost (and therefore your cost) for a pre-installed grease trap is currently between $6,500 and $7,500. Let us know if you need this cost, and we can provide the exact amount.

Can I build my own space, or use my own contractor?

Yes, you or your contractor may provide for the construction of your space. However, unless you and your contractor have considerable experience with commercial construction, we recommend that you not attempt that undertaking. Aside from the substantial burden involved with the proper administration of any construction project, when compared with residential construction, commercial construction involves a different class of sub-contractors and materials, involves different construction techniques, is subject to different building codes and inspection requirements, and often has more serious consequences in the event of delay.

We have no economic incentive to provide construction services. We do not assess any administrative charge or other fee for this service, instead regarding it as a fundamental component of any lease with our firm. Our only reason for recommending that you allow us to provide construction services is the resulting assurance of the professional and timely completion of your space with no unpleasant surprises.

Also bear in mind that all commercial general contractors rely on the same limited pool of qualified commercial sub-contractors within each trade, and that our ongoing relationships with those trades ensures you of competitive pricing when using our construction services.

What is included in the building shell?

All of our buildings incorporate commercial grade materials professionally and attractively designed and constructed for long term performance. Our belief is that the shell should provide a solid foundation for interior improvements without constraining or compromising the design of those improvements and related mechanical and electrical systems. The following is an outline of a typical shell condition:

Site work is complete with all grading, paving, concrete, landscaping, site electrical and other site improvements. This includes free on-site parking typically in the ratio of about 5 stalls per 1,000 sq ft of space.

Concrete slab on grade.

Tilt-up buildings include concrete perimeter walls with exterior finish materials and unfinished interior; framed buildings include insulated wood or metal framed walls with exterior sheathing and finish materials and exposed studs on the interior. Exterior walls include tinted insulated glazing and 3' wide single-acting glass entry doors with metal frames and mullions, and metal service entry doors.

Insulated single-ply roofing system (for superior performance) with open ceiling.

Roof curbs for HVAC units with gas piping stubbed in place.

In-floor sanitary sewer main running the length of the building near the center, and cold-water main overhead.

Main building electrical panel with 208/120v 3-phase power in building electrical room.

Communications service entry at building electrical room.

Most larger buildings include a light hazard fire sprinkler system with shell heads in place, with remotely monitored fire and sprinkler flow alarm system.

How long will construction take?

Again, this depends on the type and size of the space, and the extent of any long-lead-time materials involved. For most spaces, 60 to 90 days is a reasonable allowance for construction. However, remember to allow time for preparation, review and approval of construction plans (two to three weeks), and time for obtaining a building permit (four to six weeks).

In those cases where time is of the essence, we are able to expedite this process: We can coordinate close and timely participation by all team members during the design process; we enjoy excellent relationships with the permitting agencies and can ensure the plans spend minimal idle time within each approving department; we can identify and order long-lead items early in the design process; we can employ an early-start process in which we begin construction of the improvements prior to full permit issuance; and we can employ critical-path construction scheduling techniques to minimize actual construction time.

In any event, we commit within the written lease to a completion schedule, and you can rely on that schedule as the outside date for completion - we have never failed to meet our commitment.

Can my telephone and data cabling vendors, and my equipment installation vendors,

access the space during construction?

Yes, these vendors customarily have access to the space at the appropriate stage of construction.

Construction and Costs What are the building hours?

Access to your space will be available at all times - 24 hours per day, 7 days per week. (Also see the after-hours heating and cooling question in the tenant assistance section for after-hours HVAC operation.)

How are building services provided and paid for?

As is customary, our retail spaces are based on net leases, in which each tenant either pays directly, or reimburses the landlord, in proportion to their areas, for the costs of operating the building and its common areas. Electricity and natural gas are typically metered separately to each space in each tenant's name. Other utilities (sewer, water and trash service), exterior building and grounds maintenance, preventive heating and cooling maintenance, property taxes and insurance on the building, and property management services are provided by the landlord.

visit www.principlegroup.net for more information!