Renewals and Exercising Your Power in the Current Market

For most tenants, renewal time is somewhere between every 3 to 10 years. With a market where many landlord's are facing an uncomfortable situation of instability of rent, you can ease this pressure and be your landlord's best friend while getting yourself a sweetheart deal, no matter how long you have left on your lease.

I have seen a tremendous amount of tenants renewing and signing new leases for very short terms lately. While not impossible, it is most likely that today's deals are as good as you will see for a very long time. If you feel that your business plan can support it, why not extend for at least 3 years, if not more? Just as in residential, this is most likely the best time to buy or lease real estate because sellers and landlords need you now more than ever.

By taking advantage of today's market, we lower our effective rental costs for the entire term of the lease. To get the most out of our negotiations, it is helpful to see the landlord's point of view and to customize an offer that gives you a favorable rate without harming the value of their property. It is possible to get an effective rate much lower than a landlord can afford, and still have them gladly sign across the dotted line.

It is important to know how a building is valued if you aim to make the transaction a win-win for yourself and the landlord. A building is valued based on the quantity, quality and duration of cash flow. The quality is, short of taking your company public, is very hard to change. Lets work on the duration of income as well as the quantity of income.

I have found that whether in a good or bad market, free rent is almost always and easier negotiating point than lowing the rate. Free rent keeps the rental rate intact (after the free rent period is over) so if a landlord decides to refinance or sell the building in a year or two, the building will have a higher value than if the rate was lowered (higher quantity of income). Lowering the effective rate even more in a trade for stretching out the term, still makes sense to a landlord (duration of income).

You can determine the effective rate you will pay by receiving free rent instead of decreasing the rental rate by dividing the yearly rental rate by 12. For example, if a rental rate is $16 per square foot, $16 / 12 = $1.33. Therefore, each month of free rent knocks $1.33 off of a $16 per square foot rate.

That being said, there might be some wiggle room in the rate as well, so a good combination reduced rate and free rent will give you the most benefit and the lowest effective rate.

For renewing tenants that have a few years before expiration, why not effectively lower the rate you are currently paying by offering to stretch the length of your lease in exchange for some free rent now?

Market knowledge is really the key to knowing how to structure an offer with the maximum benefit to you in a way that is still acceptable to a landlord. It should cost you nothing to consult with a trusted professional because a landlord that is seeing an increase in value should be happy to pay your representative's fees. Furthermore, these fees are an expense outside of the net income that is used to valuate a building.

Note: Free rent is not the solution for all companies. If rent makes up a large portion of your expenses and you plan on selling your company in the future, a higher rental rate may affect your sales price. I recommend always consulting with a professional that will confidentially access your current and future goals and needs and creatively align them with the landlords.

Now is the time when a tenant has the most power to negotiate. If you would like help finding the best agent for your requirements, please don’t hesitate to contact me; if I can't help you, I can qualify someone who will. You can reach me directly at 813-739-5718 or by email at srupp@prucomm.com