Opinion on rent hike for land tenant

[Jason Mak]

Just wanted to get the BP opinion and some feedback here.

I own a 10,000 sf piece of land in good area with excellent and problem-free retail tenant. There are no improvements, she is just renting the land. I have no plans to re-develop land in the near future and she is asking for a lease extension.

The lease extension would last through 2020 and I'm currently enjoying 5% annual rent increases. However, her current rent is about 20%-25% below market based on a casual loopnet survey. If she left, I would say that it would take me between 3-6 months to find another tenant or another use as the area is pretty decent in a Southern California suburb.

I'm looking at two options:

(1) Give her the lease extension with continued 5% annual increases - this would ensure that I don't "rock the boat" and keep a "headache-free" situation going.

(2) Ask for a step up to (or near) market rent with 3-5% rent increases. Of course, here I'd be rocking the boat and risking that I lose a tenant.

I've read plenty of times on BP that keeping a good tenant is worth a lot. Would appreciate any thoughts from the board.

Thanks!