Phase IV Topics

Phase IV Topics

Questions To Ask

Assembling Your Project Team

Project Financing

You might be thinking…

I found an opportunity that I am interested in pursuing further. Now what?

By now you should have a good idea of what the rent terms are for the space based on information provided by the landlord or the broker listing the space. You should also know other key economic terms of the lease itself. But there is more to understand and more details to research before making final decisions about a space. Without spending too much time and energy, it’s important to understand all that will be required to open your business.

Terms to familiarize yourself with

Architects are responsible for design services, project oversight, administration, and visual and technical aspects of the job. Only architects who are registered with a governing body are allowed to “stamp” construction documents for submission to the municipality in which the project is located. Stamped drawings are required to obtain a building permit.

Engineers are responsible for the sizing and design of certain systems within the space; the mechanical, electrical and plumbing (“MEP”) systems and the roof and structure of a premises. Like architects, engineers must be registered by a governing body to create MEP plans for permit submission. Architects work closely with engineers to ensure the design execution (safety, quality, etc.) of the job. These professionals communicate and support each other to complete the project successfully. Your feedback is important, and you should be consulted along each step of the way.

Soft costs are associated with the planning, permitting, and financing of a construction project.

  • Architectural and engineering fees
  • Legal fees, permits, and taxes, property and construction insurance
  • Movable furniture, fixtures and equipment (“FF&E”)
  • Marketing, advertising
  • Initial staffing and pre-opening costs
  • Inventory
  • Working capital

Hard costs are associated with physical building construction of a project.

  • Construction materials and labor
  • Including MEP systems, finishes, etc.
  • Immovable FF&E

FF&E refers to Furniture, Fixtures and Equipment.

A document (usually a spreadsheet with two columns) that details where the project budget funds are coming from (owner equity, investors, bank debt) and how the funds will be spent (hard costs, soft costs, etc.).

The Profit and Loss statement (P&L) is a financial document that summarizes revenues, costs, and expenses incurred during a given time period (quarterly/yearly). This document provides information about a company’s ability or inability to generate profit by increasing revenue, reducing costs, or both.

A Profit and Loss statement is also referred to as an income statement, a statement of profit and loss, an income and expense statement, or a statement of financial results.

Questions To Ask

Questions To Ask

Consider the following:

  • Signing as an individual is not advised.
  • Will you create a new single-purpose entity or LLC, a holding company, etc.?
  • Speak with an attorney and/or accountant about the benefits/risks of each option.

This will vary depending on the space condition, use, and location.

Create a detailed timeline with target dates for completing lease negotiations, design, permitting, construction, and opening. Refer to Phase I for more details on project schedule.

Ask the landlord or landlord’s agent if they require any additional information from your team to feel comfortable moving to the proposal stage.

Assembling Your Project Team

Next, you will need to pull together your team members to help you with underwriting and deal making. Team assembly is discussed in earlier phases, but the following offers more detail on how each member can help you at this stage of the process.

Broker

  • Compensated by landlord in most cases
  • Leads search process, organizes and typically accompanies you on tours
  • Leads the Letter of Intent (LOI) negotiations, drives deal structure, and provides market knowledge

Architect & Engineer (A&E)

  • Two different professionals, but the services are known collectively as “A&E”
  • May join for a tour or site visit prior to official engagement
  • Helps estimate soft costs for A&E services, part of your project budget
  • Can guide you on design files and documentation needed from landlord
  • Two different professionals, but the services are known collectively as “A&E”
  • May join for a tour or site visit prior to official engagement
  • Helps estimate soft costs for A&E services, part of your project budget
  • Can guide you on design files and documentation needed from landlord

Contractor

  • Often provides preliminary advice with an expectation for future work together
  • Helps estimate the hard costs involved with the project — typically the largest expense in expanding a business
  • Can ask appropriate questions about the physical space (pertaining to your use) and potential unforeseen costs/hazards

Attorney

  • Often not needed until the proposal (key businesses issues) is completed or near completion
  • Negotiates a lease with a focus on legal issues and risk mitigation
  • May also assist with entity formation, employment matters, partnership documents, and other startup issues

Project Financing

How much will the overall project cost — and how will you fund it?

This is one of the most critical questions you will need to answer. Develop a project budget that includes approximate costs for building improvements to the space (hard costs), costs for fixtures, furniture, and equipment (FF&E), costs for fees associated with architects, engineers, attorneys, etc. (soft costs), and then pre-opening costs such as staffing, inventory, working capital, marketing, security deposits, etc.

This is one of the most critical questions you will need to answer. Develop a project budget that includes approximate costs for building improvements to the space (hard costs), costs for fixtures, furniture, and equipment (FF&E), costs for fees associated with architects, engineers, attorneys, etc. (soft costs), and then pre-opening costs such as staffing, inventory, working capital, marketing, security deposits, etc.

Next, you will need to identify your funding sources.

1.

Make a list of your funding sources, including landlord contribution (TIA or Landlord Work), bank debt, equity investors, grants or loans, personal cash, etc.

2.

Funding sources and how the money will be spent is called the “Sources & Uses of Funds.” Landlords will often will ask to see this in written form. This helps give them the confidence that you can execute your plans on opening your business.

Funding sources and how the money will be spent is called the “Sources & Uses of Funds.” Landlords will often will ask to see this in written form. This helps give them the confidence that you can execute your plans on opening your business.

3.

Prepare estimated Profit & Loss statement (“P&L”) for a minimum of 2-3 years.

Prepare estimated Profit & Loss statement (“P&L”) for a minimum of 2-3 years.

Additional Resource

We’ve included a sample Project Budget and Sources & Uses of Funds as part of our Resources section of this Tool Kit.

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