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Old 09-06-2012, 06:31 AM   #1
paul l. bowen
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Lease Opinions

Good morning All,

I'm currently working with a owner of a property. I feel like its a great place to start not to big not to small that I will grow out of it quickly. The building will need some modificaitons which most do when you talk about our boxes but thats beside the point. I also have a small construction biz which means I can do most of the changes myself. It is to my knowledge that most owners make the adjustments for the rentor. So with that being said what kind of bargining chip am I holding with this option. I feel like if the total renovations were say 2400 dollars to pay someone that should be able to take 200 a month off a 1 yr lease. Thoughts ..... And finally what about signing a two year lease is this something that I could use to lower the monthly rent for just trying to think this all out and make the best move for me and my clients.


Thanks

Bo
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Old 09-06-2012, 06:48 AM   #2
Ian Nigh
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Re: Lease Opinions

Everything is negotiable in a commercial lease, and sometimes you can negotiate a build-out allowance - although that is more common with large retail spaces and often takes the form of x months rent. With light industrial or warehouse space, it is usually take it as-is and pay for your own upgrades (you are lucky if you get one free month).

But I have seen everything from the leasor paying for a build out and then adding the cost to the rent over the lifetime of the lease, to requiring the leasee to not only pay for their own build out but to also agree to demolish everything and put it back the way it was at the end of the lease.

As I said, everything is negotiable in commercial real estate.
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Old 09-06-2012, 08:32 AM   #3
Alex Keller
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Re: Lease Opinions

On the modifications, are they general improvements to the property that anyone moving in would likely make or are they specific things that you need to make for your box (and would not be a benefit for a future tenant)? The owner would be more likely to make concessions for the former rather than the latter, because it benefits the future desirability of the space.

As far as your construction biz, that honestly complicates things in my opinion. Standard procedure is to get quotes from third parties and then get concessions based on those quotes. I would suggest getting a quote from some other contractor and negotiating based on that. If you end up doing the repairs yourself, the owner is probably only going to compensate you for materials, not labor.

There are three basic concession types that I usually see 1) Free rent, 2) Reduced rent, 3) Tenant Improvement dollars based on square footage (owner reimburses). It depends on the owner what their preferred method is, but you may be able to get up to 2/3 of the actual cost back - I would not expect to get fully compensated. You also need to agree to this and what you want done before you sign the lease, because it can become a nightmare to try to do it later.
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Old 09-07-2012, 05:56 AM   #4
Peter Hellberg
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Re: Lease Opinions

Our boxes build out is just getting completed today so this is pretty fresh in my mind. Here in PA the initial cost per sq foot was to take the property "AS IS" but we needed a lot of work done. So to get the work done but keeping the price close to the initial asking price we had to add years onto the deal. I found looking at a ridiculous amount of properties that the majority of them already had a "build out" price included in the asking price. You can probably negotiate the price down if you are going to do the work yourself. I briefly worked with a commercial real estate broker and he said that it is common to get free months rent that corresponds to how long the lease is. I.e 2 years 2 months rent abatement. In my case the landlord didn't go for the rent abatement up front (but thats when you need it most) so we settled on 8 months half rent. Best of Luck!!!!
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