All Forum Posts by: Michael G.

Thanks all for the great replies. Thanks @John McKee  - we did end up just giving them a proposal that built in their agent's fee (and then some).

This was a good lesson for us - at first we took it personally but then realized that the tenant just doesn't want to deal with (or has no expertise in) deal(ing) with it and they really don't care what they end up paying. They are willing to pay the extra that we're going to charge them to compensate their agent. Once we got over this we just boosted the price and made it a win – win - win for everyone.

The second lesson here is how poorly our option clause was written!  (we were assigned the lease when we bought the building). Basically, it was one sentence saying they had a single option to renew the lease, with no other terms, timelines, or conditions.  This is leaving us stuck with a tenant who says they want to exercise their option, but it's been three months and they have not signed the proposal that we have in front of them, although they say they are fine with the terms in it.  I still need to research this and find out how we can get them to either honor their commitment to exercise their option or withdraw it so we can find another tenant.

Thanks again for all the great replies!

 LOL...thanks.  I think the market is in our favor.  There is not that much available, and the other rent comps are from $12.50/sqft (not nearly as nice as ours) to $22/sqft for new construction.  I think we're a bargain at the $13.90/sqft that we're going to propose that bakes in this guys commission.  We'd have been happy with $13.00 and not paying commission, but if they want us to boost our numbers and building value, we can accommodate that.  :) 

 Hi Sergey - thank you for your response!  They are substantially changing other terms in the lease by asking for an additional option to renew, asking us to refund the security deposit, asking us to allow assignment without our consent, and insisting on us paying a commission amounting to almost $10K for the privilege of giving up all that.

I just wanted a sanity check that this should not be all that difficult or onerous on us!

 Hi @Will Kenner - thank you for your reply and insights!  Unfortunately (or maybe fortunately) the original lease Option clause was one single sentence that merely says "Lessor grants Lessee one 3-year option to renew the terms of this lease upon written notice from Lessee not later than 180 days before expiration." I'm assuming that this leaves the door open to negotiating a new rental rate and annual escalation?

I think the tenant just wants to stay and wants this broker to handle it, but this broker is seeing what he can squeeze out of us. Other things in his LOI were that we grant another option, that we refund the security deposit, that we allow unlimited assignment without us granting consent, etc..

I'll go with your option #1 above and simply decline his other proposed changes and see if we can preserve the Renewal concept at a new rate that bakes in his commission (and then some) - if he wants to earn that commission, let him go and sell the package to the tenant.  I feel bad for the tenant but them wanting the convenience of having the broker handle it is going to cost them $10K in extra rent.

Thanks again for your advice here!

We have an office building with a great long term tenant, that is in a below market rates, and we're good with it because they are stable and NNN. Their lease is up for renewal, and contains one Option to renew, which they've notified us they want to exercise. We sent over a simple form to execute the option, but tenant says they work with a broker on their real estate leases. That broker sends over a lease LOI with terms very disadvantageous to us, one of which is that WE pay him a commission (essentially to negotiate against us).

My question is:  Is it typical that the Landlord pays a commission (4%) in a case like this?  It's our existing tenant who wants to stay at a great rate, and we want to rent to them at that great rate.  If the tenant insists on using this broker (their choice, I guess), we're obviously just going to bake the commission into their new monthly rate because we're certainly not going to absorb a 4% commission to keep our existing tenant on executing a simple lease option.

Thank you all for the replies - there was some good advice in here and I'm going to hold the line on this one.  We've been advertising the suite online, loopnet, leasing agents, etc, and at a lower rate than what the lease calls for.  Not sure what else we can do (although we don't have to do anything - this is all in good faith to solve their problem).  Despite promises to pay, they have not paid yet for Dec.    We'll be seeking a judgement for the full amount left on the lease.  They still have furniture in the suite, although they did disconnect power.

Hello BP!

I have a 4,000sf/4 office Professional Office building in West Palm Beach, FL.  One of my tenants still has 18 months (~$40K) left on a three year lease, but they went out on their own and leased another space across town and moved out.  They are still paying rent (for now), but complaining pretty loudly about me not letting them out of their lease.  I have NO intention of doing so and will seek a judgement against them if they stop paying.  I could write a comedy about their reasons why the office they've been in for 5 years has suddenly become uninhabitable :).

I'm willing to work with them, and said I'd let them out if WE (they and/or me) could find another acceptable tenant.  I've been advertising and have agents working on it for two months now, and even advertised at a reduced rent but no bites in the current climate.  They have made ZERO effort to bring a solution to the table.

I'm thinking they can sublet it for the remainder of their lease term or until we find a permanent replacement tenant.  Lease is $2,200/mo, and while no bites at that price, I'm sure tenant can sublet it for $1,500, and thus only be out of pocket $700/mo.  Obviously I'd have to approve the sublet.

Is there something that I'm missing here or getting myself exposed to?  I'd appreciate anyone's experience in doing something like this, either positive or negative.

Hello @Guifre Mora - thanks for the info.  Your recommendation "Packaging a scenario is the name of the game" - is very helpful and think I see what you are getting at: That it's useful to have a package that we can replicate over and over again to at least find out if our scenario at least passes muster for any lender?  Appreciate the great details and your advice.

Hello BP!

My brother and I own a 4,000 sft Class C office building held in an LLC. We've owned it for ~18 months and have spent the time shuffling tenants and doing tenant improvements, and now we have it fully occupied with 3 year leases with annual escalations, so we are looking to finance it. At a 5 CAP, we put the value at around $1.1M. We're looking for 60% LTV, at which point it still cash flows acceptably to us.

We had hoped for a non-recourse loan but learning that it is not very likely at our scale.  For recourse financing, both of us have good credit, long work histories with good income, and other assets.  Not sure how much this comes into play?

I think the thing that hurts us is that our cash flows for the first 6 months were less than they otherwise would have been since we had tenant move and we granted some rent concessions to attract new tenants.   Our training 12 months look great, but not the whole 18 months.  Will lenders take this into consideration?

We do our banking with B of A and we're too small for their commercial loans, so we are targeting local banks in FL, and in West Palm Beach area specifically.  Is this our best strategy, or are their other institutions that we should be targeting?

Lastly, and I hope that this is appropriate, but if anyone has any suggestions for someone they could recommend for our scenario I'd love to hear it.

Look up the channel Commercial Property Advisors on YouTube  Good series that talks about what you are looking to learn.