5 ways tenants lose money in a renewal or relocation transaction

5 Ways Tenants Lose Money In Renewal Or Relocation Transaction
By Mark D. Rauch

Relative to a company's revenue, the direct cost of a lease usually represents a significant economic expense. The costs associated with a lease that inhibits a company's flexibility to expand or contract, a building without an adequate infrastructure or the indirect costs of the wrong location, can be quite large. You can ensure that your real estate objectives are not compromised by adopting a strategic approach to your lease transactions, thereby avoiding the following traps:

1. Starting The Process Too Late. Not allowing sufficient time to develop other options leaves you in the position of testing a Landlord's sense of fairness and equity. Leverage is the key to negotiating a lease transaction. Without leverage you cannot expect to negotiate a below market transaction. "Timing is everything" as the saying goes. Tenants cannot always time the conditions of the office market, but they can control how much time they allow themselves to negotiate a transaction.

2. Not Having A Strategic Plan In Place. Often, Tenants enter the office market in search of a "killer deal" on space without having thought out what they need to achieve in order to meet its business goals. Objectives such as:

� Location

� Lease Term Flexibility

� Lower Rent

� Size Flexibility

� New Space Configuration

� Lower Up-Front Capital Costs

Rent abatement is meaningless if a Tenant selects the wrong space or location.

3. Foregoing a Single Point of Accountability. Someone must be accountable for driving the transaction to its conclusion. Lease or purchase transactions don't happen by themselves. There is no absolute industry standard formula for how a transaction unfolds.
Best case scenario, an expert with many years of experience in the transaction process brings it to a successful conclusion through consistent and effective communication with all players involved in the transaction.

4. Not Caring What The Landlord's Goals and Objectives Are. Often enough real estate transactions do not come to a successful conclusion simply because the Landlord and Tenant do not take the time to understand each other's objectives. Issues such as a poor negotiating style, a lack of communication, little or no market knowledge or not enough probing can contribute to this.
It should not be a foregone conclusion that all transactions become adversarial. It is always best to avoid tension between the parties. Especially since the relationship between the Landlord and Tenant will live beyond the negotiating process. With a proper understanding of each other's objectives, the most important goals will often be met provided both parties have a sufficient knowledge base.

5. Assuming That A Lease or Purchase Transaction Is Simply About Real Estate. The typical lease transaction involves many issues including but not limited to the following categories:

� Programming requirements

� Office building market analysis

� Initial report

� Initial tour

� Ongoing financial analysis

� Ongoing paring down of preferred sites

� Ongoing negotiations and legal issues

� Final site selection

� Space planning and design

� Tenant improvement build-out

� Telephone and data systems

� Moving issues

Lacking the appropriate expertise in any of these areas will cost a company time, money, flexibility and efficiency! The more that decisions in these areas take into account company goals, objectives and operating considerations, the better served the company will be.