Locating and Deciding On the Right Business Facility

When you are ready to start looking for a specific facility to rent or buy, it's a two-step process of conducting the search and deciding which facility is best.

Deciding what you need in a business facility lays the proper groundwork for the next part of the process--finding a specific facility to rent or buy. There's a two-step inquiry you can use to help you find and decide on a facility:

How to conduct the search: There are any number of ways of using the information that you now have about your facility requirements to good advantage. To make the search go smoothly, we suggest that you first decide on the general area or community in which you want to locate, then look for the actual facility. Try to allow yourself enough time to conduct a thorough search. Finally, unless you are a true expert in the field of acquiring business properties, employing the services of a commercial real estate agent could save you time and help obtain a satisfactory result.
How to decide which facility is best: We suggest two general methods of evaluation that can be used, one which is numeric, the other, non-numeric. If done with care, either should be helpful.

Conducting a Search For a Site

If you have put in the time and effort — and possibly the pain — of identifying your business's operating steps, and have used this information to determine your facility needs, you may be more than ready to hit the road to find your facility. But, before you do this, a few words about the method of your search.

Start by choosing the general area in which you want to locate. If you don't, it's not too difficult to make a costly error.

While driving in his car through an unfamiliar neighborhood, Tommy Tennis sees a vacant building that looks like a perfect site for his planned tennis equipment and clothing store. When he later gets to inspect the interior of the shop, it is even more than he hoped for, and because he is so enthralled with the building's architecture and interior appointments, Tommy overlooks the importance of several factors. First, the property is in a neighborhood that has been in decline for the last couple of decades, with surrounding buildings in disrepair. Second, parking and access to main streets is cramped. Finally, the tennis players at Fancy Courts Tennis Club — the store's target market — are over 30 miles away.

OK, this is an extreme example of how not to pick out a business facility. But it is offered to illustrate that the best way to pick out a business property usually is to go from the general to the specific. That is, look for appropriate communities and neighborhoods first. Once you have settled on a few that would meet you needs, then start looking at particular buildings. This method won't guarantee a successful selection, but it will improve your odds.

Finding and Selecting a Business Property

Do you need help locating the right business facility? If you know the areas where you are looking like the back of your hand, know how to ferret out commercial properties for sale, can invest a good bit of time in the search, and are knowledgeable about local commercial real estate practices, you may be able to locate an acceptable property by yourself, or with the help of real estate agents representing sellers. If all of this doesn't describe you, you may want to employ your own real estate agent, known as a buyer's agent.

From the viewpoint of one who is going to buy or lease commercial property, two things can be said:

Because finding an acceptable piece of commercial property tends to be more difficult than finding a residential property, your need for a buyer's agent is usually greater for commercial properties.
As the buyer or renter of commercial property, you may well have to pay at least a portion of your agent's fees.

You should be aware that the listing and commission practices of commercial real estate agents often differ from those of residential real estate agents. In most areas of the country, the common practice observed in residential sales is that the seller pays all of the real estate commissions (which are typically 6 percent to 7 percent of the sales price) at closing. If the buyer is also represented by his own agent, this buyer's agent and the seller's agent split the commission due on the sale.

However, with sales of commercial properties, how the real estate agents get paid is less rigid. Often their payment is the subject of negotiations between the buyer and the seller, with the buyer sometimes paying at least part of the commissions. The total percentage of sales price paid out as commissions may be larger for commercial properties than that customarily charged on residential sales. Another difference is that a smaller portion of commercial properties offered for sale through real estate offices are listed as a part of a multiple listing service. This means that if you don't have a buyer's agent working for you, you'll probably have to contact a large group of sellers' agents to get a good idea of available properties.

Unless you take the time to see and evaluate several properties, you run a higher risk of making a costly mistake. Once you have tentatively decided on a property, revisit it a few more times; at different times of the day, if possible. You'll never know what you may find out.

Frances wants to buy a property for use as an outdoor tiki bar. She finds what she thinks is the right facility for her business. Although she visits the property several times during the day and early evening, she never comes by after 7 p.m. After buying the property, she finds out that trains carrying freight pass through on relatively close railroad tracks throughout the latter part of the evening. The sound is loud enough to drown out the island music Frances used to set the tiki bar's relaxing atmosphere, as well as the conversations of her patrons.

After you have done all your homework and have effectively conducted a search that has narrowed down your choice to a few properties, how do you decide which facility is best? We suggest two general methods of evaluation that can be used.

Using the Numeric and Non-numeric Systems to Rate a Property

There are two methods you can use to evaluate the business properties you locate: the non-numeric method and the numeric scoring system.

Non-numeric method: For each separate property, consider how that property would (or would not) meet each of your facility needs, and consider the relative importance of each such need. Then compare your results for each facility, and decide, on the whole, which property most completely meets your business needs.

The biggest danger in using this method is that it lets you over-focus on some items, while under-focusing, or ignoring others. If you're generally the optimistic type, you may have the tendency to over-value the property with the biggest positive aspects, even if it also has more important negative aspects. The contrary may be true if you are generally a pessimist: the existence of a few relatively negative features in a property may obscure its other, more important positive features.

Numeric scoring system: The numeric scoring system uses everything that was considered in the nonnumeric system, but adds scoring elements in the hope of making its results clearer and more objective. The idea is to first assign a value (say from 1 for very poor, to 10 for very good) based on your evaluation of how well the property fulfills each of your facility needs. Then you assign a value (say from 1, low, to 10, high) to how important this facility need is to the operation of your business. Finally, you multiply these two numbers for each facility need, and add up the results. The resulting answer for each separate facility can give you some idea of how well-suited the various properties are for your need.

To illustrate this method, this is a simplified example property "A":

Facility Needed	Importance of Need	How Well It Meets Need	Score
Location	4	8	32
No competition	5	8	40
Condition of building	4	5	20
Price	6	6	36
Security features	8	5	40
Total			168

After you compute the score for property "A," you would make similar computations for property "B" and property "C". Theoretically, at least, the property with the highest score would be best suited as your facility.

What is one very real possible weakness to the numeric comparison system? It is that it could lead one to over-inflate the relative worth of the property earning the highest score. If for instance, if property "A" receives a total of 240 points, and property "B" receives 250 points, does it really mean that "B" is better than "A"? Probably the two are close enough that this 10 point spread doesn't really have much significance.

If you decide to use a numeric evaluation system, we strongly advise that you assign values for the importance of need (the second column) before you start to look at individual properties. If you do it the other way, you may have the unconscious tendency to assign higher importance of need priorities to items that the property you favor does well in.

Finally, the best course of action may be to use both methods: do the numeric computations, but never lose sight of your more general feelings about the overall worth of a property for your intended use.