I'm about to sign a retail lease for 10,000sqft but it's not all retail space. Does this math check out?
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[{"id": "hm04i1w", "text": "Hard to know without a location on pricing etc. \n\nPeople focus too much on the per square foot costs, and not what the 'total package' is. If you think it's high, go lease a different 10k sq foot strip mall space...", "replies": [{"id": "hm062y2", "text": "Sure, the post is less about comparative pricing and more about if the pricing makes sense if it's not all retail space and if, as commercial real estate owners, I may have more leverage then I've already squeezed out.", "replies": [{"id": "hm0aps9", "text": "Impossible to say without knowing the market. We all have our own metrics and math to have the rent \u2018make sense\u2019 on a napkin. If your happy, the location works for you, etc etc.", "replies": [{"id": "hmgsntf", "text": "big issue here is that you are evaluating the space for your warehousing use. which sure, maybe do a split rent. but from the landlord's standpoint... you are renting what is RETAIL SPACE and trying to say well here is my use so I want to pay this. does not work, go to the nearest industrial zoned area and run a secondary location at the rates your are seeking.", "replies": [], "depth": 4}], "depth": 3}, {"id": "hm0cwmz", "text": "If it works for you and your business, then go for it. That's all that really matters.", "replies": [{"id": "hm121hv", "text": "We all get tied up in numbers and it's hard to feel the value sometimes, but when you do, it's great.  It's funny how you can remember a great deal in your head for years.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hm088vo", "text": "I don\u2019t honestly follow your math but if you\u2019re asking them to take on demo costs they\u2019d expect you to make them hole on the rent.  The $8 rent moving to $6 makes no sense if they have to come out of pocket.  They likely have a limited amount they can pay to get you in the space unless you are making their asset more valuable by increasing the overall NOI.  I may be missing your point but that\u2019s where you lost me.", "replies": [{"id": "hm098dg", "text": "Sorry, lets see if I can be more clear.  \nBasically they were fine at $8 as-is and then all of a sudden they were fine at $8 with $100k of work on their part.  \n\n\nSo in my eyes that just told me I left $100k on the table to negotiate with. Which is why I adjusted down to $6 ($100k differences in rent). Had I started at $6 as-is and then asked for $100k, they would likely agree to that and increase the cost to $8. I just went in reverse seeing there was still cheaper rent they would agree too.  \n\n\nIn reality, if $8 was there lowest then if they added $100k they should have come up to $10 to cover the cost...but they didn't, they just stayed at $8. So I felt I had more leverage to shave off a bit more in rent.", "replies": [{"id": "hm0bpwr", "text": "TI, rent, and free rent are not always fungible.  Multi-tenant buildings hopefully have TI dollars in reserves for situations like this=taking them off the table doesn't necessarily mean it should equal an equal rent reduction.\n\nAdditionally, always assume the owner of your building is going to sell at one point, if not the second they get this problematic space leased up.  Having a lower rental rate blasts the market rate and NOI underwriting. \n\nMaybe I'm reading this wrong-its late-but my point is your deal isn't dollar for dollar, and the overall asset valuation side of it is probably driving their decision making.\n\nJust get the deal done if the space works for you.", "replies": [{"id": "hm1yxh0", "text": "What would occur if the LL sold, as I believe I'm the last space to fill and the space has been rented as none facing retail for atleast 15-20 years.  \n\n\nAnything I should look out for if the lease changes hands?", "replies": [{"id": "hmgzyig", "text": "Lease is a contract, new owners shouldn't be able to break it", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hm123ok", "text": "Can't hurt to ask.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hm0c2l4", "text": "It really depends on the market. But based on the height of the ceilings and depending on the location you are probably leasing retail space. The prices you are quoting would be in line with rural warehouse space in my area. The fact that the owners are giving you that much TI + rent abatement on that short of a term I just don\u2019t see the upside for the owners. Do a cost analysis based on their cost plus Concessions and see what you are looking at. Numbers don\u2019t lie. If you think you can find a better location at a better price do it.", "replies": [], "depth": 1}, {"id": "hm0vgd8", "text": "OP, something to take into consideration here is how the Landlord values his building. The mortgage is typically backed back by the rent the building collects and so it would be in the LL\u2019s best interest to keep a higher rental rate and offer more money in TI or free rent. This keeps the building operating \u201cwell\u201d on paper. He can then take the tax incentives for the TI. \n\nIf this was a direct deal then there is typically always room for negotiation because the LL always offers a higher price in the LOI typically to catch the naive tenants out there that will blindly accept their initial proposal. My guess is that he is currently hurting for tenants and had to offer substantial abatements for his anchor tenants during Covid and now he might be hurting for cash flow. \n\nIf you\u2019re looking to make sure you don\u2019t leave any money on the table, ask for more TI or free rent. Also make sure you higher an attorney to review the lease and make sure they aren\u2019t amortizing it back to you and charging you on it. Those retail leases can be tricky things.  LL\u2019s will always try and put as many expenses as possible back on the tenant and it pays to have an Real estate attorney to look at it.", "replies": [{"id": "hm1xceg", "text": "Thanks for reading and realizing something I was looking to understand but didn't form into words.  \n\n\nI'll be sure to get an attorney to take a peak.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hm0z3xx", "text": "Are you negotiating with a broker or actual LL.\n\nOne challenge for spaces like this is that they want to maintain higher rent values otherwise it devalues their entire property permanently. \n\nGenerally as a retail LL it is all retail space so getting close to retail rents without tossing out a massive Reno is great. \n\nFrom an employee perspective usually retail is way better than warehouse since there are lunch and shopping options and generally better access.", "replies": [{"id": "hm1ygpu", "text": "I'm hoping the investment in the better space/location/comfort level as well as increased pay when we do move will help keep turnover lower. Turnover savings is hard to put on paper but obviously a big goal is to reduce it.  \n\n\nWe are negotiating with a broker but it's a family based broker with good communication with the LL. Not as cutthroat as previous and current broker/LL I've dealt with in the past.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hm12w4i", "text": "You got everything you asked for, plus a little and, your operations are combined, rather than split up.\n\nThat's as close to a win / win, home run hit than I've seen in a long time.", "replies": [{"id": "hm1wpvy", "text": "I agree. I wasn't stonewalled from the get go and while I question the reasons they are so flexible, I did get everything I need and the deal beats all other comps in the area.", "replies": [{"id": "hm1zs6x", "text": "Don't overthink it.\n\nIn 1987 or so I was looking to buy a condo for a rental. I was barely a pup. The totality of what I knew about real estate could fit on the head of a pin.\n\nThe market was down and the first place I looked at was a large complex (800 units, 60 acres, man made lakes...pretty hopping place when it was built in the early 70's), prices were down everywhere but this deal made no sense to me;\n\nA 1 bedroom townhome (remember..it's 1987 pricing), cute as hell: 25 grand.  Homeowners dues ran about $125.00 a month.  Taxes ran about $75.00 a month so....even if I got a 100% loan....at the then rate of 9% ($201.00 month)...I was making $175.00 a month...and HOA dues covered all expenses other than cleaning the carpets, repainting and the occasional appliance repair or replacement.\n\nThe unit sat on the market for 387 days before I showed up and I thought \"*am I missing something??? This is too good to be true!!!\"*\n\nHow was it possible that I could buy a place with zero money down and be making $175.00 a month on the deal from day one??????? (For clarity, there were no zero money down loans for condos as rentals at that time, and certainly not for a young kid such as I was at the time, that was just the argument I made using a calculator....that \"*even at zero down, fully loaded*\"...it made a ridiculous profit for what seemed to me less than nominal effort).\n\nI knew it couldn't be true...I was young and thought I *surely* made a mistake.....so, I didn't buy it.  Someone else finally did.\n\nIt turned out I wasn't missing anything.  The market was simply down, the deal was indeed too good to be true *except* for one thing.....it ***was*** true.\n\nIn the next 2 years I bought 3 more.\n\nAt 30 grand and 40 grand.\n\nSometimes a good deal is precisely what it appears to be.\n\nDo your homework.....and make a decision.\n\nCalculators don't lie (but occasionally...data points do...get your facts right).", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hm169zz", "text": "Amazingly Cheap... and it sounds like it fits your needs perfectly. \n\nYou could negotiate some additonal perks (ins.,water,buildout credits, etc). I'm sure your agent discussed this with you...", "replies": [{"id": "hm1z53p", "text": "The agent has glossed over some perks but mainly so we get to the heart of the contract and then would revisit some potential perks. It will be a question for tomorrow though.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hm1f9ps", "text": "Sounds like a great deal I'd make sure to get an option to renew after 5 years for another five", "replies": [{"id": "hm1zbdh", "text": "We do have a 5 year renew option in there. I've always planned ahead about 5 years, but I admit as of late I've been a little short sighted to consider 10 years out.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hm1g6w6", "text": "If you want \"more\", get an extension option for years 6-10 at a nominal mark-up from the year 5 lease rate. Don't agree to a \"market rate\" extension option.\n\nThey needed the space demolished or white boxed anyway. LL logic may be that your rent covers the demo, improving the asset, and it'll be better prepared for lease-up in five years. \n\nExpect to get kicked out at the end of your lease.", "replies": [], "depth": 1}, {"id": "hm1he0i", "text": "My only comment is make sure thex1xyearc$8/sf gross isn't for just months 5-11, but 5-15. Then months 16 starts the NNNs.\n\nMake it a 64 month lease", "replies": [{"id": "hm1zo5g", "text": "You know I was literally thinking the same thing yesterday. However, revisiting the numbers, they must mean months 5-15 because $35k in saved NNN fees would be 12 months. I'll clarify but it looks to be a 64 month lease.", "replies": [{"id": "hmgtn4j", "text": "you only have so much negotiating leverage and you are pulling on all of them. with the termination clause you put in... the landlord is looking at this like: a 2 year deal essentially (1) with 100 k of our own work put in (2) well below the asking price (3) and for a use that can hurt the overall performance of the property (4).\n\nSeems like you may have scared him away from the negotiating table and I'm surprised they even signed back", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hm1rkeh", "text": "Make sure you hire an appraiser to measure the sf.", "replies": [], "depth": 1}, {"id": "hm3hblt", "text": "Take the good deal", "replies": [], "depth": 1}]