#54: What you need to know about retail space

 

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We’ve talked about all kinds of businesses in other episodes of the podcast, and for some of those - like a barbershop, a franchise, or a restaurant - you’re going to need a physical retail location. So I wanted to dig into what you need to know if you’re looking to rent a retail space to get your business up and running.

Eddie Gonzalez was born and raised in Phoenix, Arizona. He especially prides himself in knowing the Central Phoenix area and his passion for service, which serves as an important attribute in putting his commercial real estate clients above all else.

Eddie provides tips on the process of finding a retail space for your business and what to look for in an agent. We talk about why you need a solid business plan before you do anything else and what you need to know about spending to improve your leased space.

In this episode, we’re discussing…

  • The steps Eddie goes through to help clients find a retail property.

  • Why you need a solid business plan before you go and look at properties.

  • When a potential tenant can ask a landlord to make changes to a property and who will foot the bill.

  • What mom-and-pop small businesses can learn from more sophisticated businesses in terms of location, demographics, and other real estate decisions.

  • Why you should be prepared to spend at least six months to find a retail space and get moved in.

  • What to look for in an agent when you’re looking for retail space.

Eddie’s Top Tips:

  • You need to have a business plan before looking for a property to lease – your business plan and, most importantly, your financials will help your agent determine what property will be the best fit for you and your business.

  • Improving your space will depends on your credit and the amount of money you have in the bank – if you’re renting a space and you want to make changes, you could negotiate with the landlord for Tenant Improvement Dollars (TIs) - but the amount will depend on your financial standing coming into the space.

  • Knowledge of the area is crucial – when you’re looking for a retail space, you need an agent with great knowledge of your area. You want to secure a great location with the right demographics for your business, so make sure they have plenty of local knowledge.

Resources:

 

+ Read the transcript

What if you could be doing something smarter with your money that creates income right now? If you're an IT professional who's wanting to get ahead financially and enjoy greater freedom of choice, and if you wonder who else in tech is creating ways to make their money work for them? You want actionable ideas with honest pros and cons and no fluff. Welcome to The Richer Geek Podcast. We're helping IT professionals find creative ways to build wealth and financial freedom. I'm your host, Nichole Stohler and in this podcast, you'll hear from others who are already doing these things and learn how you can too.

Hey everyone, welcome back to The Richer Geek Podcast.. Something I haven't mentioned on the show before is that I'm a member of a Toastmasters club here in Phoenix. And this club is actually a big reason why I started this podcast I would say the encouragement from the club and the things that I learned as being a member The people that I've met and the overall experience I've had goes way beyond just practicing public speaking. I really recommend anyone joining Toastmasters because there's not anyone who doesn't need to continue to improve your communication skills. And a small tip that I would have is to try a few clubs because the meeting format is very similar for all Toastmasters, but the personalities of each club are completely different. I attended three other clubs before I ended up joining the one that I'm a member of now. And the other clubs that when I attended, well, people were nice. I just did not feel the fit. And I did not have the enjoyment for the meeting, as I did from the club that I'm a member of.

So what does Toastmasters have to do with this episode? Well, in several of our other episodes, we've talked about various franchise businesses like a barbershop or a specialty fitness business. We've also talked about just you know, if you want to start a physical business from scratch, like you have an idea for a restaurant, for all of these kinds of businesses, you're going to need retail space. One of my fellow Toastmasters here in Phoenix is a commercial real estate agent that is focused on the retail space. Eddie Gonzalez is a Phoenix native, so he knows this market well. And while not everybody is in Phoenix. I wanted him to come on and share some tips for if you're working to find a physical retail space, who should you work with? And what are some of the things that you should look out for as you build out the team that can help you be successful in whatever business you're looking to pursue?

As a side note, Eddie is very active on social media. And he leverages all of the platforms, many that I don't even know that much about, like TikTok and he leverages these to develop his network, so definitely connect with him there, especially LinkedIn. Let's go ahead and jump into the show.

Eddie, welcome to the show.

Nichole! Thank you so much for having me.

I'm really excited to jump into this because it is the perfect conversation complement to all the other side of the conversation that I usually have, which is, hey, you may want to look at a barber shop or a CBD retail store or some kind of franchise, and you're the person that helps them find the location. So tell us a little bit about the types of real estate areas that you focus on.

Yeah, absolutely. So what I do for an occupation is retail real estate for the most part. And basically, if you're looking at strip centers, you're looking at malls. I represent the tenants that are going to go into those vacant spaces.

Perfect. And who are you usually working with?

