When Andrea and I realized we were going to have our first child we had a relatively clear vision of our parenting rules. After he was born, everything was documented, sanitized, and organized. Our second was born a couple of years later. Let’s just say the parenting experience with each new child is a different experience. My wife and I just had our third child a few weeks ago. A little girl named Rowan. She already has her own Netflix account.
I’m certainly not offering any parenting advice. My expectation was if I did a really good job with the first one, he could help with, and potentially just go ahead and raise, the others. As it turns out, he may be better at it than me. Honestly, the kid told me to put sunscreen on this weekend. I suppose I am just saying expectations are a funny thing with kids. Those with children might agree, about the time you think you have it figured with the first kid, the second comes along and makes you look like a total idiot.
Of course, it makes sense, every child is different—they generally respond to different incentives and disincentives, enjoy different activities, and have different experiences that help shape them.
It’s not an earth shattering revelation to suggest that kids are unique, but it shouldn’t be any more surprising to recognize that every real estate decision is, too.
I doubt it has fully presented itself within the data at this point, but the market is seeing something it hasn’t seen in several years—activity among local retail and office users. Some of these entrepreneurs are experienced, opening their second, third, or tenth location with a pretty good handle on what is required, but can be subject to complacency and faulty assumptions based off of past experience. Others are picking a site for the very first time running the risk of operating so tightly that good opportunities are missed or so loosely that bad decisions are embraced.
The point is even if you’ve been there before, the path is always a little different the next time. If you haven’t, there isn’t a Dr. Spock’s handbook for commercial real estate, but there are a few things that can be kept in mind as guideposts.
Interview Several Brokers and Hire One
The natural inclination when a business considers expansion or is opening their first location is to get online and start calling multiple brokers to ask about the various properties they represent—don’t. Instead, ask if you can meet with them for an interview to see if they represent a good fit for your project.
Bringing a broker in early in this manner yields a tremendous amount of benefit. You will get a better sense of the market in terms of rates and availability, gain access to some properties before they are brought to the public, and be provided insights that might help you shape your site requirements—not to mention the value added during lease negotiations. Real estate generally costs businesses somewhere between 6%-12% of total gross sales on an annualized basis—it’s better to know if your projections and expectations need to be adjusted early in the process rather than late.
Most importantly, you get commitment to your project and an advocate for your best interest. Never forget, when you call the name on the sign in front of the building or listed as the contact for a property online, they already represent someone—the property owner. This doesn’t mean they can’t be of assistance; they just can’t be your advocate. (For more, see http://timreamer.com/interview)
Employ a Methodic Site Selection Process
If you’ve interviewed and hired a broker—one of the very first efforts they should undertake is a site requirement survey. Very simply, the purpose of the exercise is to determine what it is your business needs in a site to be successful. In reality, it is substantially more complex and it requires very open and candid participation from all stakeholders.
Once upon a time, the most important influence in selecting a site for businesses was described in one simple phrase: location, location, location (and it drives me nuts). I’m not suggesting location isn’t important, but I am suggesting the saying is oversimplified. Location is made up hundreds of components before considering an increasingly aggressive and a disjointed consumer marketplace. In a competitive environment, a simplistic adage is no longer sufficient. Every site selection decision should be made based on a unique set of criteria related to the users’ needs including proximity to clients, building or lot size, population density, spending levels, and a host of other factors while also attempting to minimize acquisition costs. For a quick overview of some of the most important factors, read Key Considerations for Selecting a Business Site at http://timreamer.com/keysite.
Check your Assumptions
Our brains utilize experience to help us respond to dangerous situations quickly. The problem is our brain uses the exact same shortcut for most other situations as well. This may explain why you are likely to initially despise someone named Julia if you worked with an obnoxious know-it-all named Julia at your previous job—even though the new Julia is quite sweet. It may also explain how the same mistakes are made in every new location decision.
With this bias, our natural tendency is to reach a conclusion and work backward to confirm assumptions. There is safety in this approach. Little wasted time and nothing we don’t want to hear. In other words, it can be a very efficient way to reach the wrong answer. As it turns out, everybody’s parents were right. The truly efficient method is to do it right the first time, which means asking “why?” to shed truth on the issue, as tedious as it may be. Asking why over and over again may not produce a perfect answer, but it is more likely to produce a better answer.
Tim Reamer provides commercial real estate brokerage and consulting services with Cottonwood Commercial and specializes in retail representation, investment property (multifamily | commercial | NNN), and development projects. Learn more at www.timreamer.com.