The reality of realty: Location, location location

By Linda Redeffer

Business Today

A small business owner has more to consider than what's on his business plan.

If he wants to be successful he has to consider the old real estate adage: "location, location, location."

Tom Kelsey of Lorimont Place, Ltd., and Keith Monia, a broker with Exit Realty - Thomas Meyer Associates are involved largely with commercial real estate. This month, Business Today sat down with the two of them to discuss some of the considerations that go into a business's choice of location.

MONEY

"We have a very healthy commercial lease market here," said Kelsey "A lot of people are looking at our area which they perceive as a growing area. We're certainly very fortunate. It's driven by a lot of different things."

LOCATION

Kelsey says businesses are drawn to the Cape Girardeau area by its perceived quality of life, availability of a work force, a robust economy.

Some areas have more to offer than other nearby locales.

"Ste. Genevieve is a unique historical town," Monia said. "It has a lot of out-of-town traffic from people who are used to paying higher prices."

Perry County also draws a good business community, Monia said, but Jefferson County to the north and Scott County to the south don't. In Scott County's case, it has to do with a smaller population and the willingness of that population to go elsewhere for goods and services.

A longtime Scott City insurance company recently opened branch offices in Cape Girardeau and Jackson, he pointed out. "There had to be a reason."

AMENITIES

When businesses consider a building to move into, it takes into account the cost per square foot. Kelsey said that is determined by where the building is; downtown buildings lease for less than buildings in the west part of town.

That is not to say that cost is the major factor in deciding where to locate. Where the competition is also figures into the decision.

"Where are all the car dealers?" Monia said. "All the car dealers are in the same area. They're clustered like that because they know someone looking for a Toyota might consider a Honda."

Someone who wants to open a night club will look downtown where there are others to pick up some of the spillover, he said.

Other amenities businesses take into account are the costs associated with parking, taxes, utilities, insurance, common area maintenance, signage, and outdoor lighting.

REAL ESTATE

The reality of realty is that it can be expensive. Sometime, Kelsey said, it pays to rent.

"Sometimes companies would like to be in an ownership position," he said. "When they go to buy and they find they can't buy and build a small building. But then they turn around and build a larger building so they have room for another business to be in that same facility and maybe eventually expand into it. The goal would be to have tenants who are eventually paying for the space."

Companies that can afford it build leasable space on speculation. That, Monia said, involves calculated risk. If they can't lease the space once the building is up, it's possible to take a loss on gross income, but only for so long.

How much the owner is obligated for determines what he will lease to tenants for.

"If you have a mortgage on it, you can't lease for less than the mortgage or other expenses," he said. "Then it's called an alligator property; it'll eat you alive."

Landlords also consider what the going rate is for commercial leases in the neighboring vicinity. It's also best, he said, to have a few empty spaces for a hedge -- ideally a 3-percent vacancy.

"If you have 100 percent of your properties rented then you're not charging enough," Monia said. "If you have 100 percent leased and you bump the rent up a little, they can simply move out on you and you've gone as far as you can go."

It can be a bit of a gamble.

"It's a kind of like gas wars," Monia said.

"There's always lease space available," Kelsey said. "It all depends an the market, and we have had a healthy market. Sometimes it just takes longer than anticipated."