What are pitfalls to expect in leasing up boutique office suites?

[Colton T.]

Good evening.

Looking for some wisdom / experience from someone who has leased up office suites to various tenants in small, historic, boutique environment or something similar.

What kind of issues can come up either between the tenants themselves or in dealing with multiple leases under one roof? Would love to hear your success stories and horror stories.

Thanks

Colton

[Eric Weireter]

@Colton T. I currently manage a portfolio for a client of ~130k sf of historic office buildings, with each property typically being in 15k-25k sq. So, I am extremely familiar with these boutique offices that you refer to. 

When leasing, we had an attorney draft a standard lease agreement. We do the leasing for these properties without a commercial broker since it's not a complex transaction. It's also unlikely that the tenants that are looking to lease this type of space have a broker either. We don't offer any TI, what you see is what you get. We'll freshen up the paint and wax the terrazzo floors, but you're not getting a kitchen, new carpet and the nines. 

You have to understand, the majority of tenants that take these boutique offices are typically solo shops (attorneys, counselors, designers, insurance, logistics) and occasionally have up to 4 employees. The longest lease term we offer is 3yrs, but the majority are 1yr leases. The majority of these tenants are not established and are just trying to figure out if they have a viable business proposition and are trying to do so outside their personal residence.  

From the management standpoint, collecting rent from these small tenants is significantly more difficult than my large corporate tenants. We require all our tenants to pay online through a portal (which has an automatic payment option), but often the small tenants are accruing late fees and or NSFs. 

Happy to answer any other questions.