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In this post, I am going to detail my experiences finding the right place for our business at the right price.

We found it, and last week, we signed the lease. We are remodeling and moving in over the next six weeks.

We’ve been planning to move christinesbooks.net from our home to a commercial bricks and mortar operation for years. The most perplexing question we had was:

How do we find the best possible location at a price that will allow us to grow?

The problems we faced:

High Taxes

Several years ago, we almost opened a traditional retail book store, and we wrote this post on negotiating rent. We never signed the lease. The rent was right, but the taxes were too high. In Minnesota, retail tax rates are out of control. In our case the taxes were 4x the rent. High tax rates keep small family owned business like ours out of the prime locations. The problem is, no one in government seems to care. When I recently mentioned the problem to a government official, she replied, “If you can’t afford the taxes, you can’t afford to be in business.”

How we solved this problem:

We decided against renting traditional retail space, in high rent areas (for now). Even in a recession, when the landlords reduce rent to attract tenants, the government doesn’t budge on taxes. The only viable solution for us was to rent a location zoned showroom/industrial where the taxes are 1/3rd of traditional retail.

Over Leveraged Commercial Property Owners

During the real estate boom, investors bought up properties under the false assumption that real estate couldn’t drop in value. Many made these investments using unsecured debt. During our search we found several owners sitting on vacant properties, but unwilling to negotiate a reasonable price.

In one instance, the owner had purchased an entire corner of a busy intersection. It included four buildings which all sat vacant. When we investigated, we learned that the owner had purchased the property at the peak of the boom planning to flip it to a national retailer. When the economy went sour, so did his plan. Christine and I and others tried to make an offer that would generate income for both us and the owner, but were flatly refused. Being over leveraged gave the owner no room to negotiate when tough times hit. I wish him the best, but the properties are still sitting vacant today.

How we solved this problem:

We had to be patient and keep looking. We sought veteran landlords who are likely to own the property outright, who have been through economic downturns and understand the current conditions, who have seen successful startups rise from the depths of a recession, and who understand the power of building long term business relationships.

Cities Are Bulldozing Low Rent Areas

In recent years, affordable commercial property became harder to find. Cities like to pick off older low-rent properties with eminent domain, bulldoze it, and replace it with new high rent/high tax property. It is another case of shortsighted greed. To grow, our economy needs low tax/low rent commercial property to serve as incubators for bootstrapping entrepreneurs.

How we solved this problem:

Persistence. After a while, we didn’t bother looking at the new developments, and focused our search on older areas. And the recession helped. While in recent years we’ve watched old retail and industrial parks knocked down and replaced, right now, there is almost zero commercial development.

Last Minute Lease Changes

For whatever reason, be it mistakes, disorganization, or outright chicanery, the lease terms you verbally agreed upon are different the day you sit down at the table, ready to sign. My father-in-law, who has negotiated dozens of commercial leases over his lifetime warned me about this. It is standard procedure – expect it. These last minute changes are NEVER in your favor.

How we solved this problem:

Don’t sign the lease. Walk away and keep looking. Think about it. Imagine, at closing you said, “I looked the lease over, and I made a mistake, it’s more money than I can afford,  and much of the square footage isn’t useful, so I adjusted the rates down 20 percent, and I need you to cover the utilities, so I wrote up a new lease for you to sign today.”

Leasing Agents Didn’t Help

I talked to at least a dozen of them. Some of them were great… others… not so much. But none of them represented us. They each offered a few properties out of hundreds of possibilities. Some gave us bad information, but mostly they gave us incomplete information.

How we solved this problem:

We had to do the search ourselves. We found property on Craigslist and other websites. The property we eventually rented was a property I drive by every day but I didn’t bother calling. I thought it was out of my price range based on information leasing agents had given me. One day, I decided to call, and the leasing agents were wrong, we could get 3000+ sq ft, at a price we could afford. Never quit searching and never accept the word of experts without finding out for yourself.

Keeping Costs Down

In business you need to make more money than you spend. If you can’t do that, you don’t have a viable business. And if you need a bricks and mortar location for your business, rent/mortgages can wipe you out.

But keep in mind it has to be a win-win for you and the property owner and finding the right location is going to take time. We have been passively looking for years, and actively searching for over nine months. When I first started calling leasing agents, I didn’t think this was possible. For a comparable space, agents were asking for 2-4x the rate we eventually negotiated.

It isn’t trendy, or hip, or pretty, or posh. But it’s functional and affordable

And we’re cleaning it up

We are going to remodel, knock down some walls, put in a new floor, and paint.

And it’s a great spot for a 4 year old to ride his bike.

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