Are you a small business owner and still deciding whether you’ll sign that new lease or not? By listening to this episode, Tyler Cauble, the author of Open for Business, is an expert in estate market that can help you.
Since he was 21 years old, Tyler Cauble has already been an expert on the Nashville commercial real estate market. Currently, he is the Vice President of Commercial Leasing at Vastland Realty Group who is committed to helping out business owners understand the market so that they can grow their business.
Whether you’re looking for a new storefront or location for your business or you simply need to get out of your garage, this episode is for you.
In this episode, Tyler Cauble provides meaningful insights such as:
- Common realty pitfalls of small business owner
- Why representation is vital when looking to lease for a business
- A quick look at how realty fits into a financial plan
Tyler Cauble: My parents got divorced when I was in high school. I very quickly learned that if I was going to go out there and make something happen for myself, it wasn’t going to happen. As soon as I graduated, I got a job in direct sales.
I did that for about fifteen months and really enjoyed it, then realized from the training and my experience there that I was really good at sales and relating to people. So I decided to continue that.
I moved back to Nashville, got involved with my grandfather’s construction company, then got a call one day from my former step-dad asking if I wanted to come do real estate for him.
After I thought about it for a bit, I said yes. I really just started working on leasing our in-house properties that he owned. They were always smaller shops, 3,000 square feet and less, which meant that I was really dealing with small business owners.
That was when I came to realize that small business owners really have no idea what they’re doing when it comes to leasing commercial real estate. A lot of people don’t even know that commercial brokers exist.
I had seen a lot of people get into trouble because they weren’t negotiating their lease, and every lease is negotiable.
Every point in every lease is negotiable.
Representation Protects Your Business
Charlie Hoehn: Is it common for people to be taken advantage of?
Tyler Cauble: I saw someone spend $100,000 on her build out for a 2,000 square foot space and the contractor didn’t put electrical outlets in the space. He didn’t put overhead lighting in the space. And she was left with the bill.
“There was nothing that she could do about it.”
It’s actually very common. These business owners are starting a business because they understand what that business does.
If you don’t have proper representation getting into the space, somebody’s going to take advantage of you.
Landlords do this for a living, and they have a team put together. Contractors do this for a living, and they have a team put together to make sure that everything goes smoothly and in their favor.
For business owners, there was no singular resource for business owners to learn how to go about the process correctly.
Charlie Hoehn: Was that a worst case scenario?
Tyler Cauble: You know, that’s by far the worst instance I’ve ever seen. I talk about it in the book, but the most common thing I see is regards to HVAC units.
“In a lease, the landlords will typically try to get the tenant to pay for everything, that way the landlord isn’t responsible.”
Well, that’s great in some instances when it works out for both parties. But for a business owner that doesn’t know what they’re looking at, if they don’t have an attorney to review the contract, they have no idea what they’re signing.
A lot of these leases have a clause that say the tenant is responsible for the HVAC units, which seems pretty benign when you just hear like that. But you’ve got to realize, you’re going into a second generation space, unless it’s new construction. That HVAC unit could be 12 to 15 years old.
Well, if that HVAC unit blows out three months in your lease, you’re going to have a $10,000 HVAC expense and a nice brand new fixture that you’re donating to the landlord. That’s actually relatively common.
Charlie Hoehn: What are some of the other hidden costs that renters would have to deal with?
Tyler Cauble: One thing that we always look for is what’s called the MEP: it’s mechanical, electrical and plumbing. You want to check mechanical, which is your HVAC units. Electrical is wiring, all the voltage, everything like that. And then plumbing of course.
Some of that stuff is really difficult to just look at and see if it’s in good condition or not.
“I always recommend to my clients that they get an inspector to walk through the space.”
They’ll be the ones that get in there with cameras that they can get down into the plumbing lines and get up into the crawl spaces and up into the drop ceilings and take a look at all the wiring.
I had a client where we were renovating a space for them as a chiropractor here in Nashville, and the contractor got in there and pulled the ceiling tiles down, and he said he had no idea how the building hadn’t burned down yet because the wiring was so bad.
My client had been operating out of that space for five years.
Why Tyler Cauble Wrote Open for Business
Charlie Hoehn: If you had to pick the main idea from the book what would it be?
Tyler Cauble: I wrote the book based on an eight step infographic I came up with. I had a bunch of friends who were authors, and when you’re surrounded by people who are authors you think, I can’t be the only one of my friends that doesn’t have a book.
I was looking at this infographic and said, “My gosh, that’s a book.”
It was an eight step guide to leasing commercial real estate. The whole book goes into depth on everything from determining your needs, whether you even need to be leasing an actual commercial space to leasing, to negotiating a lease and opening for business.