You know, it's a full gamut. There's a lot of different clients that I'm part of a team, there's five of us on our team. And we represent pretty much anyone from your, we could say Dairy Queen franchisees who are out looking for dirt. And we are going to develop the building, we're going to figure out kind of a long term play to your mom and pop type tenants that are first operating just kind of fresh and green and looking to open their business. Now when you say Take, for example, the franchise or you mentioned Dairy Queen, do they refer all of their potential new franchisees to you do they say, hey, these guys really understand our business. So there's a few different groups that are active in the Phoenix metro area, and based on who your relationship is with is kind of how it gets dictated. So there is one group that's active in Maricopa County. That's not the group that we work with. The group that we work with has multiple locations on all of the outskirts.

Okay, so then basically the franchise or has a group that coordinates these conversations because I, I have not really gotten into that we've had Kenny rows on the show before. He's a broker. And he talks about presenting multiple options for franchises. And then once you choose one, then you have to find a location and the real estate and so I always wondered how that connection like who then handles that? So it sounds like they refer to an in market agent.

Yeah, exactly. And so the long term relationship that's formed with our dq group was something that happened long before I started in commercial real estate. Now, the IVQ is basically the corporate headquarters for a dairy queen they've introduced me to other people within the organization. And those relationships are built. But the actual active group that we're working with right now, they have been within Dairy Queen for more than 30 years.

Okay. So talk us through because I know you're also working like you said, Mom and Pop and all across the full range of different clients. Talk us through what are the steps for finding a property when someone calls you and says, I want to open a hair salon?

Yeah, absolutely. So there's a lot of back work before you even get to the real estate portion of it in the call. What I like to do when I first meet with a client, it's going to be a few questions that are will say challenging questions that the landlords are going to ask me as your broker. Some of those questions are going to be very specific financial questions. They want to make sure that you have the financial wherewithal to lease space from them. So they're going to ask for things like credit score's, they're going to ask for things like bank account information, they're going to ask for business plans. And those are all types of things that you really need to have set up before you even step foot in, try to look for property. So once you have all of those items in order, basically what I will do is your broker is going to build a package, and that package is going to be something that's going to get delivered to the landlord so that the landlord has confidence in us in taking those particular spaces. So once we kind of have the business plan portion of it, we can back into the numbers to see what type of real estate you can actually afford.

Wow, okay, a couple of things, the package that you just described, that sounds very similar to getting a commercial loan, it's a part of that whole process: What's your business plan? You know, what are your financials, your credit worthiness? What kind of reserves do you have? Okay, so your landlord would want those things as well, which is interesting. So let's talk about, once you have that package, and you have a starting point, are you then able to guide the person to say, Okay, these are the types of class of properties you can look at or the location.

Yeah, exactly. So basically, the way that we went back into it, we've got the numbers as projected to what the business can actually, Jim. And I kind of have my phone on whether or not the numbers make sense. If they come in and they say we're gonna make 2 million the first year, and it's a mom and pop shop. We just kind of have to back into it and I need to figure out a How did you get to your numbers, and here's what I've seen in the past. So once we have those numbers, then we can look at the real estate. Being a local expert, I pretty much know the majority of the spaces that are available and what they're reaching for. So then I would put in front of them, hey, look at this particular shopping center, or we've got this standalone building that's currently available. And this is kind of where they are financially. If everything is then in a line, then we go start looking at property and seeing what they like. Now, one thing that's really interesting about retail is when you're going into the majority of these, we call them vanilla shells. Literally, it's just that it's a box and to either depending on those financials, ask for the landlord to improve the space, or you're going to put your own capital into the space to make it your own.

But it's not you're not ever you don't own the space, so you're leasing it. So I would - do most people then negotiate to have the landlord and then just roll it into the ongoing?

It can be done that way. So there's something that's called TIs which are tenant improvement dollars. If you have really good credit, and you've got money in the bank, that's how the landlord dictates what type of TI dollars they're going to spend on your business. If you come in and you have less than ideal credit, and you don't have much money in the bank, the landlord is going to lean on you if you want that space to then go out and get your own room to then get that money to improve the space.

Now, something else you mentioned after you have the package and you have the dollar amount and you've determined locations that you're going to look at that are just this shell right now. What about demographics? Do you help your buyers understand you median income and types of traffic patterns and those kinds of things or do they? I don't know if they come to you wanting that or knowing what they want or you help guide them.

