Basic Steps – Beginning the lease negotiation

Greg HerznerIn this current economic cycle there are clear opportunities for consumers.  New, growing or even downsizing companies can find great value in reduced lease rates.  Simply put, this is a great time to lease office space.

The concern for owners/managers is that prospects not be overly aggressive in their negotiation.  The reality is that there can be significant cost factors that impact an owners ability to do make a deal.  This is why information is the key. Owners need to fully understand all the needs of any prospect.  They need to fully communicate their ability fulfill all of their potential customers needs.  It is reasonable for a prospective tenant to ask for the best deal they think they can get but it is prudent for owners to quickly determine whether they can meet the expectation and communicate it early in the leasing process.

For Tenants:

  1. Make sure to understand the owner’s rate structure – Full Service, NNN (triple net), Modified Gross etc.
  2. Understand the owner’s tenant improvement cost – is enough being allowed to accomplish your build out?
  3. If there is an overage in tenant improvement cost, how will it be handled?  Will the owner amortize any overage or will you have to pay it up front?
  4. Make sure to understand how CAM or expense pass through costs are calculated and how they are billed – annually, monthly quarterly?
  5. Lastly, while you may have a certain price in mind, the owner has to calculate the tenant improvement costs, operating costs and leasing commissions in their rate offer.  If the price is higher than you desired/expected, it is reasonable to ask to review those costs.  There may be an area to compromise to achieve your rate expectation.

For Owners/Managers:

  1. Be accommodating and up front with your prospect.  Whether they have representation by a broker or not, prospects seem to assume there is some “smoke and mirrors” in the information they receive.
  2. Be willing to share your analysis of the deal with the prospect.
  3. Tighten up tenant improvement costs.  Make sure your contractors are giving you the best possible pricing.
  4. Know the bottom line you are willing to net in a deal and don’t be surprised if you get there in this market.
  5. Last but not least – be creative.  There are lots of ways to structure a deal.  Know your prospect’s needs and drive all of your decisions toward that end.

In closing, my belief has always been service and dedication to your customers and prospects will win you deals more often than not.   There is no reason for anyone to get “hurt” in a deal.  Even though the market is tough today and prospects and/or their brokers may reach pretty deep, both sides are most likely developing a business relationship that is going to last a while…..well beyond the current market cycle.

Greg Herzner

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