Posted by: Paul Perkins, CCIM, SIOR
Industrial Properties Group
~10 Leasing Insights ~
Broker tips to better deals
Tip # 4
You Covet Your Neighbor's Space:
When you pay your lease on time every month and want to grow, landlords are usually all too happy to give you more space. Typically 50% growth (or more) in square footage will compel a LL to tear up your existing lease for a new one in larger space within their building or portfolio. If they have the space, that’s easy. Let’s imagine a more complex case. You’re moving into a space, your business is growing and the adjacent unit is vacant. You’d like to wait until your actual business supports the extra space before you commit to it, but you’re nervous the owner may lease the unit to someone else. What can you do?
BROKER INSIGHT: You can ask for a Right of First Refusal (ROFR) on the space which would give you the opportunity to match any qualified offer presented on the space in question. The owner may be reluctant to grant one citing the effort and expense they must go to in order to generate an offer for you to match and possibly lose an otherwise qualified prospect. In that case you might structure a “Staged Take Down” of the adjoining space which would contractually bind you to take the expansion space after a given period of time (say a year or two). The LL may ask for some type of consideration for holding that space off the market for you. If the adjoining space is occupied, and you want the first crack at it when that tenant’s lease expires, you can ask for a Right of First Offer (ROFO) which would obligate the owner to offer it to you prior to taking it to the market. Be aware that ROFR, ROFO or other options are usually “one time” exercises – either use them or lose them.
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