It really depends on the sophistication of that particular tenant. If it is a mom and pop, I will definitely walk them through it. If it's someone that's more sophisticated, generally they come to me and we say, hey, Eddie, our business does well, in income over 100,000 population of this within a three mile ring, we need to be on this side of the street because if you're talking a coffee shop, they want to be on the going to work side of the street, versus another type of business wants to be on going home side of the street. So there can be a great deal of sophistication. And that's also why I kind of like working with both, is I see what the sophisticated guys are doing and why. And then I can also help the mom and pops go down that path.

Yeah, that's a really key thing to think about when you're talking about the retail space, because location is everything. And that makes or breaks your if you're not in the right place demographically or just not the right kind of traffic. And so that is, that's a cool service that you help an offer. Now, then let's go back to the tenant improvements. Do you provide guidance based on what you've seen what works and what doesn't work?

Yeah, absolutely. So we go into those spaces. Let's go to different routes. So you can go into a vanilla shell, and you can make it your own, which could be costly. Or you can we could seek out different spaces that are already somewhat built out like restaurants, they call it second generation restaurants. It's already got the grease trap it's already got the hood that's gonna save you some pretty big money off the front end. So you can go either way. But when it comes to actually having this base built out, I have relationships with several contractors. And same type of deal. I've got some guys that do ultra high end work. And I've got some guys that are really good for mom and pop because they're very budget oriented.

So you bring those resources. So this is, this is really cool because it's reminding me very much of if I was, you know, investing in houses, and I needed a contractor, and I needed an insurance agent, and all of those other pieces property management company, I would look to my real estate agent that's helping me buy my first investment property, for example, to help provide those resources and recommendations.

Oh, it really is a team sport. Even the little things you won't even think about Oh, man, I I need to sign guy. That was one of the ones that was like, I need it. So I'm gay. So now I've got to sign guys, because one does one type of work and the other guy does the other type of work.

Great point. All right. So how long does this process usually take, from the time that someone calls you up and says, Okay, I'm looking for a spot?

If I was to just throw a very safe number on it, I would say six months. And that is from the start process of, hey, let's have the initial medium, to let's get through all of the paperwork. Let's get the business plan ready. Let's go look at property. And then the actual lease process is probably two months, and then building out of it, especially with tenant improvements. That's generally the lengthiest portion of it.

The permits and all of that.

Exactly.

Okay. So you're saying six months for now it's ready to go. But more like four months from the start to negotiating the lease, until you've actually secured a location.

Exactly. And it really depends on the groups that you're working with as well. There's multiple layers when you're dealing with different type of landlords, suddenly loads are more mom and pop just like you've got your sophisticated tenants and you've got your mom and pop tenants. You also have your mom and pop landlords and you're very sophisticated rates, which there's multiple layers to the leasing process. When you go through a bigger company, your mom and pop, you're generally dealing with the owner, and they're going to be the one that oversees the lease, versus your more sophisticated landlords are going to have a broker, and then the broker generally reports to a person and then that person then has the lawyers on top of that, which then reports to another person. So sometimes to turn paperwork around for big companies. Literally, if I submit something, it could be up to a two to three week process.

Yeah, I can see that it definitely so many layers of people and also negotiation.

Exactly.

Now, I know this probably is dependent on the time and maybe the market. But what are some of the most popular property types or, I guess, businesses that you're seeing right now in the Phoenix metro area that are coming in?

Well, we're middle of COVID-19 right now. And if you would have asked me that three weeks ago, I would have said restaurant business restaurant business is booming. And right now, it's just it's very uncertain. It's very uncertain. Before, fitness - small boutique fitness - was very popular. There's a lot of guys are moving agreement. And we're kind of talking before we went on air here. The long term thinkers are understanding that this is a long process. So some of those guys are still pushing forward on these deals, because we're so far out from actually a store being open, even if this COVID lasts six months, that's gonna pretty much put them on point for sure would open anyways.

You know it's, it is a good time during this slow down especially depending on where you are in the country. So in in the Phoenix metro market construction can still happen and it is still happening. I don't know how much longer that will continue. But it is a good time to continue doing those things to be ready to open. So that's a great point. For listeners who are not in the Phoenix metro area, what would you look for? Or would you recommend people look for when vetting an agent in their market?

You just need to get somebody that's active in the market and those that particular area. That's really the key to success is knowledge of the area. What I like about the way we have our group set up, I was born and raised in central Phoenix, and I handle our properties in central Phoenix because I know the properties very well, I know the history of the properties. And I've lived in the area as well. Lindsay handles steel because she lives in Scottsdale. She knows that area very, very well. The other boys are in the southeast Valley. They live in the southeast Valley, and they grew up in the southeast Valley. So knowledge of the area is crucial. And one of the things that you and I were just talking about is I was just on my way to Costco to grab groceries. I won't pass the space that overnight, there's no signage, and there's no tenant in it. We're now going to try to place another tenant in that space. It's not advertised on anything right now. I just went through loop net coaster. What are we the space is not showing. So I called straight to the owner. I'm waiting for a callback that it's those type of little leg ups that we know about the space. Our tenant wants to be there, and it hasn't even been advertised yet.

