Many useful planners love Mike Tyson’s quote, “Everyone has a plan until they get punched in the face,” but I like to think the more relevant quote is General Patton’s: “It is the act of creating the plan that the real thinking goes into the project, not the adherence to the plan.”
If you go into an initial project timeline knowing that a portion of it will be a puzzle, it will be easier for you to sort through the pieces. For example, a part of the plan is dependent upon securing the right building. You can’t plan for which way the sunlight shines into your new executive office, but you can prepare for the fact that you will have an executive office that will require furniture, data connections, and artwork. This is where a preliminary timeline can help. A preliminary timeline helps glue together a project and creates a document where all inputs can reside and be factored into account.
Lease Expiration & Holdover
When it comes to timing, the existing warehouse lease expiration tends to have the highest impact. This is the date where your warehouse is no longer yours, it is the landlords. Knowing your lease expiration is the easy part. Thinking through all of the things that need to take place in order for you to be fully operational in your new building – in advance of your lease expiration – is the challenge.
When looking at your lease expiration, you must look at section labeled Holdover. This is the section that states that you are not allowed to stay in the building after your lease has expired, on a month to month basis, and if you do, you will be penalized by having to pay 125%-200% rent.
This is the exact opposite of that apartment you likely rented after college or that single family rental you own for personal investment. In residential real estate, landlords and tenants alike appreciate having the lease be month to month because either party can terminate it, and there is the ultimate freedom if you have a change of plans or the relationship sours. In commercial real estate however, the landlord is looking for stability and consistency of cash flow; so is the landlord’s lender if there is debt on the property. The same goes for the landlord’s investors if they are a syndication, developer or institutional investor.
Related to that same topic, once your lease has expired, your landlord has the right to lease out the property to a new company. Once the landlord has signed a new lease with a new tenant, any leniency you once thought possible to stay in the property an extra couple of months, goes away. It now becomes possible that you are causing monetary damage to the landlord, and legal liability to your company, by obstructing the landlord from moving in their new tenant.
When you are shopping for a new building, you must think about when it is appropriate to negotiate on this new building. For example, let’s say you are one year out from your current lease expiration. Are there any buildings that are available today, that you can sign a lease on now, that will start in 12 months? The larger the building, the higher the probability. For example, renewals on 5,000 SF warehouse may happen 3-6 months out. Renewals on 75,000 SF may happen 6-12 months out. Renewals on 300,000 SF may happen 12-18 months out. Spaces up to 1,000,000 SF can happen 12-24 months out, especially when it is new construction.
The basic components of an industrial transaction differ based upon the nature of the transaction. If we renew or extend the lease on an existing facility, we will have one timeline. If we relocate to a leased facility, we will have a different one. If we buy our next facility, we will have a third timeline. If we buy land, build and relocate our next facility we will have a fourth timeline. And if we have to sell our current building to then go and buy a new building to move into, we’ll have a fifth timeline.
Here I will cover the basic timeline of moving from one leased building to another. Why? This is the most prevalent process that every company goes through at some point in time in their business. Different pieces can be substituted when a lease renewal is successful and there is no actual move day, or when the nature of the relocation is based upon a purchase rather than a lease.
Here is a basic starting rubric:
- Initial assessments – 1 month
- Lease review
- Physical condition review
- Operational review
- Existing landlord review
- New building programming
- Build your team – 1 month
- Assess internal capabilities
- Assess external capabilities
- Select project champion
- Interview vendors
- Select vendors
- All hands meeting
- Build your timeline
- Market Engagement – 2-3 months
- Assembling opportunities
- Property tours
- Initial inspections
- Secondary inspections and bidding
- Lease proposal negotiations
- Lease contract negotiations
- Tenant Improvements – 2-4 months
- Space planning
- Work Letters
- Furniture Fixtures and Equipment – 2-4 months
- Move Day 0-3 months
- Decommissioning 1 month
The fundamentals of project planning are differentiating between project pieces that move sequentially from ones that move simultaneously. The critical path is the path through the project that links everything together and forms the basis for the best-case timing for your project.
The variety of project timelines I see out there runs the gamut from nonexistent gut checks to fully formed construction project planning Gantt chart line items. The more complex the project, the more complex the timeline. No project benefits by less foresight. What does your organization need?