Space negotiation ****

the continuing saga of putting together a commercial kitchen for rent..

I had my web site, my logo and really felt committed to this business. Now it was time to find a space to rent. I figured it would be easy - find some old restaurant for lease, get it, fix it up and open! No problem. At the time it was October and I thought I could be open in time for Christmas. I was so very wrong.

I started looking online. There is a web site called LoopNet that has commercial space listed. Craigslist is also a very good source. Some friends recommended a commercial space agent so I gave him a call and let him know what I was looking for. He called me 3 days later to tell me he couldn't find anything. How can that be?? Weren't restaurants going out of business every day? I guess not. He called a few weeks later with a place. It was a little bigger than I wanted - 5000 sq. feet (I had asked for no more than 1500) but it was an old bakery and it had equipment. I went to look and the place was enormous. It had 3 walk in refrigerators and a walk in freezer. It had one of those baking ovens that rotate with space for about 30 sheet pans. The last guy had just walked off one day. Dishes were in the sink and flour was all over the counters. I couldn't get out of there fast enough.

My chiropractor told me to call his agent, Zack. I did, told him what I was looking for and held my breath. Zack said he would look around and see what he could find. It was then that I found out that commercial property does not have an MLS. It is basically a community of brokers. Finding a place is frequently the result of walking around the area you want to rent and writing down the numbers of agents who have For Lease signs in their window. I shook my head a lot.

Zack got back to me with several properties. This was encouraging. Most of them were former restaurants but the landlords didn't want to have a kitchen. They wanted someone to open another restaurant. Some of the buildings were under renovation and wouldn't be ready for at least 6 months. Nope, didn't work for me. I found an old sandwich shop for lease so called Zack and he called the agent. The agent showed up and when he unlocked the door the lock fell off. Humm, not that one either. However, this agent did have a brand new space downtown. It was right around the corner from where I worked which was excellent for me. I knew the area and there was parking which is in very short supply in downtown Sacramento. I looked at the space and all I saw were bare walls and monster support posts in the middle of a huge space. I found out this is called a shell. I would have to build whatever I wanted. The landlord would give me what is called Tennant Improvements (TI) to help out. The space available was 2800 sq. ft. It was larger than I wanted but I thought I could make it work. At worst case I'd have lots of storage space. We met with the leasing agent and they liked that I wanted to open the kitchen. They also asked if I would open a sandwich shop to feed the 5,000 people in the building. I figured I'd be profitable right away, so I agreed.

We crafted the LOI (letter of intent) which is basically an offer stating what lease rate we want, how much in TIs etc. This is when I learned about the dreaded 3 letters - NNN. Triple Net. It means the renter (me) pays for the landlord's insurance, taxes and building maintenance. I want to be a landlord in my next life.

The owner of the building reviewed my LOI and turned me down! How could he? We had negotiated with his lease agents and everything was fine. Apparently he didn't want 'random people' coming in and out of his space at all hours.

Once again, time to hit the road. Zack and I looked at more spaces and he talked me into looking at one that I loved but it had no parking. The more I looked at it the more I knew the space was perfect. It had a loading area so people could unload their stuff and then find parking. We now started the negotiation. This landlord didn't want to give me anything. He wanted $1.70/sq ft lease, NNN of $.20/sq ft and only $20,000 in tenant improvements. I balked. I had no idea how much the TIs would cost but I knew they would be more than $20,000. The place was newly renovated but it was set up for something like a Hallmark store. I would have to install plumbing, gas lines, a hood and everything else my kitchen needed. I needed a contractor to estimate the cost. I once again turned to the Internet but couldn't find any builders except for the high end ones that do complete restaurants. I hit craigslist and found one who would bid smaller jobs. I met him at the site, showed him my design and asked for a bid. He submitted one for - gulp - $100,000. I immediately told the landlord I needed $30/sq ft. in TI. This came out to $72,000. OK, I could manage that.

We continued to go back and forth on issues such as where to put the hood, how I was going to use the space, when people would be coming in and so on. The landlord's cousin had the restaurant next door so I talked to him too. He was a nice guy and gave me all sorts of info on the landlord that he shouldn't have such as how badly the landlord needed to rent the space.

We got to an acceptable agreement and put together another LOI. In the mean time I decided to get another bid. I thought the $100,000 was high. I talked to a friend who knew a kitchen remodeler who knew a commercial kitchen guy, named Bill. Bill came over, talked about the design and said he would get to work on it. He did an amazingly thorough job. He asked me to come out for 2 hours while all his subs came in, took measurements, talked about installing the hood and so on. Bill gave me a bid for $119,000 but he included purchasing equipment like the sinks, hood and flooring. I liked him much better than the first guy.

So, I was ready to look at the lease, sign it and go on. Little did I know that something that I thought was going to be so simple would turn into a long drawn out issue.

Next installment? Lease ****.