So a couple things that are living and working in the area. You guys also segment in very niche locations within. So for example, you know, Phoenix metro area has 5 million plus people, you are recommending that you're working with a broker who specializes in a certain area because honestly, 5 million people as big as our area is, it would be hard to understand it really well across the whole metro area for one person.

Oh, no doubt about it, and some of the stuff. So although I'm working on some projects in the southeast Valley, but I'll find myself out there maybe once or twice a month, and the way things are moving so quickly out there. It's like holy smokes, where my business partner rockin bow. They're out there every day, and they see things that are happening and they can notice trends. So they're just on the ball. Just like I am in central Phoenix. It's funny, we were with a developer not too long ago. And we were out getting some drone shots in by area, his own commercial real estate. I live very close to the Camelback corridor, which is where all the commercial real estate offices are. And he mentioned the developer mentioned that all of the commercial real estate guys really don't go out and make it to the southeast Valley to know what's truly going on out there. And that's why we want a particular job is because we're out there. And we had drone footage like these other guys, they haven't been out for months and months, but you guys are on the ball. That's why we want you guys to be working on it.

Yeah, if you're going to be opening a business, and you're investing all of the time and the cycles and all the marketing and all of the pieces to get the business ready, and the location is key. You do want to be working with someone who understands what's going on has their pulse, knows that maybe a new housing development is happening, and it's going to open in the next two years, you've got to have that kind of information to make the right decision. So that is great advice. I was going to ask you, you said, make sure the person is active in the market. How do you make sure they're active? Like, again, just a lay person, I call up I'm calling a bunch of different brokerages. I'm saying hey, do you have a retail guy, right? How do I know they're active?

Honestly, if you're speaking, there's a few different things but I don't think we're accurate. costar has a broker list that shows the activity of the brokers. I just don't I'm not 100% confident on that. If you're talking to the broker, and you're asking them, what deals they've done, that's the proof in the pudding. So if I say no, I just did this. This on this corner. I did business on that corner, I'm in the midst of selling this particular building, I just sold that building over, you should know about what's happening over here. Those are the key indicators as to someone being active in the market.

So these are the questions to ask. Perfect. All right. So Eddie, how can listeners get in touch with you or learn more?

Yeah, absolutely. I am very active on Instagram. And my username on Instagram is AZcommercialrealestate. Or I'm also very active on text message. If you want to shoot me a text message or give me a phone call. My cell phone number is 602-510-2204. Once again, 602-510-2204.

Fantastic. Thank you so much for coming on and sharing a little bit about what goes on in finding a retail property.

It's my pleasure. Thanks for having me.

Thanks for tuning in to The Richer Geek Podcast.. For today's show notes, including links and resources, visit us at therichergeek.com. Don't forget to head over to iTunes, Google Play stitcher or wherever you get your podcasts and hit the subscribe button. help us spread the word by sharing with others who could benefit from listening and leave a rating and review that'll help us get the podcast in front of more people. I appreciate you. Thanks so much for listening.

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ABOUT EDDIE GONZALEZ

Eddie Gonzalez was born and raised in Phoenix, Arizona. He joined the powerhouse retail team, led by Mary Nollenberger and Rommie Mojahed as a retail specialist. Since Gonzalez grew up in the valley, he has affluent knowledge of the growing markets and will be focusing on the economic growth and development of the restaurant & retail market all over the valley.

Eddie especially prides himself in knowing the Central Phoenix area. He is a third generation Phoenician and spent most of his childhood exploring the central Phoenix corridor. He has a strong customer service background leading the front drive team at the Ritz Carlton Phoenix from 2002 until its closure in 2015. Eddie’s passion is service which will serve as an important attribute in putting his commercial real estate clients above all else.

In his free time Eddie enjoys being in the outdoors and spending time in nature. He loves dirt biking in the sonoran desert, four-wheeling in Sedona and the Crown King area, mountain biking in the hills of Dreamy Draw and hiking Camelback Mountain. Where there is a mountain, dirt or path, you will find Eddie enjoying nature at its most competitive. In short, he loves a challenge.

 
 
 
Commercial PropertyNichole Stohlerpodcast, season 1