Guidance on warehouse lease standard terms (TI and rent)
Hello all!

Outgrown my warehouse for the second time and need to start looking for a new place soon. My current place had a fantastic build-out and they offered a 3 year lease with early termination so I didn't bother asking for any TI credit or free rent. 

For reference I'm looking at 15-20k sqft

1 -- 

I'm looking at a few options at the moment, some of them are in shell condition -- these properties I'm aware will require 5 year minimum term. Is there a standard buildout budget I should be aware of during negotiations? Additionally, is it common to try and get 6-12 months free rent? I understand this is market dependent. 

As for the one's that are not in shell condition, what would be a standard range per sqft for TI credit on a 3-year or 5-year term? 

2 -- 

My next question is early termination clause. Is there any term a LL would feel comfortable with for the shell space? Such as after 2 years I can terminate for 6 month rent penalty. And then for the one already built out. Would your client accept a 3-year lease with minimal TI but the tenant could leave at any point with a 6 month penalty? That seems reasonable, but I understand LL's would likely just prefer tenants who stay put. 

My business has been growing rapidly and we plan to start other projects. I'm concerned we may outgrow this space in 2 years or less, but renting any more than that right now would be overkill, and building my own warehouse would take 2 years alone. So an early termination clause to give me "some" out, even if it's costly, seems like a necessity. 

