First retail bakery - when looking at a new development, how much $ do *I* put in upfront?
Hello! This is a throwaway account because of the sharing of financials.

Question first: generally, how much money are landlords looking for from a potential tenant for the *development* of a new space built out to be a bakery (around 2000 sf)? (I live in a booming town of 300k people - growing very fast.)

Overview: I started looking for a retail space for my bakery several months before the pandemic, then paused until about 4 months ago in which I resumed the search.

I have had a bakery for several years out of my home that has over-reached its capacity. Ideally I would love to find a former food space, but it has been nearly impossible. 

So new development has been the main...option.

With my business plan, my capital of 150k aims to cover architects, legal fees with the lease, equipment, fixtures, 3-6 months of labor, rent, utility, and COGS expenses. Basically (hopefully) all items specific to my bakery to get it up and running.

Perhaps this is not possible, but I did not plan to pay for line items that are essentially permanent and will likely be used by the next tenant: plumbing and distribution, hvac and distribution, slab, sheetrock, etc. I assumed this to be possible with a 10 year lease and a likely higher lease rate.

The broker I work with, and the developer she works under (he is an agent and developer...loaded), both recommend I get a loan - it seems like at least a loan of 200k. 

It kinda blew me away as I thought I was already doing decently with the 150k. She said it was because I would need to pay for the development- or half of it - then get refunded. 

