My youngest son, Emmett, is just a little over a year old. For a few months now, he has been playing with shape sorting toys. You know the type—a cube or table with a series of holes and corresponding blocks. Given his age, he doesn’t have a mastery of which shapes fit in which spaces…and this makes him very angry. He switches, rotates, and otherwise tries to force the shapes in, but they just won’t go. Whose fault is it if a square peg doesn’t fit into a round hole or a triangle doesn’t fit into a rectangle?
Commercial real estate can be a slightly more complex puzzle filled with more variables than four shapes, but the principle remains the same. Landlords, tenants, purchasers, and sellers are all constrained by a clear set of parameters.
For property owners and tenants, it’s not just the four walls that define the property. In other words, commercial real estate is more than just a shape. Parking, access, signage, traffic, neighboring uses, and visibility among a myriad of other components contribute to determining the best use and market value. Each of these six primary factors is comprised of a slew of additional sub requirements
As a quick example, a national restaurant chain typically requires 10-20 parking spaces per 1,000sf, 14’-16’ ceiling heights, 1 ton of HVAC per 125sf, a properly sized grease trap, with traffic counts exceeding 20,000 cars per day. Access to the property cannot be blocked by traffic at a signal light even though a signal light is preferred. More often than not, a drive-thru is a requirement. Neighboring businesses should be complimentary and, of course, cannot have restrictions against any menu items offered by the restaurant. The majority of workers and residents within a 5-minute drive time should fall within a range of 18-45 years old with an income above $30,000 per year. This is generally considered before the property is scored, sales potential determined, and lease or purchase negotiations begin. If it’s a local restaurant, the criteria isn’t as stringent, but you’d better have a hood in place.
It would be fair to think I am making this sound more complex than necessary to make a point—I’m not. Every sector has its own set of requirements equally as complex. Industrial is generally concerned with workforce, interstate proximity, infrastructure, and ceiling heights; office users focus on size, layout, appearance and amenities; and retail uses many of the same requirements as restaurants with different ratios and demographic requirements. The point is a lot has to be right for both parties to create a fit.
It’s part of the broker’s job to help coordinate that fit (more on this next month). Keep in mind, when a new property is brought to market it is generally listed on a database in the form of the MLS or its commercial equivalent like CoStar and LoopNet. New listings are reviewed by the entire commercial real estate brokerage community, or at least those that specialize in the property sector represented, to determine the viability of the new offering for their clients. Economic incentive would require as much. So, when a property isn’t getting attention, it’s generally not because it’s being ignored by your broker, but by the entire brokerage community. It’s not personal; there just isn’t a need at the time or there are better alternatives.
Both the shape sorting toy and commercial real estate are solved by time and effort. It’s no less frustrating for all involved in the moment, but given enough of both, the right fit tends to be produced. Still, when a square peg doesn’t fit into a round hole, neither the peg nor the hole is to blame. It just doesn’t fit and it doesn’t matter how hard you push because it’s not just a shape.
Tim Reamer provides commercial real estate brokerage and consulting services with Cottonwood Commercial and specializes in national retail representation, investment property (multifamily | commercial | NNN), and development projects. Learn more at www.timreamer.com.