Adventures in leasing a retail space

Jewelry Discussion
1

Hi All -

The following story is true. No response is required. It’s as much a
cautionary tale as it is therapy. Take it for what it’s worth. It
makes me feel better to write about it; some of you may learn from my
experiences; some of you will provide me valuable insight with your
comments.

After igniting a firestorm a few months back over the advisability
of having a traveling repair business, I decided that I should look
for a fixed retail space outside the home.

Lo and behold a very local site became apparent. It had been there
for months; I just didn’t have the world view to see it.

Well, that one died quickly due to owner’s refusal to see the
writing in the county building code about parking requirements. As a
former engineer, I knew how to read the county code, and knew it
would cost upwards of $5000 of someone’s money to get stabilized
parking in place. And that’s before you get the permission to apply
for a occupational license. Owner didn’t agree, so I didn’t sign a
lease.

More searching, then another location came into my view. Again, one
that had been there since last year - I just didn’t need to see it
until now. I got a locally well-known commercial realtor to represent
me and we’re offf to the races on trying to rent this space. (It’s
been empty for 3 quarters; consider the economy; maybe I can get an
affordable retail location.)

The more I’m involved in this, the more I realize that it’s the
subtle details, not the gross details that can make or break a deal.

Owner’s realtor is a nice guy but vaguely clueless(?), details of my
emails go unacknowledged, owner micromanages (if he’s out of country,
the deal comes to a screeching halt until he’s back for a few days),
NO concessions are made to me (repair of back door, improvement of
front door for security, trash furniture removal, any other similar
request). Also, Owner inherited the building and only owes taxes and
insurance, doesn’t really need rental income. I realize that: 1. I
will have to foot the bill on ANY improvements I make to the retail
space, 2. management company has a lily liver and will never act in
my defense, 3. owner doesn’t need the revenue generated by a paying
renter.

I opt to pursue the lease because I really want to work for myself,
and a diamond dealer I know looked at the location and said, “You
will make money here.” My realtor begins negotiations.

Because of his local reputation as an honest and forthright dealer,
he secures a VERY good rent for me. However, Owner’s realtor catches
Heck because of that. Not only is a security deposit (1 month’s rent)
required, but also 1st and last month, up front. I say that I can’t
afford that (ie, can’t justify putting that much money out of reach
for the next 3-5 years). My realtor passes that on to Owner’s
realtor.

Two weeks pass (Owner is out of town, nothing can happen without his
approval); I’m almost ready to move on. Finally, a Lease is
presented to my realtor. He forwards it to me, we read it
independently then compare notes, agree that I can live with it given
my financial requirements. (Only a security deposit is required, it’s
a 36-month lease including escalating rent each year, with possibly
24 more months at higher rent.) A date is set for me to sign the
lease and get the key.

(Note: the place is a mess, garbage carpet and furniture have to be
removed at my expense, front door has to be replaced at my expense,
renovation at my expense.)

The fly in the ointment - effective date is 1 June 2009. I receive
key with written approval that garbage carpet and furniture can be
disposed of by me, and the date of signing the lease is 18 May 2009.

From 2pm on 18 May until 4:50pm 19 May I go in there and get rid of
garbage, start to clean and repaint, buy wood trim and flooring that
will make the place an upscale jewelry repair location. Then I get a
call from my realtor that the Owner didn’t like the lease and won’t
sign it unless I pony up another $1300 (first and last month’s rent).

This is like getting married: you are not really married until you
say “I do” and the groom says “I do”. It doesn’t matter how many
people are in the church, or how much you have spent on the dress,
invitations, catering service, etc; until the groom says “I do”, you
aren’t.

So now (unless something changes by 10am tomorrow), I have to cancel
the safe, the security door, new phone service, business cards,
electric and water service, day-laborer for getting the carpet out,
floor refinisher, re-direct the delivery of the showcases and custom
business signs, cancel the credit card service, find a place to store
the flooring and showcases, and swallow my pride and not give
two-weeks notice to my current employer. And I still have to find a
place for a repair shop.

Thank goodness I am not 20 years old (no experience with
disappointment), and it’s not the worst smackdown I’ve ever endured
(cancer). All that experience with faithless suitors in my youth
finally comes to fruition: I am able to walk away from a bad alliance
with only a little social and financial loss.

Tomorrow is a new day. Owner may relent. Or maybe not. All I’m out
is a lot of hope, 1 gallon of paint, several gallons of diesel for
the truck, delivery expense for the showcases, long-term loan of my
downpayment to the safe company to store my safe, and about 6 weeks
of efffort. Other supplies can be used at new location…

Bottom line - look at the effective date of the lease. It’s not
yours until that day, even if you have key in hand. Make sure owner
has signed before that day. If there are lots of little stumbling
blocks along the way that are not directly attibutable to you (your
ability to plan ahead, your finances, etc) then start making a backup
plan. Maybe you don’t need to deal with the subtle day-to-day erosion
of your psyche.