Does this all seem right? Am I in over my head and getting swindled by the big sharks?
[{"id": "gub5jtd", "text": "Where are you located? Might be region dependent but from what I've seen for T/I, tenant covers the costs of the improvements up front and is reimbursed 30-90 days after the door opens. \n\nPermits, hvac, electricity, plumbing, etc. Is the broker you're talking to woking for you or working for the developer? Do you have a broker or a leasing agent representing you? Might want to talk to one as they'll understand your market better.", "replies": [{"id": "gub6vki", "text": "Isn't permits, hvac, etc outside of tenant improvements?\n\nI am a bit nervous saying where - just not many bakeries here. I imagine this region is similar to what you are saying.\n\nThe broker is \"working for me\".\n\nIt was a bit odd with one of the locations I looked at (and perhaps more). My broker said she was my agent, but she also works for the company who's owner would have been one of the landlord of the spaces. Unfortunately her and one other broker are the only ones that seem to know the retail/food market and they both work for this major developer.", "replies": [{"id": "gub9ls2", "text": "Since you have a Broker working on your behalf, it is difficult for me to provide more information or suggestions as I would not want to cause a conflict. What I can say is, in my market it is common for us to represent both parties to the transaction.", "replies": [], "depth": 3}, {"id": "gubbxdz", "text": "Commercial buildings have common areas and tenant area improvements. The building will have permits for getting built initially, but the tenant (or her contractor) will have to get any permits for tenant-improvement work needed to make your space work for your purpose. Water, sewer, electric, gas, etc lines will come to your space but not be run within it (unless a previous tenant took care of that). The tenant will need to get the Certificate of Occupancy. Some landlords will give you a tenant-improvement allowance that you can apply toward your rent over a period of time or they will agree to give you a rebate on the rent over time of a certain amount that you spent. This is usually expressed in a dollar amount per square foot. \n\nBut basically, in commercial space it is typical for all expenses except initial construction of the land and building shell and common areas and major capital improvements (like a roof) to be covered by the tenants. \n\nIn this environment, everything is wacky. There\u2019s a plethora of retail space that landlords would love to get rented, but for a small business (as opposed to a national chain with good financials) they will be less excited. A bakery is also pretty specialized. If your business doesn\u2019t make it, and they need to re-let the space, having it built out as a bakery wouldn\u2019t be very good. \n\nI do personally know someone who moved their successful cake (mainly wedding) business from their basement to a space in an old building on Main Street in a cute town on the outskirts of a major metropolitan area in 2017. She spent $300,000 on the improvements to make it a bakery and tea room. She was doing well through 2019 but I have no idea what has happened since the pandemic. \n\nAnother bakery in another small town near me has been successful since 2015 or so after buying and rehabbing an old building. Before that they rented space in a different small town for over a decade. I think they have survived the pandemic by opening a walk-up window and because they do a lot of shipping. I don\u2019t know what they spent on the improvements though. \n\nI have no idea if your budget is appropriate. So much depends on your location. I do know the pandemic caused a shortage of building materials which caused the prices to go up a lot. It\u2019s a terrible time to be needing to do construction. If there is any way you can wait another year, I think costs will come down and landlords and brokers will have a better handle on the market outlook.\n\nThe commercial real estate market can be very small. The landlord usually pays the broker offering the space, but even if you have your own, it will not be unusual for your broker to have worked with the landlord previously.", "replies": [{"id": "gudavqu", "text": "Thank you for the thorough incredible write-up - especially the examples of bakeries that have done the expansion. This is so helpful!", "replies": [{"id": "gudkbb5", "text": "You\u2019re welcome. I just had another thought. Do not hesitate to go visit every business currently located in a space you would like. Many restaurants are making the decision to close or would like to after the year they\u2019ve just had. Many feel trapped mainly by their lease. You may very well find someone who would let you sublease or help them break theirs. Obviously, you need to contact the business owners, not the managers, and you need to be discreet, but I\u2019d certainly put some time into trying this approach. You never know. Any large chain will have a corporate real estate division you can go through.", "replies": [{"id": "guqf6ih", "text": "Interesting - how would you frame this? I guess I would feel offensive?", "replies": [{"id": "guqpyka", "text": "One way might be simply to ask them if they know of a space like theirs that might be coming available for rent, as you\u2019re looking for one. If the owner was already considering closing if they could get out of the lease, I could imagine them being very interested to speak with you out of the hearing of any employees. \n\nIt would probably work better if you could imply you were looking for a client of yours (Hi, I\u2019m looking for space for a bakery/business that would like to open/expand into this area. I\u2019m having trouble finding the right space.  Have you heard of any spaces that might be coming available or where someone might consider subleasing?) and leave your number in case they think about it later and become interested or in case they are busy or can\u2019t talk in front of employees. Carry a clipboard and dress like a real estate professional. I would feel okay ethically doing this as long as I did not actually say I was in real estate, only implied it, but you may not. \n\nYou might follow up with asking them if it would be okay to check back in a couple of weeks in case they think of someone.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "gube4a9", "text": "&gt; Isn't permits, hvac, etc outside of tenant improvements? \n\nIf it needs special HVAC or a permit for a commercial kitchen (that it does not have) that comes out of your pocket (typically).", "replies": [{"id": "gudaweo", "text": "Good to know now", "replies": [{"id": "gudbfvm", "text": "You can get reimbursed for this, or rent credit, etc. depends on the market and the space.", "replies": [{"id": "guqf7u4", "text": "Good to know!", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gub8o19", "text": "This could be area specific. I am in southern CA and we are currently offering about $15-$20/SF for TI for regional and national brands. With the pandemic, many landlords are leery to help with all of the T/I costs, especially when they don't know if your concept will succeed or not.  \n\nWhen you speak of \"development\" are you talking about \"ground up development\" or is the structure already in place? \n\nImprovements that benefit a potential tenant after you aren't necessarily important to the landlord. For example, because you need to install a grease interceptor for your business isn't the landlords issue, considering they don't know if the tenant after you will require one or not.", "replies": [{"id": "gudb1cq", "text": "Getting the understanding of this now.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gubb0s1", "text": "Build out will vary widely based on location and local costs/permits. \n\nThe biggest mistake I see retail tenants make on their first lease is taking a space that is too big.  Have you considered renting commercial kitchen space and opening a smaller retail location?  