Reduce Your Lease Rate Significantly-Blend And Extend

Numerous companies are under the impression that they are obliged to live with whatever terms and conditions are stated in their current lease until it terminates or, that they can approach their landlord, convey that they can't meet the expense of their existing above market rental rate, and the landlord will readily reduce their rent to present market rates. What is the most accurate answer? Generally neither of the above examples is accurate.

Here's how to get the most gain:

Realize that some landlords are just not open to renegotiate any terms - frequently because they are in financial trouble and don't have the leeway to do so. Some landlords are apprehensive of losing an important tenant they may need in order to renew their financing terms which their lender made a loan restructure contingent upon. The landlord may cut the rent in expectation of future worth. Most landlords, however, do not fit either of these categories.

If an owner is for the most part interested in earnings over the long term, they are in many cases prepared to take into account any proposal that will present them with better lasting profit. Most private equity investors, individual landlords and pension funds fall in this group. The rate reduction objective of the tenant and long term value goal of the landlord are not mutually exclusive. A formula that we call "Blend and Extend" will enable them to each fulfill their objectives.

Think of it in similar way as taking a bank loan and amortizing it over a longer period of time to lower your payments, you can negotiate with the landlord to extend your lease at market rates, if below your current rent schedule, and restructure your lease to give an immediate rate reduction. For greater savings, or if market rates are equal to or above your current rate, you can also give a portion of the space back to the landlord.

For example, if the existing lease is for 20,000 SQFT of office space at $2.50 per square foot with two years remaining, the remaining obligation is $1,200,000.00. If the market rate is now $2.10 and you only need 15,000 SQFT, restructure the lease by adding three additional years of term (15,000 x $2.10 x 5 years = $1,890,000.00). This provides the landlord with an additional $690,000.00 of value on the lease. It also drops the tenant's rent from $50,000.00/month to $31,500.00/month a 37% difference.

Most Landlords will consider a proposal so it is well worth the effort. Will all landlords? No. This is just one example. There are more creative ways to accomplish similar benefits to create win-win situations for both parties. The key to gaining the landlord's interest is to structure the lease so that the new overall obligation exceeds the obligation remaining on the existing lease.

In order to maximize your chances of getting your landlord's overall interest, it is a good idea to make certain your advisor is a seasoned tenant rep with an outstanding reputation among the landlord community. Make no mistake about it; landlords are dependent upon the tenant rep community to keep their buildings full. For the most part, landlords want to make sure their tenant rep relationships remain rock solid.