This is an arbitrary world, and it’s up to YOU to decide how you
will deal with it. It’s your choice - choose wisely.

I hope that I have chosen wisely. I’ll let you know shortly.

Kelley

2

Sorry to hear about your rental travails. However three months up
front on a commercial lease is pretty typical. It just needs to be
budgeted into your start up budget. It’s not a question of tying the
money up for a few years. If you continue to stay in the same
location, it is tied up permanently. It’s just a cost of getting a
store running. Which is not to say that in this current economic
climate you might be able to find some other deals.

Daniel R. Spirer, G.G.
Daniel R. Spirer Jewelers, LLC

3

i think the commercial retail lease market is going to do what
residential did recently as is being predicted by many higher ups in
the economic world… Try reminding the owner about the impending
train wreck and remind them youare a stable & good tennant ! who
knows if the owner gets hungry they might offer you rent to own

goo

4

Kelley

You’d lose a good location over 1st and last months rent? This is
very typical in renting a space. You’re going to have a LOT of
expenses in opening but 1st and last months rent is normal.

1st months rent should pay for June so it should apply to this years
expenses. Last month means you’ll have TWO security deposits. I had
to also give away deposits for the electric company and phone many
years ago.

Unless you find another spot that’s really good, you might miss a
good location.

I hope you don’t find out that you’ve rented another place and it
doesn’t have the traffic, then this place would seem like a steal.

I know you didn’t want a response, but location, location, location.

Sincerely
David S. Geller
JewelerProfit

5

Normally, commercial space is leased in white box condition. But
that applies more to high roller tenants than the self employed.
Concessions are often made, including a fit out allowance in those
situations where the money talks.

It sounds like your rent is to be 650? Excellent low dollar rent.
Especially given the 3 year/2 year term. Worth any frustrations and
hoops you may have to go thru to get it. (assuming the location is
indeed good. And be very careful about judging that). At a low dollar
amount the landlord would naturally be reluctant to dump money into
it before leasing. Renovation (fit out) is usually renter’s
obligation. This is good, you control the cost.

I looked at a space once… great ongoing renovation of an urban
building, half leased. I had my choice of 3 spaces. I was excited.
Until I talked to the contractor doing one of the leased spaces.
Seems the landlord required the renter to finish the basic
construction which included all interior walls, ceiling, routing
power 150 feet from the main box, meeting fire codes etc etc etc. If
I recall the bill would have been in the area of $30K before I could
even think about doing MY decorating and fit out.

I mulled it over a long time. Came to the conclusion that what was
happening was the landlord was using the first tenant in each new
space to do HIS construction. Cutting his cost basis so he could flip
the building. So all the unwritten promises made would have been
worthless.

The most important aspect of your business is your lease. It can
make you or break you. In this economy you should be able to line up
several locations and make a choice rather than jumping at something
because its all you think you can get.

I think the best single bit of advice I could tender is… don’t let
dreams get in the way of reality. The seduction of dreams dissipates
quickly, reality has a way of lingering, sometimes festering.

6

Commiserations! Claim all expenses wasted in these pursuits on your
tax return.

I have experienced similar and wasted $1000’s and my time trying to
secure a small premises for lease.

Nothing is what it seems. In my case the landlord reneged on the
initial terms of a proposed contract where a few extra power outlets
would be provided at her expense. It was presented to me as a minor
point of contention and I was being silly for not paying for a
couple of meters of wire and some outlets… I was the baddie and
the landlord was the sufferer. I realized in time that providing the
power outlets would require complete re-wiring from half a block
away.

In this instance the money lost is worth it. If I had been impatient
and just signed the initial proposed lease then I would locked in
and paying many times over.

It is a fluctuating balance whether to pay the penalty and prosper;
or pay the penalty and suffer.

The real estate agent in the above example was less than a
junkyard-dawg…(less said the better).

Alastair

7

I remember something my father once told me that, in an oblique way,
might be applicable to this, and other areas also.

“The sour taste of poor quality lingers long after the sweet taste
of low price has faded away.”

Mike DeBurgh, GJG
Henderson, NV

8

Thank you all for your support and insights! Sorry I haven’t written
earlier, but I’ve been busier than a retired pilot trying to get off
the ground…oh, wait…

The location is really worth it, I really wanted to be my own boss,
my brother called me and said he’d foot the bill, so I offered a
compromise through my realtor. It was accepted, so I’m back in the
spot. $650 or $1300 may not sound like much over the life of the
lease, but it makes the difference between making it or not for the
next two weeks.

So now paint is up, carpet is out, chair rail is in, business cards
are in the works. I’ll post photos on opening day.

best regards,
Kelley