“Throughout the book, I do highly recommend that business owners seek representation, because it’s very similar to buying a home.”
When you’re out there buying a property, you don’t actually pay your real estate agent. It’s the exact same way in commercial real estate.
We get paid by the landlords, and our services to you are free, which means that you get all of that expertise, all that knowledge, all that security at no cost to you.
It doesn’t make sense not to have representation.
Charlie Hoehn: Why don’t more people seek out representation?
Tyler Cauble: A lot of entrepreneurs and business owners are very A type, very driven. They’re very good negotiators. They think that they can negotiate the deal, which they typically can.
But this isn’t like an apartment lease that you sign when you were back in college. Everything in here is negotiable, and landlords don’t actually have a responsibility to watch out for the business’s best interest.
It is not like renting a residential home where there are a lot of laws protecting tenants.
If you sign a lease that says something, you have to adhere to it unless it’s illegal. I mean, that’s how landlords get away with having HVAC expenses passed on.
“The other significant portion of people that I deal with are business owners who didn’t even know commercial real estate agents exist.”
Sometimes they’ll work with a residential agent, which is just as bad as having no representation, or they’ll go it on their own.
When you’re trying to focus on your business, you really don’t need to be spending all that time driving around, calling up brokers, trying to take a look at spaces. There’s no commercial MLS like there is in residential.
It’s kind of a wild, wild west to be honest.
Trying to Find a Lease on Your Own
Charlie Hoehn: How long would that process take in a typical major US city, if you go it on your own and drive from property to property and look at things and try and figure things out?
Tyler Cauble: Last year, we worked with a pest control company that was actually represented by a residential group, and they were in a property that I had the listing on. I went in and talked to them and said, “Hey look, we’ve got a tenant moving in after you guys and wanted to make sure that you all are good on representation getting out of here.”
They go, “You know, we’ve got a residential agent that’s representing us, she’s going to bring us some properties.”
Well, that was three months before they had to be out. It comes down to within 30 days, and they call me and they say, “Hey, we haven’t been able to find anything, can you please help us out.”
I pulled a property list and within a week, we had it negotiated on the spot and had them in.
You can spend months looking on your own, or you can go talk to somebody that knows what’s available in the market, knows how to find those deals, and knows who to call if nothing’s available.
Obviously I’m an entrepreneur, I do my own thing. But if I were ever in the market for a job, there’s no way I’d be looking on my own. I would go straight to a recruiter. People that are moving to Nashville reach out to me that say, “How do I find a job in Nashville?” And I point them straight to recruiters.
We actually almost named the book, “Everything is Negotiable.” We ended up going for Open for Business because it’s much more business oriented.
“But in a commercial lease, everything is negotiable.”
I mean, there are a few points that you can’t touch—often times, the insurance policy, or maybe the lender on the property has set a rental rate that they can’t go below $17 a foot. You know, there’s creative ways to get around that.
But everything else—if you want free rent, if you want the landlord to pay for the build out…I mean, I’ve got a client that sets up a van with their giant logo on it outside while they’re building out the space. That’s something you want to negotiate and put into the lease.
We’ve seen everything from “Hey, we’ll do this deal, but we want you to throw in that Range Rover.” Literally, however you want to negotiate.
That’s the beauty of commercial real estate. It’s very professional, very robust negotiation.
Charlie Hoehn: What would you advise me on to start with if everything is negotiable?
Tyler Cauble: You always want to have leverage. What we’re working on with our clients right now is really taking a step up on how professional they are as we present them. I won’t work with a client if they don’t have three years of tax returns, business or personal. A personal financial statement, a credit report, sometimes a business plan, I can get away with a company or entrepreneur bio and their history and a branding package.
When we present those to the landlord, it gives us a lot of leverage in the negotiation, and that’s really what you want.
It also depends on how hot or cold the market is.
If the market’s really hot, you kind of have to go with what the landlord says. It’s in the landlord’s favor. But when it’s cooler, I mean, I’ve seen people negotiate six months free rent, twelve months free rent. Just depending on how badly that landlord needs somebody in the space.
“Right now in Nashville, you can get up to three months free rent even though it’s a hot market.”
You kind of have to be familiar with it and you have to be around it to know what you can and can’t ask for.
Do Businesses Even Need a Lease?
Charlie Hoehn: I’ve spoken with some authors on the show who said the future of work is remote work. What type of people are you working with that are wanting to get into these buildings?
Tyler Cauble: People have been bringing that up to me quite a bit lately. I keep getting the question, are you worried about your job, are they taking business away from you?
Remote work kind of stuff is great, but really, these co-working spaces, that’s a step for a business.
“If you want to be the next Uber, you’re not going to be working out of a We Work.”
