Business Facilities - February 2008 - (Page 48)

FEATURE How to Successfully Negotiate a Lease These are the best strategies to negotiate tenant improvements: • Be reasonable in your expectations. Generally, landlords can justify stretching and providing a larger allowance for tenant improvements —that is, if they believe the dollars represent value for the space in the long term. • Consider funding the additional dollars yourself if reducing your rent is a major consideration. • Consider increasing the term of your lease to show your commitment to the space and allowing the landlord an opportunity to amortize additional improvement dollars over a longer term. • Don’t ask for tenant improvements that you don’t really need. Focus instead on lower rent, reduced rental increases, or abated rent as potential concessions. • Consider existing space where improvements are already available, since landlords will usually be more flexible if they don’t have to fund additional tenant improvements. LEASE TERMS Generally speaking, from a landlord’s perspective, the longer the term of the lease, the better; so consider a lease that is as long as possible for your business. Landlords get peace of mind and garner greater value with longer-term leases. You should be able to pay a lower rate for a slightly longer-term lease, all other factors being equal. A shorter-term lease may offer more flexibility for the tenant, but often comes with a higher rental price tag. RENTAL RATES Current rates are largely a function of economic conditions and the 48 FEBRUARY 2008 rising costs of doing business. In particular, construction costs have skyrocketed over the last few years, leading property owners to charge higher rental rates to offset these increases. Recent economic conditions stemming from the subprime lending crisis are also slowing the flow of debt available to build new space. As a result, many owners are having to fund projects with more of their own equity in order to minimize the debt load. With the increased financial investment in new buildings comes increased yield expectations that are forcing owners to charge higher rent. RENT CONCESSIONS Most new space was built with a certain yield expectation in mind. If you are able to pay close to a landlord’s asking rate and receive some relief in the form of abated rent, then you will help your landlord meet his needs while reducing your overall costs. Keep in mind that while you may be able to negotiate rent concessions in the form of rent abatements, expect that the landlord will still require you to pay your fair share. TENANT’S CREDIT WORTHINESS If you have good credit, use this to your fullest advantage during the negotiation. Most landlords can offer lower rental rates and a larger tenant improvement allowance to prospective tenants with great credit. TENANT DESIRABILITY Companies with an established brand, a strong reputation in the marketplace, or a long history of operations are considered highly desirable tenants. When signing on as the first tenant of a building, these companies are especially attractive because they effectively give the building a seal of approval that will help the landlord attract other tenants to the remaining space. Companies deemed “desirable tenants” should use this to their full advantage during lease negotiations. RENEWAL OPTIONS Landlords typically do not want to grant renewal options at fixed rates, as it limits their yields and, therefore, the value of their property. At most, you may expect to negotiate a cap on the rate that reflects a set percentage increase over the rent you paid in the last year of your base term. Market rate options are still the most common terms. EXPANSION RIGHTS Rights of first refusal can be dealbreakers for landlords because they can limit the marketability of their space. If expansion options are important to your business, consider asking for notices from the landlord when space is available and negotiate a fair deal then. After all, it is a lot easier for a landlord to lease additional space to an existing tenant than to start anew with an unknown tenant. Steve Golding is President and COO of JacksonShaw Company, a national real estate development organization with over 37 years of experience in the development and management of hotel, office, industrial, and flex facilities. The company’s portfolio includes over 35 million square feet of construction and development.

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Business Facilites - February 2008 Contents First Word Snapshots Corporate Moves: Texas Capturing the Creative Class Green with Energy Automotive Opportunities in a Green Economy Corporate Moves: Wyoming Metro Spotlight: Overland Park, KS Metro Spotlight: Long Island, NY Get Ahead in Alabama Indiana: Sending Tech Messages How to Successfully Negotiate a Lease in Today's Real Estate Environment Legislation Spurring Innovation in Kentucky New Center will Propel Ontario's Automotive Future Virginia's Vital Signs Eating Well in the North of France Advertiser Index Ask the Expert

Business Facilities - February 2008

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