Finding the Right Balance

Bikram Yoga Naples
After five years’ training in yoga, 29-year-old Jennette Gluski decided to open her own studio, Bikram Yoga Naples. Her search for affordable space to lease began in December 2006.

Initially she had a partner, but ended up solo when they saw the first financial estimates for a studio the size they wanted: 2,400 to 3,000 square feet.

"Space in areas we were interested in was coming in at $26 to $32 a square foot with common area maintenance (CAM) of $6 to $9 a foot," Gluski says. With that price tag, the pair even considered purchasing space. "We could find nothing under $1 million."

Gluski spoke with a number of commercial real estate brokers based in Naples, who steered her to various properties from Old 41 Road in Bonita Springs to the East Trail in Naples. Most places couldn’t measure up, at 1,600 to 1,900 square feet. "My square footage number was unusual," says Gluski. "That made things more difficult."

Parking was important; she wanted space for at least 40 cars. And she wanted a location close to north Naples and Bonita Springs. "The median income for both areas is up. I wanted to draw from those locations," she says.

Gluski looked at the Uptown Center and The Pavilion, both in north Naples and both too expensive. Another space on her short list was a property in downtown Naples, but that space was unequally divided, which meant it needed to be completely rebuilt. She also considered a space just south of Bonita Beach Road that had previously been used as a storage house. "That location was farther from downtown Naples than I wanted to go, and I couldn’t get a good feel for what the landlord was willing to do as far as build-out," she says.

Then came the phone call that changed everything. Gluski received an invitation to take a look at property in the Willow Park center off Airport-Pulling Road in north Naples. Space was available that had been designed for a personal-training gym. The price was $16 per square foot with CAM charges of $4.50 per square foot.

"My jaw dropped when I heard the numbers," says Gluski, who had been looking at property for more than a year at that point. "Nothing had come close to it. The space was just gorgeous."
The site already had lockers and shower rooms. Lack of visibility from the road and no signage on Airport-Pulling were surmountable challenges to Gluski.

"I had an established student base waiting for the studio to open," says Gluski, who had been teaching in Lee County. "Word-of-mouth advertising takes over from there. I did offer a lower rent number because the space was larger than I needed, about 3,500 square feet. The landlord even handled much of my build-out as part of my deal. I found the perfect studio at a great price."

Her advice for commercial lease-shoppers: "Look at everything so you know the market," she says. "Finding the wrong space helps you identify the right one."

Expect the Unexpected

State Farm Agency
State Farm agent/owner Karen Wolfe’s hunt for new office space was all about upgrades. The 25-year industry veteran’s agency had been in an older plaza at U.S. 41 and Colonial Boulevard in Fort Myers for more than a decade.

"My rent expense was low, but you get what you pay for," she says. Over time, the area had become crowded, and clients told her it was difficult to get in and out of the parking lot. The office was also becoming too small for her growing business.

The search was on, and it was a long one. Wolfe and her husband, Steven Holberg, spent four years driving down street after street, looking at sites and then eliminating properties. Holberg brought valuable expertise to the table: An area physician for more than 20 years, he had built three Lee County office buildings and leased many more. For her part, Wolfe had familiarized herself with city and county compliance requirements and long-range growth plans, because construction of roads and overpasses has a great impact on business.

"I gathered as much information as I could," Wolfe says. "It’s critical to find out what the future will bring. I even went to city and county governmental meetings."

She knew exactly what she wanted, but new retail space, quality construction and great parking correlate to more expensive rents. Even in a softening market, premium space carries a premium price tag.

"I found that no one was willing to negotiate on the rental rate and CAM charges," says Wolfe. "I could negotiate on issues such as first and last month rent and abatements. Where I wanted to be, there was a set price and no one would budge."

That wasn’t her only challenge. She was drawn to some pre-construction properties in prime locations, but their representative agencies were sometimes hard to reach and other times lacking in key information.

