post

One Simple Trick to Save Time and Money When Planning a Commercial Build-Out

Save Money and Avoid Problems When Planning a Commercial Build-out

Planning a commercial build-out, for any type of company space, has long been a slow-moving, somewhat tedious, game of guessing and waiting. Whether the job is for an office space, industrial or flex property, or a retail space, the process is mostly the same. In this article we will explore three ways you can save money and avoid problems when planning a commercial build-out.

At its core the build-out process consists mainly of passing of ideas between professionals. Only a small number of changes may be made by each before it is reviewed by the next. Such back-and-forth often results in a great deal of time spent on waiting rather that doing. This time could have been spent far more effectively if focused on the more essential aspects of planning a commercial build-out. Moreover, communication gaps can cause unnecessary work, frustration, and expense.

Gather Everyone in the Same Room

The first and best way to begin when planning a commercial build-out – especially if your company is preparing for a significant move or expansion –is to gather all the relevant professionals together in one room for a kick-off meeting. Inviting them to take part in an open discussion alongside your staff is an excellent way to get the project started on the right foot. This early meeting will set expectations for the project and ensure progress. This kick-off meeting is a great way to foster positive working relationships as well and make sure everyone knows each other. If it’s too difficult to schedule an in-person meeting, arrange a virtual meeting.

Review the Scope of Work

Once you have the entire team working together you need to review the scope of work. The scope of work refers to the overall construction to be completed during the project. When planning a commercial build-out it is vital that everyone understands and agrees on the scope of work. Reviewing the scope will ensure all parties understand the timing of the project, the expectations, and finances involved. You may also solicit helpful feedback and guidance from the project team during this discussion. For instance, the permitting office in your city may be experiencing delays, and the team may recommend ways to expedite the application. Without a review of the project with the entire team this recommendation could be missed. The discussion regarding scope of work will enable faster and more cohesive decision making, and simplify everyone’s understanding when planning a commercial build-out.

Schedule Cadence Meetings with Project Team

The third way you can leverage the project team is to schedule cadence meetings regularly. It is recommended to discuss a cadence frequency during the kick-off meeting to get buy in from all parties. A project without regular communication is doomed for delays, cost overruns and possibly failure. When planning a commercial build out you should consider the estimated length of the project, the key milestones, and then decide how frequently the team should meet.

Conclusion

When planning a commercial build-out the key to a successful project is communication and teamwork. Your project team must be in sync and on the same page at all times. Gathering everyone together for a kick-off meeting will get things started. Scheduling regular cadence meetings will keep everyone on track. Discussing the scope of work will ensure key details are reviewed and smart ideas are implemented. Together these tips will guide your commercial build-out project and give you the best possible chance to maintain costs and hit your timelines.

post

Explaining Tenant Improvement Work Letters

What Is a Tenant Improvement Work Letter?

The tenant improvement work letter is essentially a contract to complete construction work in a commercial space. It is generally an addendum to the lease agreement involving third parties, architects, and commercial general contractors. Unless a tenant occupies a space “as-is”, there will be a work letter defining the condition of a space when the tenant moves in. The work letter also explains how that condition will be achieved. A work letter specifies the design of a space and materials to be used. It clearly outlines who is responsible for carrying out the work as well as who will pay for it. It should specify who controls the design and construction. This can include an architect’s fees, insurance, permits, and other incidentals.

Building Standards Should Be Clearly Defined  in the Work Letter

All building standard finishes and items should be clearly defined in the work letter. This ensures a buildout is sufficient to meet code requirements. All work must be completed in accordance with construction drawings, and the work must comply with all laws and ordinances. It is also wise to include a caveat that covers liability if a latent defect is discovered during the buildout process.

Tenant Improvement Allowances Are Negotiable

Generally speaking, a tenant improvement allowance for construction is based on the square footage of rentable space. Note that commercial contractors should be calculating material needs based on the usable square footage of the space – not the rentable size. Limits need to be clear and include a buffer for the punch list. A punch list is a list of items that a contractor will include in a project. The items listed may not necessarily be part of the outlined work but are necessary in order for him or her to complete it. This list can be loosely estimated early on but by its very nature won’t be well defined until near the end of the project. All things considered, it is important to be clear about the what’s, who’s, when’s, and how’s in a work letter. This helps everyone to plan and it protects all parties against potential misunderstandings and unexpected costs.

Contact Ryan Hartsell with questions or assistance to purchase or lease commercial real estate in and around the Houston, Texas area.

post

Two Ways To Save On “Pass Through” Operating Expenses

A property owner decides what expenses get passed through to his or her tenants. Understandably, they want to get as high a return as possible on their investment. The following two methods can protect you from inappropriate pass-through expenses and save you big on your lease costs.

Ownership Expense Exclusions:

Most commercial leases say something to the effect that the landlord may pass through all expenses (or the expenses over a base year) related to the ownership, maintenance, and operation of the project. The costs of maintenance and operation may make sense to pass through to a tenant. Ownership costs are another story, however. These could include costs of refinancing, marketing the property for sale or lease, legal costs related to the ownership structure, accounting fees for ownership tax returns, income tax, and even executive salaries. Tenants should usually try to exclude ownership costs. It is wise to have a prepared list of specific items that are not allowable pass-through costs. Of course, read the details in your landlord’s lease documents. You might be surprised to find that he or she expects you to cover certain items. If it doesn’t make sense, don’t agree with it.

Annual Operating and Maintenance Expense Reconciliation Audits:

If you have excluded ownership costs to modify your lease, check that provisional changes have been notated. Be sure that negotiated caps or limits have been honored and ownership costs haven’t (mistakenly) been added. Do your due diligence! Know whether other items being charged are in line with the current market. Hire someone to do it for you if you don’t have the time or resources to audit the reconciliations yourself. Also, do it in the first year of your lease. This will establish with the landlord that you are paying attention. It demonstrates that you will not tolerate inappropriate charges. Besides, leases will commonly prevent you from challenging expenses or auditing prior years after a certain period. Insert language into the original lease that prohibits pass-through of ownership costs. And audit the operating and maintenance expense reconciliation to enforce your rights.

For additional information about lease language and audits, please refer to our blog post titled “6 Reasons to Audit Your Building’s Operating Expenses”.

 

Contact Ryan Hartsell with questions or assistance to purchase or lease commercial real estate in and around the Houston, Texas area.