Tuesday, December 9, 2008

Sometimes we all have to give a little

Dan Oster - Industrial Specialist
Posted by: Dan Oster
Industrial Specialist
775 336 4665

As a member of the Industrial Properties Group, Dan has participated in the sales and leasing of a wide variety of Industrial properties from 1,000 to 700,000 sqft in Northern Nevada. Dan's primary goal is to provide unsurpassed customer service to the clients he represents..

We are in undeniably difficult economic times. It’s affecting everyone from tenants, to owners, to contractors, to brokers. But recently I had an experience which may shed some light on how we can all pull through this together. Allow me to set the stage.

A tenant came forward professing a need to expand their lease space. Certainly the owner was pleased to hear this and negotiations began. In the process of outlining the deal, it became clear that the tenant could only go so high on rent and the owner could only go so low. Because the contemplated space was in shell condition, the tenant improvement allowance, the design of the space and ultimately the contractor’s price for those improvements would make or break the deal.

The bid for the improvements went out to a number of contractors. When the numbers came back, even the low bidder’s price was substantially higher than the Tenant Improvement allowance. The owner upped the allowance as high as they could possibly go, but they couldn’t cover the entire difference. The option to amortize the overage into the lease was presented to the Tenant, but they simply could not pay anymore than they had previously negotiated. It appeared the deal was dead. Often, this would be the end of the story.

The contractors were notified the deal wasn’t going to happen. The low bidder took the time to ask a simple question, “What would it take to get the deal to happen?” When I told him the Tenant Improvement allowance that was offered (it was 12.5% below the low bid he’d given), he laughed. He certainly needed the work, but he wasn’t going to pay us to build the space! To his credit, he did make a suggestion.

“How about we sit down with the Tenant and see if we can find a way to hit the number?”

The Tenant agreed to sit down, listened with an open mind, took the Contractor’s suggestions to heart and had enough flexibility to give the contractor “some room to work with”. A few days later the contractor came back with a new bid…to everyone’s amazement he’d hit the number! In the end, the owner had given a little more in T.I. dollars than they’d budgeted, the tenant settled for perhaps 80% of the build-out they wanted and the contractor (and likely his subs) took a lower return than usual. If in tough times we all pull together, maybe we don’t get everything we want. But, we can all get what we need.

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