Leasing Commercial Real Estate

10 Things to Consider When Leasing Commercial Real Estate in Minnesota

1. Location, Location, Location:

• • Target Market: Identify your ideal customer base and where they are located.
  • Accessibility: Consider proximity to highways, public transportation, and parking.
  • Surrounding Businesses: Evaluate the competition and potential synergies with nearby businesses.
  • Neighborhood Amenities: Assess the appeal of the area for employees and customers (restaurants, parks, etc.).
  • Timing:  Allow yourself plenty of time when starting the process, generally 6-18 months depending on size and specifics

2. Lease Terms:

• • Lease Length: Determine the appropriate duration based on your business needs and growth projections.
  • Rent: Negotiate a fair rent considering market rates, building amenities, and your budget.
  • Renewal Options: Secure the right to renew the lease, including terms for future rent increases.
  • Improvement Allowance- Determine your construction needs and negotiate a Landlord allowance based on those needs.  The stronger the tenant and longer the term generally provides a better opportunity for a larger allowance, but not always.
  • Common Area Maintenance (CAM) Costs: Understand the shared expenses for building upkeep and maintenance.  Has the Landlord maintained the property well in the past?

3. Building and Space:

• • Size and Layout: Ensure the space adequately accommodates your operations and future growth.
  • Condition and Amenities: Inspect the building for its overall condition and available amenities (HVAC, restrooms, etc.).  Are they in good working order when the Lease starts and who pays if for example an HVAC unit breaks in year 2?
  • Accessibility and Compliance: Verify the building meets ADA standards and other relevant regulations.  Will construction changes require additional ADA upgrades?
  • Utilities and Parking: Evaluate the availability and cost of utilities, parking spaces, and loading docks.

4. Minnesota Specific Considerations:

• • Winter Weather: Factor in the impact of harsh winters on operations, accessibility, and potential maintenance challenges.
  • Property Taxes: Understand the tax implications for commercial properties in Minnesota.
  • Local Regulations: Research local zoning ordinances and building codes relevant to your business.
  • Environmental Concerns: Be aware of potential environmental hazards and remediation requirements.
  • SAC/WAC:  What additional charges will the Met Council require if you’re making plumbing changes?

5. Financial Planning:

• • Lease Buyout: Understand the financial implications of any potential early termination clauses.
  • Capital Expenditures: Budget for potential renovations or improvements required for your business.
  • Insurance Costs: Factor in insurance costs for the property and your business operations.

6. Legal Expertise:

• • Lease Review: Engage a qualified attorney to thoroughly review the lease agreement and protect your interests.
  • Landlord-Tenant Laws: Familiarize yourself with Minnesota’s landlord-tenant laws and your legal rights.
  • Personal Guaranty:  Is one required and how does this affect my personal liability?

7. Due Diligence:

• • Market Research: Conduct thorough market analysis to understand local supply and demand trends.
  • Building History: Check the building’s history for any potential legal issues or past tenants.
  • Financial Statements: Request and review the landlord’s financial statements to assess their stability.

8. Negotiation:

• • Strong Negotiation Skills: Develop a strong negotiation strategy and be prepared to compromise.
  • Professional Representation: Consider engaging an experienced and local Commercial Real Estate Broker to represent your interests.

9. Long-Term Vision:

• • Business Growth: Choose a space that supports your long-term business goals and potential expansion.
  • Flexibility and Adaptability: Secure lease terms that offer flexibility and allow for potential future changes.

10. Contingency Planning:

• • Exit Strategy: Develop an exit strategy in case of unexpected changes or unforeseen circumstances.
  • Contingency Budget: Allocate funds for potential unexpected expenses or lease modifications.
  • Back-up Plan:  Have a back-up plan in case the space your expecting to sign a lease for goes away.  This does happen

Remember: This list provides a starting point. Consulting with experienced professionals and thoroughly researching specific properties is essential for making informed decisions when leasing commercial real estate in Minnesota.