Tips for Purchasing Office Building with Tenant Leases Expiring

[David Gore]

Hello,

I'm planning to go under contract on my first commercial deal to purchase an office building with 3 tenants. However, the leases for 2 of the tenants will be expiring less than a month after closing. One of the tenants will most likely be vacating, but the other tenant has expressed interest in expanding into the vacated space. The tenant wishing to expand was recently acquired by a very large nationwide medical corporation.

How do you work out new leases with existing tenants, when you're not yet the property owner?

Also, I'm sure the bank is going to be concerned with the leases expiring immediately after closing.

So, what is the preferred way to get new leases according to my terms prior to closing, and keep the bank happy?

Thanks,
David

[Ken Jernigan]

You might talk to the tenant to determine terms they're seeking. They might agree to a letter of intent upon expiration of the existing lease. Lenders don't necessarily need leases in place to make  a loan. They'll look at condition of the building, value relative to other similar properties and strength of the local market. If local lenders aren't interested, there are national commercial lenders who would probably consider this one.