Evaluating new sites for the multi-unit operator can be a daunting task. The operator is constantly chasing a number of potential opportunities only to have a few select sites come to fruition. Complicating the site selection process is generally a lack of an evaluation tool that can be used for all departments that are a part of the decision-making process. This evaluation tool should address all of the components of the site – location, build-out costs, landlord terms, a financial Proforma, etc. – in order to provide a complete assessment of the property. Below are the key components to include in your real estate site evaluation form.
Step 1: Identify New Potential Site
First, you need to identify the site attributes – where it is located; the site owner; when does the lease begin and end. In addition, the real estate team should assess what classification the premises should be tagged – is it in a residential area? Industrial? Retail? The site attributes should also indicate approximately what size unit can be erected here and the other tenants that are in the center (if applicable).
Step 2: Site Ride and Reviews
Next on the list should be an assessment of the demographics that make up the potential site. Determined what is the ethnicity mix for the unit. Also, based on the location and whether the demographics support a growing area, you should assign an overall grade to the viability of the unit. Is it on a busy corner with easy access in a growing area? If so, that would be a “A” rating. A midblock location with access from a divided highway, may garner a “B” or “C” rating. Lastly, most retailers have different tiers of their stores from basic to a flagship or premier location. Now would be a good time to label the anticipated unit here.
After the demographics and the site rating are complete, an overall evaluation of the general area should be completed. Assess the overall condition the area and streets. Does the traffic flow freely? Is it walkable? What are the impediments to customers visiting the site? Overall, is the site accessible as well as visible? Consideration should also be made for the topography of the land as it pertains to building the site. In addition, you should start thinking about the product mix based on the demographics as well.
Step 3: Preliminary Construction Costs
Now it is time to have the facilities team make their assessment. The team should be looking at all the costs for the build-out of the unit including permitting, design, construction, equipment and capital labor. At this point, the facilities team should have a ballpark number in hand in order to hand over to the operators so that they may build their Proforma model.
Armed with the capital costs to build the site, the operations team should plug in their projections into the financial Proforma. Included, but not limited to, should be the following:
- Sales revenue
- Expected gross margin
- Operating expenses
- Other Income
Step 4: Estimated Site Economics
With that information as well as the expected build-out cost, the financial Proforma can be created and the return-on-investment (ROI) can be determined. Most Proforma’s are projected to 10 or 15 years and the operations team can provide the annual escalators to their projections.
Step 5: Site and Floor Plans
To further explain the site, the following documents should be included in the real estate site selection package:
- Site plans
- Floor plans
- Street Views
- Overhead Google Maps
- Street Maps
Step 6: LOI and Negotiation
Next, the real estate team should include the Letter-of-Intent (LOI) from the landlord for all to review. Included in an LOI should be the following:
- Initial term:
- Option term:
- Base rent: Term Rate/PSF Annual Rent
- Option rent:
- Landlord delivery:
- Possession date:
- Commencement date:
- CAM, real estate fees:
- Taxes and insurance:
- Security deposit:
Step 7: Sign Off
Once all of the evaluation site attributes are complete, the owners of each section review the overall document and determine to either go-forward with a sign-off or kick it back to the team for further evaluation. This is the moment of truth for the site. The business owners of their respective areas, need to be aligned here for the site to move to the final approval stage.
Step 8: Final Approval
At this stage, the executive team either blesses or sends the site back for further evaluation. Generally, if the executive team has worked in tandem with the business leaders in identifying the attributes they are looking for in a new location, this approval process should be fairly simple.
In summary, having structure around your site selection evaluation will streamline the process for all parties involved and enable an organization to move projects through the pipeline much faster (or eliminate potential sites quicker). When an organization is trying to grow organically it is prudent to have the necessary backup for each new site so that when you do a post-analysis in the future, you can refer to the documented decision-making process for each and every location.