Ben Blankenship and Arin Rentz have moved their specialized massage therapy business a handful of times over the last 12 years, each time learning more about the ins and outs of the leasing process.
Robotic Precision Therapy Clinic, which uses a machine to apply gentle pressure to a specific muscle to relieve aches and pains, is in its fourth location — a 1,200-square-foot space in Troy in which they hope to stay for an extended period.
For founder Blankenship and Rentz, the company’s director of operations, the road to securing each space has been different. RPT first operated out of a location in Birmingham for about three years before the building was sold. Next was a space in the east side of Troy that didn’t have adequate parking. A move to downtown Rochester proved too far for many of its clients.
For the last year, the business, with a staff of five, has operated out of the Sheffield Office Park building on Big Beaver Road in Troy. Its suite is wide open with windows on the east wall that allow the sun to shine in. Beds for five patients are available, up from two at the downtown Rochester location.
Securing a lease in a space that can help a venture thrive is key for a small business. It can mean the difference between sticking around long-term or exiting after a short period of time. A variety of factors come into play when choosing a space, from parking and lighting to proper square footage. Entrepreneurs must be educated and savvy to avoid pitfalls that could play a role in the business failing.
Robotic Precision Therapy Clinic almost took on more space than necessary. Blankenship had been searching for a 2,500-square-foot office before settling on the 1,200-square-foot space in Troy.
Landlords, who pay commission to a commercial real estate agent to get a space leased, earn more money the more square feet they rent out. That commission is usually 2.5 percent to 5 percent of the total rent. Kevin Tamer, assistant vice president of Auburn Hills-based TEAM Core commercial real estate, stepped in to let Blankenship and Rentz know a larger space wasn’t necessary for RPT.
“So it took us quite a while to find a space,” Rentz said. “We had a broker when we originally started the process of finding a new space. One of our clients was in getting some therapy and suggested we meet with TEAM Core. (TEAM Core) came in and looked at what we were offering and said we didn’t need 2,500 square feet. We needed about 1,200 square feet. Obviously it makes (the landlord) less money if we take less space, but the 1,200 square feet better suited our needs.”
Representation from the likes of Tamer is important, according to Steve Morris, managing principal at Farmington Hills-based Axis Advisors LLC who has served as a tenant representative for more than 25 years. A tenant rep is a commercial real estate expert who works exclusively for the tenant. Standard real estate brokers represent landlords and tenants.
Ensuring a client does not overpay on a lease is one of a tenant rep’s key responsibilities, according to Morris.
The rate paid by a small business owner should be based on business income and varies from 2 percent to 20 percent. A new venture should look to keep that number below 7 percent, Morris said.
Negotiating that rate is key, he said. The ideal lease terms are for three to five years, with an option to renew, which affords flexibility as rental rates can increase over time and the needs of the business owner can change, Morris said.
“If you’re a new business owner, you’ll quickly learn that rent is your second-highest cost following payroll,” said Morris, 70, who for more than a decade taught real estate finance at the University of Michigan’s Ross School of Business. “A tenant rep guides the entrepreneur to negotiate the rate. There’s always wiggle room there.”
Different criteria
That wiggle room is there when negotiating office and/or retail space, according to Angela Thomas, an associate broker at Signature Associates.
Thomas, whose clients include Canine to Five, Heirloom Hospitality and the University of Michigan, said the process varies. For office space, Thomas believes walkable amenities and easy access to parking and freeways are the most important factors for employees and customers. For retailers, customer base, visibility and location are vital.
“Parking and who you’re serving impact your business no matter what area it’s in,” Thomas said.
“Both conversations include price and budget. It’s interesting, though, in markets like Birmingham and Detroit, price isn’t as big a topic. If someone wants their business in Birmingham, they know they’re going to have to pay (more). If you want to do something in a place like Novi, you can do it for much cheaper per square foot.”
Shared space an option
Taking on a smaller footprint is becoming an option for more than a handful of metro Detroit businesses.
Co-working spaces, such as WeWork LLC and Bamboo, give new business owners the space they need while keeping overhead low. They offer office and meeting space to businesses of all sizes at varying rates.