Good luck!", "replies": [{"id": "gubrcqo", "text": "I have considered it but do not have a need that rationalizes the cost! As a cottage baker I have more space and production than a tiny commercial kitchen.", "replies": [{"id": "gubun1r", "text": "Good for you for thinking creatively and being open-minded about different kinds of options. I wish you much success!  Cheers!", "replies": [{"id": "gudapf2", "text": "Thank you so much!! I have been doing it about 5 years and it has been really nice to grow to feeling I have more comfort in baking *and business*. It has also given me the opportunity to iterate on my brand!", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gubbd3w", "text": "Lots to unpack for costs. For reference, law firms can go anywhere from $200-$300 psf if you're not careful. I'd say that even 200k is conservative if it's a shell space and a lot of the existing MEPs aren't planned for a restaurant. \n\nI would listen to the developer on this one. Maybe not on immediately getting a loan but you can get an architect to put together some schematics for 5-10k and you'd be able to get a contractor to get you a rough quote from it.", "replies": [{"id": "gudb22x", "text": "Thank you!", "replies": [], "depth": 2}], "depth": 1}, {"id": "gube1sj", "text": "&gt; Perhaps this is not possible, but I did not plan to pay for line items that are essentially permanent and will likely be used by the next tenant: plumbing and distribution, hvac and distribution, slab, sheetrock, etc. I assumed this to be possible with a 10 year lease and a likely higher lease rate.\n\nYour entire build out cost will be basically your responsibility, along with repairs and maintenance. I would not expect the landlord to be responsible for anything except maybe the roof.\n\nThe landlord will typically give an allowance for Tenant Improvements. How big this allowance will be will depend on your market. $15-$20 per sq ft mentioned elsewhere sounds reasonable to me.\n\nGiven COVID, you have a lot of bargaining power, but not if the same landlord controls all the locations which you are looking at.", "replies": [{"id": "gudb42y", "text": "Okay good to know. It is nits to me that this is a cost of a home, yet I am not owning the space.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gubfpsu", "text": "As a retail broker who works with a lot of mom and pop businesses like yours, I can say that rarely will Landlords in my market contribute much to your improvements outside of maybe basic/flooring/paint costs ($7-10 psf on a 5 year lease) unless you at least have a proven record in the business (I.e. you\u2019re opening a second location/relocating one/etc.). \n\nEven for food service space, your specific plumbing layout/etc may be of very little value to whoever might take the space after you, and as a result, be of little value to the landlord. It\u2019s something that may not seem clear from a tenant\u2019s perspective, but the cost to build out to your specific space needs is worth much more to you than it is a landlord.\n\nI work with a lot of people in your situation, and my recommendation is always to either take your time to find a space you can retrofit cheaply, get a loan, or try to negotiate a significant free/reduced rent period.\n\nCovid hasn\u2019t hit all retail as badly as some may tell you, and if your town really is booming, it\u2019s unlikely landlords are going to be willing to put up significant money as a \u201cgamble\u201d on your business. \n\nAll that said, no harm in requesting significant TI, but be prepared to have to take on the bulk of the cost yourself. Best of luck to you!", "replies": [{"id": "gudazyl", "text": "Thank you so much for helpful information!", "replies": [], "depth": 2}], "depth": 1}, {"id": "gubobci", "text": "The cost of the buildout is going to be a factor of the rent. Meaning if it costs Them $200k to build and you signed a ten year lease you would amortize it over the life of the lease. If you have the capital/credit to pay for the buildout yourself, I think that\u2019s the smarter move as the landlord isn\u2019t going to shop around. But also, if you\u2019re going to put that kind of capital into their project you should get concessions of equal value - like free rent. \n\nBut, if you\u2019re asking for tenant improvement monies the landlord would likely just reimburse you rather than blindly pay or give someone the money outright. They could also give you the money in free rent. \n\nThere is a million ways to work the deal, it\u2019s just going to depend on what works best for you, and what the landlord is willing to do.", "replies": [{"id": "gudb89u", "text": "Now I understand why the landlord seems to be \"shopping around\". I always thought the \"amortization\" route was apples to apples. Makes sense why the capital investment is desired.", "replies": [{"id": "gufha64", "text": "If you were Starbucks they would bend over backwards because you could pay a high rate and the risk is non existent. But because your a local operator opening your first retail location it\u2019s a bit more risky, and they want to make sure you have adequate skin in the game incase things go sideways.", "replies": [{"id": "guqf9pb", "text": "That makes sense!", "replies": [{"id": "guqh0ic", "text": "If you need/want any ideas moving forward, or if you get hung up give me a holler. I know it\u2019s not the funniest process to go through but I really enjoy the negotiations.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gubsnnz", "text": "Here's a thought for you - can you find an existing restaurant to bake out of - maybe ease some of the pressure of baking from home while you either save more cash or shop for a better deal. If that's not possible, maybe hold out for a few months or so to see if you can find something. In my experience working with restaurant/bakery startups - if at all possible - try to find an existing restaurant or bakery. Saves a lot of money and headaches through the permitting process (if possible).", "replies": [{"id": "gudbbhg", "text": "Trying! Only 2 popped up in about 2 years, one swooped up by a chain and the other by another bakery.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gucl1m6", "text": "Definitely consider an SBA loan, it's designed for what you're doing. 20% of total project cost down should get it done (source, commercial finance company owner).", "replies": [], "depth": 1}, {"id": "guh28b3", "text": "I work in retail landlord rep and tenant rep. Startups with no existing locations have a lot going against them. There is no obvious proof concept so you\u2019ll need to do some selling to the landlord to get the best deal. Invest a few bucks creating a good branding deck, resume, bio, etc. and get a good tenant rep broker.\n\nFrom the landlord\u2019s perspective, since you\u2019re a startup with no existing locations or sales data from these locations they\u2019re going to try to push as much of the buildout on you as they can...especially for new dev. Your default risk is high and they won\u2019t want to put in hundreds of thousands of dollars only for you to leave in a few years and them have to tear it all out for a different use.\n\nPush to build rapport and trust with the Landlord and sell them on your idea and integrity as a tenant. I don\u2019t know what condition the space is being delivered in but $150k if it\u2019s new dev and cold dark shell is probably not enough to build out, start marketing, purchase inventory, train workers, and get you through the first year or two when your sales are stabilizing. Landlords need to know the money will be coming in no matter what...they won\u2019t want to see you spend every dollar you have and have nothing in reserve...or underestimate your costs and pull off a shoddy operation as a result.\n\nSo much of this is market and landlord dependent as well. I work in retail in the mid-Atlantic region where it\u2019s pretty competitive for and we have some of the lowest amounts of retail space per capita and highest incomes. Good luck", "replies": [{"id": "guqge7q", "text": "All great advise - thank you.", "replies": [], "depth": 2}], "depth": 1}]