It’s great for someone to get in there, incubate their idea, hang out with other entrepreneurs as they grow. But then move in to a more professional office.
I do a lot of offices in retail. We do some industrial as well, but business owners from 250 square feet to 10,000 plus.
Guidance Found in Open for Business
Charlie Hoehn: Let’s get in to the nitty gritty of your book. Walk me through some of the main points that you really want listeners to take away from this episode.
Tyler Cauble: The first thing that we do is help you determine whether you even need a space. Some business owners think the next step to naturally growing a business is to get an office. That’s a lot of overhead that you may not need to incur on your business.
We recommend you run your numbers, consult your CPA, any business coaches, lawyers, mentors, and figure out if it makes sense. Then we help you determine your needs based on how many employees you have or how much storage you need or what kind of area of town do you need to be in.
Then I talk about how to assemble your A team.
“Landlords do this for a living and they still have their own team of professionals put together.”
I tell you how to find the right broker, how to interview them—because that’s very important. Not all brokers are created equal. Some will work harder for you than others, and that’s a fact.
How to hire an attorney, how to hire a contractor and how to make sure that it’s actually a good contractor so that you don’t have what happened to that lady that we were talking about earlier.
Then we talk about focusing on your business. Now that you’ve hired your A team and gotten them all together, focus on your business. The last thing you want is to be so focused on finding space that you start letting sales slip by, and by the time you actually find a good space, you don’t have enough revenue coming in to justify moving into it.
Let the professionals do their job.
Then we talk about the site tour. We talk about how to review the sites, how to go and take a look at them, what kind of demeanor you need. It’s just like buying a home, you don’t want to walk in and go, “My gosh, this office is amazing, this is the only office we could ever have, I love this part of town.”
“This is all about leverage and negotiating.”
Then we show you how to weigh your options. You’ve got three spaces, well, what are the pros and cons of each space? What makes the most sense for you and your team and your customers and the future of your company?
Then we talk about the letter of intent and the lease and the whole negotiation process. Really, there could be an entire book on its own. We dive into it a little bit just to show you what your broker and your attorney are going to be doing for you during that time.
Charlie Hoehn: What are they going to be doing?
Tyler Cauble: Well, there’s what’s called the letter of intent, and the letter of intent is basically a precursor to the lease. It has the basic economics of the deal. Rent, free rent, the term of the deal, who the parties are, what the address is. If you can’t agree on the rent, there’s no point in talking about who is going to pay for common area maintenance and who is going to pay for changing lights in the hallways.
Once you’ve set the letter of intent, then you go to the lease. I always negotiate the letter of intent on behalf of my clients because that’s a very simple document. It’s not a legal document, it’s not binding.
Then we’ll send the lease to an attorney. I’m a broker, I don’t have a legal degree, I can’t give you legal advice.
“While I do look at leases every day and know how to negotiate them and know what should and shouldn’t be in there, I always defer to an attorney.”
Once that’s all settled, I like to go through every point and say, “Do you understand what this clause is? Do you understand what you’re signing?” Because my clients need to understand that they’re signing a three or five year deal that is a legally binding contract that they will have to adhere to.
Then I talk about opening for business and what you need to keep in mind moving forward so that you don’t go into the default on your lease.
Commercial Real Estate Learning Curve
Charlie Hoehn: This seems like an overwhelming amount of information. What was the learning curve for you? How did you get to the level you’re at?
Tyler Cauble: Man, yeah, that was one thing that we realized when we were going through the book. There’s no way anybody’s going to read this and know what to do, right? That’s why we try to be as helpful and resourceful as possible about hiring and assembling your A team.
I’ve been in the business for four and a half years now, and for the first two years, I had no idea what I was doing. I had a couple of buildings, a shopping center, and an office building listed, and I was told to go find a tenant and figure everything out after that.
Really, I didn’t learn until closer to my third year when I was comfortable in doing everything. That’s when I started taking on outside work doing listings for other landlords and representing tenants looking for space.
“It took me three years to learn what I’m doing.”
It is not a short learning curve. They say it takes about three to five years in commercial real estate for you to learn everything, because these are big negotiations and there’s a lot to it. It’s a lot of legal work. It’s a lot of hitting the pavement finding deals.
I’m still learning stuff every day.
Success from Open for Business Negotiations
Charlie Hoehn: Are landlords going to love your book or hate it or not really care?
Tyler Cauble: You know, I can imagine that landlords wouldn’t really care, I mean, look, we’re landlords ourselves. I represent landlords. The intent of this book is not to slight landlords in any capacity. The majority of work that I actually do is on behalf of landlords.
“When everybody knows what they’re doing, it always makes a deal that much easier.”