Bamboo, which has offices in downtown Detroit and Royal Oak, offers renewable one-, six- and 12-month lease options. Private office memberships start at $500 a month and give business owners access to printing and mail service, meeting and event space and video conferencing in meeting rooms. Utilities are built into the rate, according to Bamboo Community Manager Amanda Sweet. The Royal Oak location, in a two-story building at the northwest corner of Main and Third streets, has more than 50 private offices, with 90 percent leased currently.
“It’s important for us to get (business owners) in the spaces and fill them, but it’s more important for them to know this is plug and play. As soon as a lease is signed, your business is ready to go,” Sweet said. “We’re not here to nickel-and-dime people. We want them to be successful. We’re here to help people cultivate their businesses. It’s something that’s got to make sense for them, though.”
Using the shared space makes perfect sense for Hassan Ayoub, who recently leased an office at Bamboo Royal Oak. The owner of Ayoub Advisors & Accountants believes starting out in the shared space is the best route to sustained success.
“The community here is a big part of it for me,” said Ayoub, who declined to disclose terms of his lease. “If you’re in a more commercial setup, you’re not able to interact with people as often. There are people here looking to create all kinds of businesses. We’re exposed to a big variety of people and their experiences at Bamboo. That’s a big, big plus.
“The services provided and costs add up to be way cheaper for a small business owner. You can focus on growing your business instead of worrying about various bills, which kind of stretches you thin and can hurt your business.”
‘A reflection’ of you
The shared space is a good option if you’re working with a small staff and just starting out, Morris said. For more seasoned businesses, though, they need their own space, which allows room to grow staff and expand operations, Morris said.
In addition to growing a business, saving money is a top goal for most, Morris said. That has become easier over the last decade or so, he said.
“Between 2012 and 2016, about 70 percent of every (U.S.) office building went through foreclosure because of the depression downturn from 2008 to 2012,” hesaid. “Landlords saw their rental rates go down and couldn’t pay their mortgages. Most landlords today, the majority of them, purchased their buildings at a much lower rate, meaning they can offer potential tenants a reduced rate because they have less debt.”
It took Blankenship and Rentz months to find their new space, only settling on the fourth-floor space in Troy after looking through 100 listings and going on dozens of viewings. Robotic Precision Therapy Clinic has been in its current space for a year and seen a 26.2 percent increase in revenue. The business sees 30-40 clients each day, according to Blankenship.
Aside from negotiating a good lease rate, the right amount of square footage and amenities, choosing an office or building can tell vendors, clients and customers a lot about the business, Rentz said.
“The space you’re in is a reflection of your company. It’s a reflection of your values,” she said. “There are some things I’d take differently in the next space, but we have such a better understanding of the process now. It’s been a learning experience for sure, but we’re much more comfortable with the process now.”
Blankenship agreed: “When we first moved (to our current location), we had a ton of our existing clientèle coming in saying how much nicer it is,” he said. “It’s not that our other offices were bad. This one is definitely an upgrade. We put in a lot of work to get this space, so it’s nice to hear that our clients are happy with it.”
Following are tips for small business owners looking for space:
- Seek representation: Enlist a tenant representative — a commercial real estate expert working exclusively for the prospective lessee — who will help ensure you pay get the right amount of space at a fair rate.
- On your terms: There’s always a possibility that something goes wrong once the lease is signed. The landlord could sell the building, leaving the business owner in a difficult situation. So don’t sign a lease of longer than five years. The prospective lessee has the wiggle room to sign a short lease with an option to extend.
- Have financials in order: Landlords want to ensure a potential tenant can afford the rent, so the lessor will ask for documents such as tax returns, bank statements, financial references and a letter of credit from a bank guaranteeing the lessee can make the monthly payments in a timely fashion.
- Space saver: Landlords bring in more money the more square footage they lease out. A prospective tenant should have a space planner or designer lay out their floor plan to eliminate the possibility of paying for unnecessary space. The lessee can hire a space planner or use the landlord’s. A tenant rep can help ensure a landlord’s space planners don’t call for excess space.
Sources: Axis Advisors and Signature Associates