CHOOSING BETWEEN EXISTING AND PLANNED BUILDINGS
Most start-up businesses move into already existing facilities. Many small business owners with the means to do so choose new facilities for the features or the prestige and take out leases while the facility is still in its planning stages. The savvy small business owner will consider the potential benefits and drawbacks of both choices before deciding. “Leasing in an existing building provides the Lessee … with more [knowledge about the place] at the time new space is occupied than any other facility option. More so than in any other circumstances, the [lessee] is in a position to closely inspect both the facility and the terms of proposed leases in a number of competing locations. However, the nature of the lease in an existing building signifies minimum tenant control over the potential variables in either lease or facility. Rental rates, maintenance and escalation costs, utilities and building features are fixed or relatively non-negotiable. Landlords may vary in their abatements and finish-to-suit clauses, however their basic price structure, like that of the building and mechanical systems, remains unchanged. Of course, there are no investor implications with this option.
Leasing in a planned building contains its own mix of attractive features and uncertainties: Building features [in a planned building] will be new, up-to-date and, to a certain minimal extent, capable of adjustment to tenant need. If your lease is important enough to the developer, you may receive some attention when it comes to special requests for identification, parking, security, a prime location in the building, etc. Nonetheless, small business owners should be cautious when approaching such leases, for both the final appearance and utility of the building—as well as its costs—remain unseen and untested when the building is in its planning stages. Proposed rental rates must be examined in the light of comparable projects with similar advantages. Descriptions of less obvious features like parking, air handling systems, security, maintenance, etc., should be clear and complete. The track record of the developer making the offer should be inspected carefully. Is there a history of quality construction at the rental rate asked, or one of build for quick re-sale? Is there a reputation for good maintenance or benign neglect? Regardless of the size of the lease or the duration of the proposed tenancy, these and related questions should be probed.
In Wisconsin, buying an existing building typically is cheaper than building new. Costs vary by area to a great extent, with buildings near Milwaukee and Chicago (southeastern Wisconsin) running higher. This is true up in northwestern Wisconsin as well, near the Minnesota border (close to the Twin Cities).
Wisconsin commercial real estate has a broad mix of buildings and sites on which to build. Contact an experienced broker to help you sort through your choices.