"I would call an agency and no one would be able to give me a construction timeline," Wolfe says. "Some agencies turned me away, stating that my business would not fit. Yet, upon the completion of construction, there would be an insurance-company tenant. It was very hard to get reliable information on which to base plans."

After four years of searching, Wolfe selected space in the new Sunsports Plaza on Colonial Boulevard in Fort Myers, two miles west of I-75. The selling points for Wolfe included visibility from a busy street, a traffic light at the site entrance and excellent parking, all attributes she felt would translate into business opportunities. The property’s per-square-foot rental rate fell between $22 and $23 with $8.95 per-square-foot CAM charges. Wolfe signed a five-year lease with three percent annual increases, and handled her own build-out to customize the 1,500-square-foot vanilla shell for a cost of $85,000.

In October of 2007, Wolfe opened her new location.

Her advice for commercial lease-shoppers: Have a lawyer and several people familiar with your business read the lease agreement before you sign. "They found items for discussion in mine such as signage constraints and plaza operating hours," Wolfe says. "Lawyers handle the legalities, but it pays to have your lease reviewed for business considerations that a lawyer might not catch."

A Sporting Location

Smitty's Sports Inc.
Al Smith of Smitty’s Sports Inc. has been a bit of a real estate nomad since opening his doors in 1983. His specialty store, which offers primarily tennis, soccer and racquetball equipment, was initially in central Fort Myers, close to a family-oriented community. The space did not draw the traffic he anticipated. In 1994, he attempted to negotiate a lower rate with the owner, to no avail.

Smith then moved to a space on U.S. 41 just south of Gladiolus Drive in Fort Myers, but closed that location after one year for personal reasons. In 1995, he reopened in the Dragon Plaza three miles north of Gladiolus just off U.S. 41.

"That move resulted in a big reduction in rent, but the location was harder for customers to find," he says.

Smith rented that space for 10 years until the lease expired and the owner decided to take the building down. It was time for another move.

Smith was looking for 1,000 square feet of office or retail space for no more than $1,000 a month. Location was key and finding the right one was a challenge. Many of the properties he saw were second-floor units, which meant inconvenient access for his customers. Like Wolfe, Smith faced the challenge of non-responsive agents.

Throughout his search, Smith kept thinking back to a property he had toured two years prior. It was within blocks of his existing space, a location he liked.

"It offered excellent access and parking so my customers could come and go with ease," he says. "When I saw the property the first time, the rent was more than I wanted to pay. I wasn’t rushed to move at that point, but I kept the space in mind."

Seven months from the date he had to move, Smith called the representing agent and was told the space was still available. Better yet, he was quoted a lease rate that was considerably lower than the one proposed two years earlier.

"Timing, timing, timing," he says. "The reduced rent reflected the sluggish economy and the position of a new ownership group. They wanted somebody in place."

Smith’s deal is a good one. He pays $7 per square foot with CAM charges of $2.50. His rent will increase incrementally over five years. At $1,000 per month, the rent is $450 lower than the number quoted to him two years prior. He opened in his new location in October 2007.
"I like my lease terms," he says.

His advice for commercial lease-shoppers: Pay special attention to the opt-out clause if it is a long-term lease. "What if your business experiences a downturn or you have health concerns?" he says. In addition, look closely at the basic physical components of the property such as the air conditioner. Finally, if you do negotiate favorable terms, think about a 10-year lease. "With the right lease, it can’t hurt," Smith says.

Renter's Reprieve
"It is a tenant’s market," says Jerry Messonnier, broker associate, CB Richard Ellis.

According to the 2007 third quarter CoStar Group’s report for Southwest Florida, vacancy rates are up and rental rates are down in all three commercial real estate categories: industrial, office and retail. Currently, average rental rates per square foot for Southwest Florida stand at $9.36, $20.72 and $20.44, respectively.

"There is an oversupply of product with additional space under construction. In this market, it is not a function of price, but the fact that there are not enough potential tenants looking to rent the space."