Forward, Summer 2016 Issue

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Summer 2016 Q Forward Magazine
A fter you have located a warehouse
with the dock loading and office
configuration needed, negotiated
the rent rate, got a few improvements from
the landlord, perhaps with a few months
of rental abatement thrown in, and signed
the lease, are you ready to have your new
facility insidiously spend your profits?
It goes back to how thoroughly the facility
was evaluated before you signed the lease
or renewal. Of course, the lease usually
states that all mechanical, electrical and
plumbing systems will be operational so
everything is covered, right? Yes, you are
covered - for that moment in time, perhaps
covered for even 90 days after the premises
is occupied. But then what happens?
A thorough evaluation of the premises is
always recommended before initiating a
lease or renewal discussion. There are several
items that will need your specific attention.
This article covers the innocent little water
heater often out-of-sight and out-of-mind.
Depending upon the size of the water heater,
there is a specific limited life expectancy
for the unit. Although it varies among
manufacturers, a 15 gallon tank is warranted
for 3 years and can last 6 years, some
even longer. The 40+ gallon water tanks
necessary for multiple restrooms, showers,
and dishwashers may have a 10 or 12 year
warranty and could last 15 plus years. So
the first question is, do you know the age of
your water tank – regardless of whether you
occupy 100% office or a combined office/
warehouse facility? The second question is
do you know where the shut-off valve is
located to the waterline feeding the water
heater and can it be accessed easily?
The sacrificial anode protecting the steel
water tank is eaten up by electrolysis over
time. If you are fortunate, the electrolysis
will first create small pin holes in the tank
and water will just weep into the drain
pan or moisten the floor. In this case, you
will have time to see the leak and replace
the tank. The majority of leases require
the tenant to incur this replacement cost
– usually less than $1,000 for a 15 gallon
tank. However, there is no guaranty that
the tank will only weep. The electrolysis
could just as easily eat through the steel
tank and blow out a nickel size hole. With
water pressure at 40 to 50 pounds, this
blow out could have a very costly impact
on your profits. Of course, these things
never happen when you are standing next
to the tank. They happen after hours, on
weekends or holidays. The first person on
the scene needs to know where the shut-off
valve is located, otherwise additional time
will be lost while the property manager is
called and someone arrives at the facility to
shut off the water. Think of the impact that
10-12 hours of water would have as it flows
over floor coverings, absorbs into sheetrock,
wets boxes and cargo stacked directly
on your office and warehouse floors and
infiltrates the neighboring tenants. Sure,
you have insurance that may cover this
type of event. But nonetheless, business
interruption, customer goodwill and all
physical damages can be repaired – at a
cost – reducing your profit.
This situation is easily prevented by
thoroughly evaluating the premises, asking
a few more questions and adding language
in the lease for the landlord to replace
any water tank over 6 years old. You can
go even further to safeguard your facility,
whether existing or newly build-out, by
specifying that the water tank be a gas-
fired tankless system.
There are numerous other physical
conditions that should require your
consideration before negotiating terms for
the lease. The age and condition of the
HVAC unit(s); the brightness and type
of lighting fixtures in the warehouse; and
the age and installation method of any
edge-of-dock levelers, just to name a few.
We will address these topics in upcoming
issues of Forward magazine.
Does Your Warehouse
Spend Your Profits?
By Dale M. Hoxie, Principal Broker, Barrett Industries Commercial Real Estate Division, Inc.
AfA Special Features