If you are a startup or new business have you ever been told by a landlord that they did not want to lease you commercial space? You may have gotten offended and been left wondering why they would not lease to you because the space you like has been sitting on the market for 6 months. Doesn't the landlord want to make money? Of course they do however they know that startups and first time business owners are risky as the failure rate of new businesses is over 45%. As a startup business the cards will be against you in the beginning. Landlords will be hesitant to lease you commercial space and/or give you a tenant improvement allowance if they think you are a risk.
If you want landlords to take you seriously you have to be prepared and show them how much you know your business and numbers. At the end of the day they want to make sure that you will be able to make enough money to pay the rent. Below are a few reasons why landlords won't lease you commercial space and what you can do to change that.
You Don't Have Enough Years of Operational Experience
You may have worked for a company for the last 15 years and have a ton of experience running a sales team however that does not give a landlord the confidence that you are capable of starting and running a business. If you want to build the landlords confidence that you will pay rent and be around for the duration of the lease term then talk about your operational experience. Talk about (embellish) your sales and marketing experience from an operational perspective. If you don't have much experience in operations then read a few books to brush up on terminology and best practices. You have to get creative here.
You Don't Have a Business Plan
You don't need a full blown business plan in every situation, however you need to know your industry and numbers. The landlord wants to understand your business, your target demographic, initial and future financial projections, operations, marketing plan, etc. If you are a startup knowing your market, competition, strategy, challenges, etc is so important. The more you know the business the more comfortable the landlord will fee about your tenancy. Making a first impression is key. At the end of the day the landlord just wants to make sure that you will be able to pay the rent each month. Your proforma needs to support that.
Not Enough Cash on Hand
When leasing commercial real estate you are going to have a lot of up front costs.
- At lease signing you will have to write a check for the security deposit and first months rent.
- Then if the space is not built out the way you want you will have to spend money on tenant improvements.
- Once up and running you will need to purchase inventory and hire people
- You will have ongoing electric and other monthly bills.
- Signage needed if leasing retail space
- Insurance for general liability and property
The landlord knows that you will incur all of these expenses up front. If you tell the landlord that all you have in the bank is $5,000 they will not want you as a tenant. You need to get your financials in order before speaking with landlords or they will not take you seriously. If you are relying on an SBA loan make sure to have that secured beforehand as well. The more funding you have on hand the more leverage you will have in the commercial lease negotiations.
We Want Landlords to Compete For Your Tenancy
Here at Austin Tenant Advisors we strive to provide you the best consulting when it comes to leasing and buying commercial real estate. Our goal is to educate and advise you on market conditions so that you may make the best decisions possible. We believe full transparency and insight leads to better set expectations and communication.
We have been through the process over 400 times so when consulting you about commercial real we also put on our business hat to advise you on what to prepare before we start negotiations with landlords. If you want them to take you seriously you have to get your stuff together and know your business inside and out.