All Forum Posts by: Will Kenner

@David Kim Commercial listing agreements typically have some sort of language like what you posted, however if the agreement is for a set period and it doesn't sell, you can simply walk away. Rarely are there grounds for them to seek payment unless you blatantly block a transaction, and even then that may be hard for them to prove. Like with any contract/agreement, have your real estate attorney review it first before entering into any agreement. 

There are a lot of commercial brokers out there, so go out and talk with several before deciding on one. With the weak commercial market conditions (I'm in the Seattle market, and of course some sub markets are doing better than others here) many need deals right now. 

@Jason Ortiz Would your projected rent from the other 3 units cover the combined loan payments? I assume you would still be negative cash flowing after covering other operation expenses? 

Interesting idea. Have not heard of anything similar. My initial thought is the potential difficulty distinguishing this from a regular motel option from the client's perspective, as you mentioned. Also curious what others have to say.

Fully agree with @Dena Puliatti . A few weeks of vacancy isn't worth a poor showing of the property, potential claim of missing items, or missed deadlines. 

I strongly recommend getting a qualified CPA as early in the process as possible. When I was faced with changing CPAs, I too was concerned the added expense would not be worth it. It was, and still is, worth the cost. I have saved more in taxes than the added cost, as well as having my properties correctly and efficiently configured in the books. Waiting until after a transaction is done to get a CPA can lead to missed opportunities and a headache to go back and correct any mistakes that were missed.  

@Jonathan Gordon As mentioned by others, the Puget Sound area continues to have compressed cap rates, and it's important to not "force" a deal that doesn't make sense to you. With current conditions, I wouldn't want a deal that is dependent on rent rates continuing as aggressively as they have been. Returning to the fundamentals of a property being valued based on current income generation, not projected, is a better metric. After running your numbers on a property, you can always adjust your offer price to give you the desired cap rate. If the seller doesn't like it, then move to the next. I run into the same issue all the time. On my last deal, I made an offer based on the cap rate that worked best for me - 6.5%. The asking price was just under a 5 cap. The seller accepted and I got a deal that I feel very comfortable with at current rents. If they continue to rise, fantastic. If they stay the same, no problem. If they soften, I have working room. 

excuse the formatting, didn't transfer over from Word correctly, but you get the idea.....

@Michael G. Although one line, it seems pretty clear that that terms of the lease are to be renewed, not a drafting of a new one. The fact they are trying to change the lease as a whole is unreasonable, in addition to their requests. That broker is seriously out of touch asking for the return of the deposit and unlimited assignment without landlord consent. That is just complete nonsense. I wouldn't even entertain that LOI, which by the way is irrelevant in the scenario of executing a lease option. Present them with an addendum stating the current lease will be continued at the new rental rate. (I've included what I use below). And if they don't like it, tell them what my attorney says "go pound sand".

Also, did they give you notice within the specified time before expiration? 

Lease Renewal Addendum 

The following is an Addendum to renew the Term of the Commercial Lease Agreement (“the Lease”) dated (Month/Day/Year, between (your entity) (“Landlord”) and (tenant's entity) (“Tenant”), regarding the lease of (suite) (“the Premises”) in the Property located at (property address) (the “Building”).

Tenant and Landlord agree to the following:

1. Lease Renewal Term.

1. The renewal term of the Lease (the “Term”) will commence on the 1st day of (month), (year) (the “Commencement Date”) and will expire on the 30th day of (month), (year) (the “Expiration Date”), unless terminated or extended as provided in this Lease.
2. 2. Renewal Base Rent. Tenant shall pay, without demand to Landlord, rent (“Rent”) for the Premises in the sum of:

3. (month) 1, 202X – (month) 31, 202X $XXXX

   (month) 1, 202X – (month) 31, 202X $XXXX

   (month) 1, 202X – (month) 31, 202X $XXXX

   (month) 1, 202X – (month) 31, 202X $XXXX

   (month) 1, 202X – (month) 31, 202X $XXXX

3. All other terms and conditions of the Lease shall remain in full effect for the lease and occupancy of (suite) during the Term.

Another thing to consider is the refrigerant used in those older systems is no longer being made. A big reason for the cost going up constantly is the supply going down. And simply re-charging an older system with the newer refrigerant is not possible as they are not compatible. When able, get a new unit, ideally in the fall or winter when demand is low. 

@Michael G. It is typical for the landlord to pay the broker's commission, which is a percentage of the total value of the lease (NNN excluded), however not for a simple option renewal.

Does the current lease have language describing how the lease renewal executes, determining new rent rates, escalations? 

Typically an option to renew, is just that - a renewal of the original lease, not an entirely new one. The original lease remains in-force with only changes to the rent rate and term dates. Sounds like this tenant is going after a whole new lease? In that case, that wouldn't be an option to renew and I would present them with two options: 1) extend the current lease with updated market rate rent and new term (a true renewal option), or 2) you give them a new lease with terms you want, again with market rent. If they still insist on working with a broker, they are more than welcome to, but let them know you will not be paying any commission.