Maximizing Success: How to Choose the Ideal Location for Your Business
You have a dream to be your own boss. You have decided to go into business for yourself in Los Angeles. Great! Where will you set up shop? You want the perfect space, in the best location (West Hollywood on Melrose Place, Beverly Hills on Rodeo, Hollywood Boulevard) on a main corner. Location! Location! Location! You want parking, and of course, a brand new building, and especially a great deal on the rent!. It’s good to want things. Now, let’s get real. The best in properties, like everything else, is expensive, very expensive, and money doesn’t grow on trees. Thankfully, you have options. Creative financing, Small Business Association loans, Cal Vet loans, Term loans, and/or Business Lines of Credit.
Your business plan provides for a certain budget. You have run the numbers, and you decide you can afford something in a high to midrange neighborhood. You have done your homework on Loopnet, and you’re probably getting frustrated and want to quit before you start; take a deep breath. Let’s process all of this together. You and Me (your trusted Agent).
I’m going to ask you for your financials before I do any work for you. Consider it a prequalification. Any landlord worth their salt will require you to prove you have at least 3-4 X the monthly rent as cash on hand, as well as enough funds to build the space out to suit your business, and of course a nice reserve. Understand that higher-end neighborhoods may require even more securitization as competition can be fierce for prime locations. They’ll probably request your tax return and bank statements.
Our next step is to set up your property tours. This is the exciting part…what’s on the market. Allow your imagination to run wild just thinking about your potential. Do you feel shivers? OK, maybe it’s just me. There are many factors to consider. Where do you live, and how much of a commute do you want? Do you really need main street frontage or better yet,a hard corner location? OR is your store a destination, so you can choose a side street, around the corner from the frenetic pedestrian traffic and save thousands of dollars per month.
There are different qualities of shopping centers around the City of Angels. From Class A, newer developments with all the amenities, and full service shopping malls. According to the Building Owners and Managers Association (BOMA), they’re the “most prestigious buildings competing for premier retail users with rents above average for the area. Class A buildings have high-quality standard finishes, state-of-the-art systems, exceptional accessibility, and a definite market presence.”
To save a little money, it may be wise to consider a Class B property. Perhaps it’s a little aged building with some deferred maintenance about it, but maybe it has a parking lot and maybe it has an anchor tenant (like a Grocery store) that will attract people daily. There are Class B properties around town that are perfectly nice. “The majority of Class B buildings are often found in the suburbs or on the edge
of large financial districts,” according to The Balance Small Business. These properties need some work, but they are clean and in good locations.
Sometimes, you can find Class C properties in the locations with the most foot traffic. Class C properties are oldies but goodies, think of older neighborhoods such as Los Feliz, Silverlake, or East Hollywood in Los Angeles. Most cities have similar type neighborhoods. If management maintains the roof and structure and the air conditioning units are working efficiently, these properties can be attractive. In fact, Class C is the most prevalent of all types of buildings in Los Angeles. “If you’re a small business on the prowl for enough room to fit a few desks and a coffee pot, consider renting affordable, functional, no-frills Class C space. It’s worth noting that you can often make tenant improvements to upgrade the space,” states Squarefoot.com blog.
You’re likely not going to want a class D, and class F doesn’t exist (or it’s condemned).
Please be careful to understand lease types. They are much more complicated than residential rental agreements. The powers that be assume that you, as a business owner, are more sophisticated than the average person looking at real estate. Lucky you! As such, you need to know your stuff, or at the very least, do some homework and read this blog and hire a good commercial real estate agent that specializes in retail leasing.
Just know that there are different kinds of leases (Triple Net, Gross, and Modified Gross), and they all concern what expenses the Tenant will pay “on top of” the base rent (ie: building expenses, pass-throughs). There might be a lot of expenses, but usually they are limited to taxes, insurance and maintenance.
Lastly, know what you are allowed to do and not allowed to do. Understand the city requirements (zoning and parking) for your business. Signage, parking, hours of operation, even noise and visuals parameters. The sign can’t be 20 feet tall and you may not have exclusive access to the whole lot or even any specific parking spots. I know, I know, you want to park right in front of your storefront, and you might not be allowed strobe lights to bring the customer’s eye to your store. Ultimately, you’ll just have to rely on your excellent standards of service and products to get and retain business.
This information is a good start to an exciting and profitable new venture.
Contact David Kirsch at Commercial Brokers International for more information.
@kirsch_cre, david@cbi-commercial.com