It’s like working with somebody that’s bought three homes in their lifetime versus that first time home buyer. You know you’re going to have to work so much harder to sell that home to a first time home buyer.
Having everybody on every side as educated as possible is the best thing for everyone.
Charlie Hoehn: What have been some of your favorite success stories?
Tyler Cauble: Let’s talk about the lady I was talking about earlier. The 2,000 square foot space and spent $100,000 on her build out.
Well, not only did she get taken advantage of by the contractor, but she had chosen a horrible location. She put it right next to her other business thinking that it would make sense for her to be able to walk next door. Well, the kind of business that she was starting needed to be in a really nice retail area, and she was in more of a rural office area.
The business was going to fail no matter what.
We shut that down. She spent $100,000 on this space for three months, which is really rough, but we wanted to save the business. So we shut that down and moved her into a really high density, high end retail district.
“She’s doing phenomenal today.”
We made sure that the buildout was done right. I got her hooked up with a contractor that I know, like, and trust, which made all the difference. They were willing to work with her throughout the entire process.
It was a tough negotiation because she had gotten burned. She was obviously being very protective of herself and being very cautious, but I was there every step of the way to explain what was going on, why we were doing what we were doing, and what would be best for her.
I actually took her to a space that made me less money than another space that we were looking at because I told her, “Look, as far as your business goes, I would promise you this: I’m making less money, but it’s the right decision for you.”
It’s not about me at the end of the day. It was all about doing the right thing by her.
Consequences of Failed Negotiations
Charlie Hoehn: How often do you see businesses going out of business because they are in a bad deal real estate wise?
All the time, and it’s the saddest thing. Fortunately, in my four years, I haven’t had a single client go out of business because they didn’t have enough traffic coming to their store. They haven’t had any clients close. Knock on wood.
Location is definitely one of the top five things you need to be considering, because your rent is going to be one of your biggest expense.
“If you have a high rent and you’re at a poor location where people can’t see you, they can’t find you you’re not going to do well.”
We see people close all the time because, just like the lady did, she opened it up right next to her other business thinking it made sense. That’s not what you should be basing your location decision on.
Charlie Hoehn: Is the rule of thumb for business owners similar to having an apartment? Like no more than a third of your income goes to rent?
Tyler Cauble: There are a few numbers like that. Restaurants like to be at 6% of gross sales. Their rent needs to be at 6%. Retailers like to be 10% to 12%, but of course, they could be lower than that. An office, you can’t really quantify it.
It really comes down to the business, because you can have an office where there’s three people in it and they want just a massive office because they are going to be entertaining people all the time, or you may have a call center where they want to jam as many workers in there as possible.
It really varies. That’s why I always recommend we sit down with a CPA or your CFO to figure out what makes sense and what can we actually afford.
If we move and no new business comes through that door, nothing changes, what can we afford?
Building Your A-Team with Tyler Cauble
Charlie Hoehn: What is a challenge that you could give our listeners?
Tyler Cauble: I would say the most important thing is assemble the right team. If you have the right knowledgeable force with you, then you don’t have to worry about it.
“That’s what all great leaders do right? The best leaders always delegate.”
I am never going to know enough law to represent myself in a lawsuit. I am always going to hire an attorney no matter what.
Even if I become a general contractor, which is something that we do dabble in, I am not going to be the one that’s in there laying tile. I am always going to hire a guy to do that because they will always do that better than me.
With your business, how can you replace yourself with somebody that’s more knowledgeable in that field and will streamline your process?
Charlie Hoehn: So who do they need on their A Team in regards to commercial real estate?
Tyler Cauble: Attorneys, brokers, contractors—but a broker is always the best place to start.
If somebody came to me and they didn’t know anybody else, I could point them to two attorneys that I love and I know do good work. I could point them to two or three contractors that I love that I know do good work. I want to make sure that they take care of you because you’re my client.
“Even if you are not really looking to move anytime soon, it never hurts to have a broker on your side.”
What happens if tomorrow the landlord tries to kick you out of your space, which I’ve seen, for no reason? Some people, when the landlord says, “Hey I need you to move out,” they’ll just go, “Oh okay, well you know give me a month and we’ll move out.”
It helps to have a resource that doesn’t charge. When my clients call me, I don’t charge a $150 or $250 an hour for that kind of stuff.
If you guys want us to help you find a broker in your market, we’re more than happy to do that since we know what brokers should and should not be doing on your behalf.
Charlie Hoehn: How can our listeners stay connected with you and follow what you are doing?
Tyler Cauble: So I really love Instagram, it’s been a very good platform for me. It’s fun just sharing pictures and behind the scenes of what we are doing. If you want to see me in a pajama onesie for Christmas, you could check that out too.