3 --

Last question: I normally do not use agents and go directly to the listing agent for rental agreements as they're easy to navigate and I'd rather incentivize the listing agent to work to get my deal pushed through. I understand their fiduciary duty is to LL but I'm happy to represent myself. To make this deal go through, I would need to sublease my current unit, and it would require the corporation of my current property manager (who was also the listing agent for the property). Do you think it'd be best to loop him into the deal as my agent to incentivize him to get my unit subleased (as well as ensure the timeline lines up so there's little overlap on the leases).
[{"id": "hp4u1md", "text": "I\u2019m sure you\u2019re a competent business owners but I would think long and hard about if you\u2019re a real estate expert as well. If not, get a good broker to represent you. It costs you nothing and no you won\u2019t get a better deal going direct on a lease. Also, this is the hottest industrial market of all time. Both your early termination option and free rent are fantasies.", "replies": [], "depth": 1}, {"id": "hp4x4xs", "text": "As you mentioned, some of this will be market and class specific. In general the industrial market is much tighter than three years ago. Rates will be higher, minimum term longer, with less TI. If you were in DFW area for example, I think you'd get nothing right now. Base rent for shell as-is. TI build out amortized over the length of your lease.\n\nYou are not going to get 6-12 mo free rent on a warehouse lease, period. Retail will sometimes have that baked in to allow for business/cash-flow to ramp up, but they're just paying on the back end in higher rent.\n\n\n\nObviously there's a difference between a metal building in the trees and a tilt-up flex space in a groomed business park. As the base rate goes up you're more likely to get a TI credit but less likely to get short or flexible term.\n\nPersonally I would take a lease with a six month break fee(no TI, not a new build) others may not.\n\nI would suggest hiring an agent IF you can find one that knows the local industrial market, leasing comps etc. At 15-20k sq ft it's real $$ and the building owner isn't going to bend over just bc their listing agent gets to take both sides. Again, hot market. If you're in a rural area there may not be a broker who really knows the industrial comps.\n\nAny chance the management co has a space that fits your needs? Using the listing broker for the sublease makes sense.\n\nWhere are you located?", "replies": [{"id": "hp50ryr", "text": "Hey thanks for the detailed reply I appreciate the feedback! \n\nYes, the industrial market is tight here as well. I was actually in discussions to take over my neighbors space who was trying to re-locate, but they simply couldn't find another space other than ones that were charging 2x their current rate so the deal fell through. \n\nOk, no free rent got it lol. I didn't think so but heard people mentioning free rent for long leases so I just wanted to check. \n\nAll of these are indeed \"tilt-up flex space in a groomed business park\". Sad to hear about the flexibility... do other businesses just not have scaling issues? I'm quite worried about outgrowing my space again. Of course there's always some number the LL will take, it's just finding what it is. For example, one of the spaces I'm inquiring about probably has no AC for the warehouse portion -- I could potentially install it at my own expense in exchange for flexible lease terms. Luckily we have great cash-flow, so I'd rather spend more upfront and give us the opportunity to outgrow the space, even if it ends up potentially being a net losing play. \n\nThe agent/PM for my complex is one of the main industrial leaders in the area so I know he'd be good, though I've already had one interaction where he directly lied to me for LL's benefit. I politely called him out on it and we moved on. I understand this is just part of the game, plus his fiduciary duties are to LL anyway, but it's part of why I don't really care if somebody's fighting \"in my corner\", as they generally have their own best interest in mind anyway. \n\nI've checked everything and mentioned to them months ago I needed more space. No leads sadly. Are you saying I should list sublease with my currents places PM, or listing agent for the new place I'll be at? I was thinking even if I don't necessarily need my current places agent, it'd be wise to loop him into the deal to guarantee the place get's subleased.   \n\n\nApologies trying to keep this account anon, and I gave somewhat personal details so I'd prefer not to reveal location. I know that's terrible to do when asking for RE advice that could be market specific... but I'll say it's likely similar to DFW and pretty tight", "replies": [{"id": "hp5231a", "text": "No worries, you may get DM leads with a location though.\n\nI meant list the sublease with the existing park agent, although if they have other vacancies yours will not be shown first.\n\nHave you considered leasing 20-30k ft? You might find something with a better build out and future expansion is covered. As you go up in size options sometimes improve.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hp4yw3j", "text": "I don\u2019t normally respond to people who don\u2019t use agents.", "replies": [{"id": "hp4zhvz", "text": "Fair enough, I understand some don't but my my last 2 deals were done without them and I think they were happy to collect the double commission. I do realize it can be seen as a liability", "replies": [{"id": "hp50dxs", "text": "Your shit is very location dependent and an agent would know if you have any power at all, so without knowing your credit, your location or any bargaining power you have. Your sublease options depend on locality but often you are fucked and are on the hook for your entire lease, and your options to sublease are very dependent on what is in your lease. \n\nBut look luck navigating all this on your own. Be sure to cut your own hair and do your own dentistry.", "replies": [], "depth": 3}, {"id": "hp52cmj", "text": "You have never paid a commission to lease.", "replies": [], "depth": 3}, {"id": "hp8ec8n", "text": "Just a quick point of fact:\n\nUnless the contract specifically indicates otherwise, fees are paid by the seller/landlord/building owner.\n\nIt's not that it's a liability, but rather that there is no downside for you to have an experienced broker to represent your interests.", "replies": [{"id": "hp8ko9w", "text": "I know, it's more about incentivizing the right party to push the deal through as I've found minimal value in having an agent on my side, and prefer communicating without middlemen anyway.", "replies": [{"id": "hp8l83b", "text": "Respectfully, after 20yeras of working with small businesses, I suspect the root is the last part of your statement. It's not na atypical sentiment from small business owners, especially those who have not had good experiences in the past.\n\nAdvice: in this sub, just be upfront. You'll get some trash for it, but many if the people here have also felt with idiots in the other side of a deal. We all know not all brokers are created equally. Just speaking your truth will eliminate the perceived need for side conversations like this that distract from the issue.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hp526cl", "text": "*\"As for the one's that are not in shell condition, what would be a standard range per sq ft for TI credit on a 3-year or 5-year term?\"*\n\nWhat does a house cost?\n\nIf you've outgrown your space twice now, you should probably be looking for much larger space (or one with allowance to build additionally to your anticipated needs) or...consider, if you can afford it, perhaps, buying your own building.", "replies": [{"id": "hp53x65", "text": "I would ideally like to build my own space for the reasons you considered. Funnily enough, when I posted a thread asking for advice on building (different sub), everybody shat on me and suggested I rent lol. \n\nI'm still going to look into building instead, but the bigger issue is with permits and whatnot it could take 2 years.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hp55ng1", "text": "We are in similar situation in Seattle region, looking for same size. Market here is stupid crazy, not getting anything for TI unless we are willing to push up to 40-60K SF. We just signed an extension for another year hoping we can find a property to build on, talking with a few built to suit industrial contractors in the area but a build out shell quotes with 1-2 acres is looking at $120-150 SF all in.", "replies": [{"id": "hp567fb", "text": "Really helpful thank you! \n\nIs the $120-150 including the land? I'm also looking at around 2 acres but the land is quite expensive. I'm talking to a banker next week to ensure we can get approved. If so, I'll start talking to contractors for some quotes. My biggest issue is timing, permitting here is tough and some have mentioned it could take 2 years to complete. Are you trying to get the build finished by the time your additional year is up?", "replies": [{"id": "hp56vzu", "text": "Yea that includes the land, but there\u2019s a lot that could change the price but they just finished one that was 28K FT with 1200 sqft office, 4 loading docks and 1.4 acres and it came out to $3.5mm which is about our budget. This is with a big time developer, so going to shop around but they already have several lots ready to go, turn around is 11-15 months", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hp7ll8r", "text": "If agent is dual representation then there\u2019s a fiduciary duty to both parties. Leaning towards LL, sure but they shouldn\u2019t screw your into non equitable terms unless they fully explain to you that you\u2019re buying a turd of a deal and walk you through it. If you accept terms at that then fine, you\u2019re a happy fool (not intending to be rude) \n\nHowever in this situation you\u2019ve been lied to once. You should be very careful on how to proceed. You sound fairly savvy having done it a few times - but - if you\u2019ve never had someone negotiate on your behalf, then you don\u2019t know what you are missing. Ignorance makes a blissful fool. \n\nThere is no real harm in having a tenants agent in the deal in this scenario as it\u2019s clear you are likely to get screwed somewhere so why not have someone competent fight your corner at no cost to you?", "replies": [{"id": "hp7wjjj", "text": "Haha love that \"you're likely to get screwed somewhere\". So true. \n\nI really hate the phrase \"no cost to you\". It's technically inaccurate, and is actually a big part of why the DOJ is suing the realtor association (btw I understand this is on the residential side but it applies here as well). Buyers agents always claim \"no cost to you\", which is only true in the sense that we \"bake\" that cost into the home and it gets split between the agents. The realtor association argues that you are indeed allowed to negotiate, but the reality of the situation is that it's very difficult to do so, and even attempting to do so could piss off some parties and tank the deal. \n\nBut yeah, I've done that on my residential leases. Rep myself then ask for a credit back from listing agent, not the whole thing though -- that way they still get a higher % of the total working directly with me. If I asked for it all, then he'd simply be working with a laymen for no benefit, which is not a winning proposition. \n\nAnyway back to your point -- I wouldn't ask for a credit on an important commercial due that's crucial to my business, but when I'm gunning for flexible lease terms, I do think there could be a decent amount of value in having the listing agent try to push the deal through. These types of deals I assume are in the minority, so the LL may elect to agents advice, i.e. \"do you think I should take this tenant with a 6-month break fee?\"\n\nIt's fairly subjective, so their answer could make or break the deal. Not to mention agents are often paid off total lease amount, so if I leave early they could potentially get less and thus they may attempt to dissuade LL from accepting the deal without the extra half of the commission. \n\nAnyway, I could be completely off base here but that's my take on the situation. Does this sound like a fair assessment? Honestly not sure", "replies": [], "depth": 2}], "depth": 1}]