“A negotiation is a strategic conflict.”
For those who have not met me yet, or heard about me, I am not afraid of confrontation. I think being direct is the easiest way to go because it ensures the message has been put out there and you can control the reactions. Obviously, that means I am completely ok with negotiations and the struggles of getting to an end point. Negotiations are your chance to seek your best-case scenario. Research, understand, be reasonable yet firm, and no matter how it ends, be able to stand proud of how you handle the dealing.
“Information is a negotiator’s greatest victim.” -Victor Kiam
Recently, we have been debating another location for our stores, which means, negotiations all around. Free time does not sit well with me, so I am up for the challenge. That said, our current stores are mainly located North of Pittsburgh, PA. We have decided to venture out, and look in the city of Pittsburgh for a location to increase our brand awareness. We visited multiple spots, Shadyside, Lawrenville, the Strip; but ended up narrowing the search to 2 locations in Southside. Some due diligence later, 2 became 1.
So, fast forward, we are now going into negotiations for this spot with the current realtor and landlord. To start, since this was not the only spot in Southside we visited, we came into the conversation knowing what else was on the market; comparables; as well as basic perks of this particular site. We witnessed more than once the daily traffic, the foot traffic outside, the parking situation and honestly, the distance and visibility of potential future competition. Our final landing spot was a corner spot, 2,200 square feet, and previously gutted by the landlord from the prior tenant. (If you are not familiar, that means the landlord took the space back to basics, which after a few buildouts now, I can tell you that is a good place to be). The only exception I have come to realize that is better than gutting, would be if the prior business was in a similar line to yours, such as a coffee shop to coffee shop or ice cream to ice cream. (Side note, I have also learned to look for our most expensive parts of a buildout, to be currently present. We use a lot of water and need drains, so if a hair salon goes on the market, I am going to visit.)
I will recommend discussing numbers with the realtor and landlord before bringing a contractor or architect in. Basic fundamental rule…
· Do not take a spot that makes you nervous paying the monthly rent, bad start, especially if your first time around. I can honestly tell you, rents today do not phase me as much as when I started. You have to understand the numbers. Is CAM involved, if so, how much a square foot and what does it include? Are any leasehold improvement credits available? Is rent more expensive at one spot versus another, but traffic also doubled at that spot. Location matters. Remember that you have a marketing budget, being highly visible could decrease the amount needed in the budget due to the free publicity you have gained from location.
We selected a spot that was a bit higher than our original budget, but due to the amount of exposure the spot had, we would be able to recoup it in sales. Therefore, we proceeded and asked for an intent to lease. Review an intent to lease before bringing in a contractor or architect, especially if they are charging you for their time. You do not have to sign it yet, but here is what I would recommend...
· Is the rent what you discussed?
· How much does the rent increase annually? Do you feel comfortable with it?
· Is CAM present? Reasonable?
· Are any leasehold improvement allotments present?
· Term of lease?
· Security Deposit Requirement?
· Free lease period during buildout?
· Additional fixtures/work being done prior to possession from landlord?
· Parking allowance?
The more questions you ask up front, the more comfortable you will be with the lease. After review of the letter of intent, we were comfortable enough to bring in a contractor, or two, to look around, talk about your thoughts for the buildout, and be sure they agree the spot is in good shape, easy to convert, easy to work with. Good contractors are priceless, they can give you an immense amount of knowledge in a twenty-minute tour, I always recommend having them visit BEFORE signing a lease. We completed this task, got good feedback from the contractors, and felt comfortable enough to discuss final changes to the letter of intent. I will add, before going back to the letter of intent, we made sure bathrooms were ADA, drains would be an easy addition, the basic building was in good structural shape, and building codes/permits would be able to be granted. An easy example if you were trying to build over an old gas station, or convert something deemed a historical landmark, issues will arise, know them up front.
We now revisited our letter of intent. We asked for a $200 per month reduction in rent payment (mainly because the buildout needed a floor, and floors are expensive). We also asked for a tenant allowance due to the age of the current bathrooms on site. I personally do not do personal guarantees, so we needed that clause removed. Finally, our landlord wanted a $15k security deposit, over three times our monthly rent amount, so that will not happen. We are going to be putting easily $100-150K into the building, that is our security deposit, besides possibly a month’s rent.
We submitted our changes, and now, negotiation continues. We got what we asked for, with exception to the security deposit. In our situation, that is a reason to walk away. Since they did not realize it was our final attempt, our negotiations are still ongoing, but for me, if a decision is not made to make it a month’s rent, we will leave the deal and move on. Understanding when to walk away is an amazing trait. Do not get emotionally invested in property you do not own.
I will mention, before we entered the lease negotiations, we were fully aware of the potential buildout costs we would be incurring. Do not sign a lease without having an idea of what your costs will be. If you run out of capital, a project delay could be detrimental. I would also caution that you understand what you are responsible for within the building versus the landlord. No matter what, get everything in writing. It is sad, but the days of the handshake are gone. Do not let your wallet, or financial livelihood, pay the price because you were afraid to ask questions.
So, in summary, your negotiation strategy should consist of:
· Have a strategy. Do not assume it will work its way out. Understand what you need.
· Have non-negotiables. Do not settle for something your business cannot do without.
· Ask. If you want it, ask for it. You get nothing if you cannot at least do that.
· Listen. Though I am on your team, hear out the opponent.
· Be reasonable and understand there is middle ground.
· Know when to walk. Sometimes, you cannot get there. Walk – there will be other opportunities.
“You do not get what you want, you get what you negotiate.”
Until next time, happy findings!