Out Grown The Garage? Commercial Real Estate May Be For You

Editor’s Note: Guy Harvey is managing principal in Staubach’s Raleigh office. Harvey has more than 16 years experience in managing complex real estate projects for hundreds of clients in 18 states. His experience includes assisting with corporate real estate outsourcing and portfolio management, leasing, renegotiations, sales, purchases, build-to-suit projects, and real estate asset consulting throughout North America. This column is the latest in the Entrepreneurial Spirit series done in partnership between the Council for Entrepreneurial Development and WRAL Local Tech Wire.

RALEIGH, N.C. - Let’s talk about entrepreneurs who are at a stage in their process of building a company where they need increased space for their operations. They’ve grown out of their garage and it’s time to enter the big leagues.

If I were speaking to an entrepreneur who’s ready to move into a commercial real estate lease, I would start with the following questions:

1. What’s changed for you? What’s driving your current growth? (That helps me determine the magnitude of their growth and how to plan for it.)

2. What are the limiting factors with your current space situation, or what’s stopping you from staying where you are? (This is because they may have some idea about needing to move into bigger, and possibly, more expensive space, which may be more about their ego, not their true space needs.).

3. How are you planning on funding this growth? (This is important because moving costs money, furniture, fixtures and equipment cost money, commitments on bigger space cost money and will increase risk and liability. What is your threshold for the future risk and liability that you’re creating for yourself with this planned expansion?)

4. How does your growth plan or vision dove-tail with your real estate plan or strategy? (This is important because a premature investment in real estate (whether lease or buy), could put your company at increased risk for failure due to overhead costs that aren’t sustainable.)

5. How do we create a real estate outcome that allows for maximum flexibility? What are the drivers that dictate hiring an extra 10 or 20 people? How can you set up a real estate plan that allows for a step-wise progression so that you can build as you go? How can we get your landlord to embrace an expansion strategy that matches your pace of growth? (This is important because entrepreneurs are generally operating with a very slim margin and a small increase in overhead may result in a snowball effect which can take the company down a road towards extinction.)

6. What are the marginal risks that you’re taking? Are there larger, unforeseen risks that you need to think about that are lurking in the shadows? Who have you talked to who’s “been there, done that” who can point out potential pitfalls that may affect your ability to fulfill a lease? (This is important because companies that are thinly capitalized and thus highly leveraged can often implode.)

After the entrepreneur has answered these questions, I typically have a picture of their reality, as it relates to their true real estate needs and their ability to follow through on a commitment to lease additional space. I often recommend a scenario that promotes more flexibility, lower risk and a higher long-term value for the use of the space (e.g. fewer future moves and more ability to expand incrementally). Ultimately, the name of the game in entrepreneurship at the beginning is mitigating short and long term risk and liability. I like to see myself as a resource for not only commercial real estate knowledge, but also as a sounding board for start-ups so that their learning curve is shortened and their resources can be most optimally deployed to provide the greatest possibility for success.