First Commercial Transaction

[Naeem Kapasi]

Hey BP Nation,

A good friend of mine reached out to me and want me to represent him as his real estate agent when trying to rent a suite in a brand new commercial neighborhood mall. 

He is a doctor and wants to start his own clinic, and has found a location he is interested in. I have talked to my friend and asked him how long he plans to stay there for, he is ok to start off with a 5 year lease with options for another 5 years, but mentioned that if possible, he would not mind consider a shorter lease as long as the price stay the same as the 5 year lease.

I have never done a commercial lease transaction before, and am therefore reaching out to your brains and knowledge.

I am going to call the landlord's agent and ask him about more information. What questions should I prepare for the call?

So far, I am planning to ask the agent these questions:

• 1.What Type of Commercial Lease is Being Offered?
• 2.We are interested in around 1500 sqft.
• 3.How much will rent be per sqft?
• 4.What is the minimum years of the lease contract for this price?
• 5.What services are included in the CAM fee?
• 6.What fees are subject to the lease?
• 7.How much will the landlord put in as finishing costs for a doctor clinic?
• 8.Are the Terms of the Commercial Lease Negotiable?
• 9.What Insurance Coverage Does the Lease Require?

Am I missing any important questions?

[Taylor Hazard]

Hello Naeem,

Great that your asking the questions, and your list is generally right on the money. I would first suggest, in the interest of your client/friend, that your find a local office tenant rep broker and refer the deal to him/her to run point on negotiations with the landlord. You would not doubt stay involved for the comfort level your friend has with you but there are a wide variety of nuances with any commercial lease that would dictate the need for someone who specializes in the product type. For example, there are no real hard answers to most of your questions. 

For example, if i was on the listing side and a tenant rep broker even asked me questions 3, 4, 7 & 8 I would know that I wasnt dealing with someone familiar with the product type and therefore what is considered "market", so i have already gained an advantage.

Additionally an office broker might have a pre-existing relationship with the landlord (familiarity) or the listing agent, which makes the transaction smoother. 

If you go it alone, rather than add to your list of questions I would recommend that you bone up on the various terms and, clauses and offsets regularly used in office leasing to help best achieve your clients goals.

For example, when dealing with tenant improvements (item 7), the landlord might say "I wont pay for any TIs". in which case you could offer 50% rent or free rent for X number of months if the tenant  pays for 100% of TIs. 

This raises another point, i'm not familiar with the Houston market for medical office space but I would say it is reasonable to expect 1 - 3 months of free rent (where tenant pays an NNN expenses during free rent period) on a 5 + year lease, but that those free months will be tacked on at the end (I.e. 60 + 2 month term). My first offer might be for 5 years with 4 months free rent to offset moving costs etc.

Good luck!