Costa Mesa, which is a city in Orange County, CA, has a population of 109,960 according to the latest census. It was incorporated in 1953, starting as a small farming community and growing into an edge city with a strong economy. The economy is driven mainly by services and retail. South Coast Plaza is its largest commercial center, which has 322 stores. It is actually one of the biggest in country. The city is also home to some manufacturing, further driving the economy.
Commercial Buildings for Sale & Lease
Finding a commercial buildings for sale & lease in Costa Mesa is first down to figuring out whether you want to buy or lease. Both options have their own pros and cons, and you have to understand both of these before determining which option is best for you. The bottom line, however, is that if your plan is to remain in the same property for over seven years, then buying will be the cheaper option. However, cost should not be the only thing you should think about. There are a few other factors to look into, and they make you sway more towards leasing. For instance:
- A purchase costs a lot upfront, which means your money will be tied up as well
- The money you spend on buying a property could be used to grow your business instead
- The space may be suitable now, but will unlikely still be suitable in a few years
- If you own a property, you will be responsible for its maintenance as well
Looking specifically at costs, you first have to consider tax savings. Lease costs can almost always be deducted from your taxes, which you can’t if you buy (with the exception of interest, maintenance costs, and building depreciation). Furthermore, when you buy a commercial property, you have to make a down payment for the mortgage, which is always more than what you will pay for a lease. You usually have to pay between 10% and 30% of the value of your property, which is money you can’t use in any other way. However, the subsequent mortgage payments may be less than what the lease payments are.
Commercial Property for Sale
If you are considering buying a commercial property, particularly if you want to invest, you have to become aware of the sales trends as well. Looking specifically at Orange County, of which Costa Mesa is a part of:
- The asking price for multifamily properties averages at $314,841.90, a 0.7% rise since the last quarter, and a 10.5% rise year on year.
- The asking price for office properties averages at $311.66 per square foot, a 0.2% decline over the last quarter, and a 11.3% rise year on year. On average, the rental rate for an office property was $23.33 per square foot per year. This is a 0.9% decrease over the past three months, but a 1.9% increase year on year. The rental rates in Costa Mesa are also 1.9% higher than in the rest of the county.
- The asking price for industrial properties averages at $222.13 per square foot, a 2.7% rise since the last quarter, and a 10.9% rise year on year.
- The asking price for retail properties averages at $408.88 per square foot, a 0.0% rise since the last quarter, and a 14.5% rise year on year. On average, the rental rate for a retail property was $27.01 per square foot per year. This is a 10.3% increased over the past three months, and a 4.3% increase year on year. The rental rates in Costa Mesa are also 0.9% lower than in the rest of the county.
Commercial Property for Lease
When you decide to find a commercial property for lease, you have to start to figure out what you’re doing as well. The market is very different and less standardized than residential property. It can even be difficult to figure out which properties exist. Plus, there are various issues to contend with, including zoning restrictions. The recommendation is to always work with a broker, not in the least because the broker fees are usually paid by the owner of the building.
Choose a Tenant Broker
Do always choose a tenant broker, rather than a leasing agent. This means that this person is specialized in helping your side, rather than that of the landlord. You will usually be asked to sign a representation agreement, meaning that you will only work with one broker. The recommendation is to not sign this agreement if you are looking for a very large property, keeping your options open instead.
Negotiating
Leasing a commercial property is a huge negotiation. The first contract you will receive will heavily favor the landlord. They hope that you will simply accept their terms and conditions, but you are in no obligation to do so. Do make sure you speak to a lawyer and an accountant about the contract and put forward your own terms and conditions in return first.
Once you sign, you will often have to provide a personal guarantee. This means that, if you cannot pay the rent through your business, you will be liable for it personally. Hence, you will usually have to go through a credit check as well. The personal guarantee usually expires after a period of time, and you should negotiate this in your favor.
In terms of fees, you will generally find that you receive a quote either by year, by month, and by square foot. There is usually a difference between the total square footage and the usable square footage. This is because there is also a common space, which is the business itself. Make sure, therefore, you are told exactly what the usable space is.
Next, you need to think about the type of lease that works for you. Your options include:
- The percentage lease, which is generally used for retail properties. This means you pay not just a base rent, but also a percentage of your earnings.
- The net lease, where you pay per square foot, as well as for expenses such as insurance and taxes. There is also the triple net lease, where you pay maintenance, insurance, and taxes. These fees are known as the CAM (Common Area Maintenance) fees.
- The gross lease, where what you pay per square foot includes all the different fees.
In terms of how you should lease, it is best to negotiate a contract that is as short as possible and where you will have a range of options at the end of your contract. This will ensure that you don’t end up tied to a lease if your business goes under, but you also won’t find yourself without a space big enough for you if your business continues to grow. The reality is, however, that most landlords prefer longer lease terms and will make these more attractive by lowering the price. Most lease contracts, therefore, are between five and 10 years. A high profile lease in London, United Kingdom, was recently signed for 165 years.
A lease is, at the end of the day, a type of rent. Rent tends to increase every year, and so does a lease. The landlord will generally use the consumer price index for this. However, limits need to be set on it before you agree to sign.
You also have to think about responsibility for maintenance. With a residential property, the landlord tends to hold that responsibility. With commercial properties, however, this is not always the case. Make sure you are aware of who has to pay for what, therefore.
Another thing you have to think about is whether or not you are allowed to make changes to the building. This has to be stated in the lease as well. If you have signed a long term lease, the landlord will usually pay for any construction you have to do inside. Additionally, if you cannot use the space during construction, you should negotiate a reduction on your lease payments during that period of time.
Other things to take into consideration include:
- Whether you are allowed to create a sign for your business and if so, how, and where can it go
- Whether you are allowed to sublease the space you have leased. This could protect you should your business go down, as you will still be responsible for the lease.
- What the exit plan clause is, meaning you know what termination fees are in place should you have to abandon your lease unexpectedly.
- Whether you can assign the lease to a new owner should you decide to sell your business
You may also want to consider a co-tenancy clause. A lot of businesses get their customers because people walk past another business. If this is the case with you, then a co-tenancy could be beneficial. These agreements mean that, if one of the businesses in the agreement leaves, the other is allowed to break the tenancy agreement as well. By contrast, if your store is the one that attracts a lot of foot traffic, you could negotiate an exclusive use clause, meaning that the landlord cannot place a competitor alongside you.
Be aware that if you do decide to lease, you will usually have to put down a security deposit. Landlords can set that themselves, and there are no caps on it. Make sure you negotiate this properly, therefore, particularly since some landlords may ask for such a large deposit that you would be better served putting it towards a down payment on a purchase of a property instead.