Do you understand leasing in commercial real estate? In this edition of the Champions DFW Commercial Realty Radio Show and Podcast, Jim Kelley welcomes Rudy Janecka to lend his expertise and help us understand leasing. Rudy is the Director of Retail Services at Champions DFW and a veteran in the commercial real estate industry.
To better understand leasing, read this excerpt of their conversation before listening to the podcast…
Jim Kelley: I think some prospective tenants or people trying to negotiate leases don’t necessarily understand the process. It can literally last from weeks to months. I’ve taken 8 to 12 months to negotiate a lease. Again, both sides impact how quick or how rapid that lease process moves along. Rudy, won’t you start us off with kind of some of the first steps that you take in helping a client secure lease space.
Rudy Janecka: Right, wrong or indifferent, having been on the corporate side it’s a very micro-managerial environment normally on site selection. There’s usually some market planning folks involved in a strategic forward thinking, as Jim indicated. I ask a lot of questions on what their intention is and what they think their customer base is. Who are they trying to reach? Are they trying to do daytime, lunchtime, evening business or all of the above? Things like that to ask them to just get the idea from a higher altitude what they’re looking for. Then you can start narrowing in on the size of the space that they need. Sometimes we have to help them understand that they may need more space or they don’t need as much space. If it’s an opportunity to have a drive-through on an end cap lease space or something, we’ll discuss that as an option and if their business supports a drive-through. Things along those lines.
A lot of times we’ll tour the properties after we can identify a short list that meets the criteria that we’ve discussed. Sometimes that’s with the client themselves. Sometimes that’s with the corporate folks if it’s a corporate deal or the franchise representative if it’s a franchise deal.
Jim: There are times that we even preview space on behalf of clients, because clients have a short window of time sometimes to look at space. Really a lot of the heavy work can begin on the front end of a lease negotiation because we want to make sure that we identify what the client’s requirements are, understand it fully before we go hit them with five spaces that may not work for their business. It’s very critical on that. After we tour, Rudy…
Rudy: Having worked in, like, 40 states like I said, having a strong broker that is able to do the vetting out of sites and give me a short list, it helps all of us be more successful.
Jim: What do you do, Rudy, after you start? Let’s say you get a list of three, four or five properties for a client. Where do you go from there?
Rudy: The next step is normally going and entering into what we call a letter of intent or an LOI, which is a document in writing that’s typically not binding like a contract would be. However, it’s more of a handshake agreement or gentleman’s agreement. Most of the time, you’ll try to knock out the key terms of the deal, the amount of the rent and the duration of the lease, things like that. If there’s any sort of use requirements for your business, you try to knock that out.
Ron Taylor – show host: What they can expect, things like that.
Rudy: Yeah. Basically the way I look at it is things that would cause a delay if you were to come to a conflict in the contract. I try to get done in the LOI stage so that you can always go back and say you agreed to it in the LOI, why are you not agreeing to it now? That’s, again, to save time for the tenant and the landlord.
Jim: Creates a smoother transition.
Rudy: Absolutely.
Rudy: That LOI will normally identify the space, etc. It’ll go back and forth a couple of times normally, sometimes more, sometimes less between the landlord and the tenant until the terms are agreed to. At that point, again, from the national side or the franchising side normally it has to go through a corporate approval process. At that point with a signed LOI most brands or national retailers will allow it to be presented for the official approval by that company or committee. After that then once the deal gets approved the next step is to go to the lease phase which we talked about.
To further understand leasing, listen to the podcast below.
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