Negotiating advantageous leases with tenant-hungry landlords.
In many areas of the United States, landlords continue to be so hungry to attract new tenants that they're willing to negotiate aggressive leases. What kinds of concessions can you expect? Well, a lot depends on the particulars of the situation. In high-vacancy areas, new tenants can negotiate to get several months of free rent. Some tenants get landlords to buy out the remainder of old leases; cash allowances for moving; above-standard expansion of the space at no additional cost; and even health-club memberships for the entire company.
While many of the most significant incentives are aimed at luring new tenants, current tenants can benefit too, since it costs so much to replace them. A software company in Southern California, for instance, recently slashed its rent expenses by one-third while converting a $170,000 balloon payment for improvements, due next year, into a 10-year note.
As favorable as the market may seem for tenants, experts say there are risks to keep in mind. With many developers now in foreclosure with their lenders, notes Kim Josephson, director of Langdon Rieder, real estate consultants in Irvine, Calif., it's important to make sure developers can actually deliver on what they promise. To insulate yourself from the effects of a landlord's going broke, Josephson recommends getting a "nondisturbance agreement" from the lender; this would ensure that the lender would honor the terms of your lease in the event of foreclosure. Also, you'll want to have a lawyer review the lease to see if you're adequately protected in other ways.
Assuming the landlord can make good on his or her offer, Josephson thinks now is a good time to cut a deal. "In my mind," he says, "it's not going to get any better."