Commercial Real Estate Investment/when to give a rental break?

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Expert: - 10/12/2009


Question
we are landlords and a tenant who wants a rent concession is down 20% of her gross income. is there any formula to figuring how much to give off?

Answer
Georgia:

I believe that this recession has put landlords and tenants both in the position of having to find the way through this economic nightmare by first considering what is reasonable.  I don't know of any rules of thumb in the industry at this time - nor how applicable they would really be.

I think it is reasonable for a landlord to meet with the tenant and request some explanation of the problems the tenant is experiencing and to review some proof of the related revenue loss.   Then I would consider how long the tenant has been occupying the space, if the tenant helps draw other shoppers and creates a good mix, do the tenant's problems result from a nuance of the recession or because the tenant is simply not competitive, etc.   Openly indicate your business concerns if they close vs. if they stay at a lower rental.  Will the tenant be able to repay you for rental reductions at some time after the effects of the recession pass?

Can you replace the tenant with another at a solid rental if they close?  Can you afford to build new improvements for a replacement tenant?  You can make whatever adjustment you feel is acceptable with your tenant, but be mindful that other tenants may then come knocking at your door.

Some landlords have been very rigid on this issue, others have tried to be flexible.  There are valid reasons for both.

Good luck.

-Jim  

Commercial Real Estate Investment

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Jim Avancena, CPM

Expertise

Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.

Experience

Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.

Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.

Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".

Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.

Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.

Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.

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