Restructuring Existing Leases
Mike Moloney, President
Most big real estate investments will have financial restructuring this year, but not a lot of ownership transfer. The lenders do NOT want the property, and DO need someone who knows the property to operate it as well as the market sustains. That person "in the know" of institutional grade properties is usually going to be the REIT, ownership LLC, or existing Asset Manager. OK, so we are not going to get to participate in most of that restructuring.
One way we CAN participate is in re-structuring the leases with existing tenants.
1. Reduce the rent to comparable, competitive space that is actively on the market for lease. You can find the "availables" easily on your local CIE, LoopNet, or PropertyLine.
2. Keep in mind while negotiating that
there are several significant costs to the existing tenant if they move:
3. Flatten the rent for the next 3 years, and
then use a formula to recalculate the rent.
4. Either give the tenants a rent credit for
the cost of some TI upgrade, or if the owner actually has some money or credit,
5. Offer a temporary rent credit if the
tenant will change to a 4 day-10 hour work week, thereby reducing building
6. Allow the tenant to sublet to a customer or supplier of theirs. (Or suggest one yourself, and get a leasing fee.)
Be sure to invoice the owner for the rent over the new term, with a credit for commissions you already earned for any overlapping term that is replaced by the start of the new term.
More next Friday, Jan. 15.