61% increase from last tenant to new tenant in California
BLUF: I’m in the process of buying a business. The business is currently in a leased building and they are currently paying $7,200 a month. Spoke to the leasing agency who said that for the next tenant they are raising the rent to $11,400. Going from .70 per sq foot to 1.20 per sq foot. Stated that the current tenant is paying “severely” under market… I understand that typically if it is the same tenant they cannot raise it this much. But is that typical? Is anyone able to provide negotiating advice or resources? The building is located in the Redlands Ca area. Thank you so much in advance
[{"id": "i73afeu", "text": "what is market rate? is it industrial/flex? it\u2019s not crazy that they got in cheap and market blew up. that said, i have no idea what the market in redlands, but perhaps try to make a case for why it makes sense to help you see if it doesn\u2019t\u2026good luck", "replies": [{"id": "i73aggi", "text": "**The market rate (or \"going rate\") for goods or services is the usual price charged for them in a free market. If demand goes up, manufacturers and laborers will tend to respond by increasing the price they require, thus setting a higher market rate.**\n\nMore details here: &lt;https://en.wikipedia.org/wiki/Market_rate&gt; \n\n\n\n*This comment was left automatically (by a bot). If I don't get this right, don't get mad at me, I'm still learning!*\n\n[^(opt out)](https://www.reddit.com/r/wikipedia_answer_bot/comments/ozztfy/post_for_opting_out/) ^(|) [^(delete)](https://www.reddit.com/r/wikipedia_answer_bot/comments/q79g2t/delete_feature_added/) ^(|) [^(report/suggest)](https://www.reddit.com/r/wikipedia_answer_bot) ^(|) [^(GitHub)](https://github.com/TheBugYouCantFix/wiki-reddit-bot)", "replies": [{"id": "i775ovx", "text": "Bad bot", "replies": [{"id": "i775q4q", "text": "Thank you, lurrrkin, for voting on wikipedia_answer_bot.\n\nThis bot wants to find the best and worst bots on Reddit. [You can view results here](https://botrank.pastimes.eu/).\n\n***\n\n^(Even if I don't reply to your comment, I'm still listening for votes. Check the webpage to see if your vote registered!)", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i73crco", "text": "Tenants may sign a lease spanning 3+ years with a fixed percent increase per year. If the market outpaced the fixed increase, then it wouldn\u2019t be a surprise they are under market. The lease being renewed bumps the base back to market if you find someone to sign the lease for that amount. \n\nThat could be a great value add for you seeing that you can come in and bump rents much. As others have said, look at the comps in the area and whether the property could justify the same rent.", "replies": [], "depth": 1}, {"id": "i73eo3l", "text": "It is only the hottest industrial market in the United States. \n\nConsider yourself lucky you can even renew. We are renewing credit tenants nearly double what they paid 5 years ago and the inland empire is seeing rates the South Bay paid not too long ago. \n\nTake it or someone else will.", "replies": [], "depth": 1}, {"id": "i73hnx4", "text": "If the space is for rent, and the new renter isn't the existing tenant, the owner of the property has every right to ask any amount they chose, including $500.00 a sf if they prefer.\n\nPerfectly normal.", "replies": [{"id": "i79wphl", "text": "Even if renter is the existing tenant, as long as they don\u2019t have a fixed renewal option, they can increase the rent how they would like", "replies": [{"id": "i79xbih", "text": "The obvious assumption was, if an existing renter, then, an existing lease, which may have a clause regards future rent. A new renter would not have that impasse.\n\n^((Some things don't need to be said).)", "replies": [{"id": "i79zi1r", "text": "Clearly OP isn\u2019t clued into your \u201cobvious assumptions\u201d so probably best to spell it out. But thanks for your dick response", "replies": [{"id": "i7bn5s6", "text": "Quite welcome.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i73i0nq", "text": "I'm not aware of any markets where commercial rents have rent protection, so I'm not sure there's any limit on what they can raise the rent legally.  But it sounds like you need someone to look at the current lease and see if there's renewal options.  The price of the business obviously should reflect that cash flows are going to be impacted by a big step up if rents get reset to market.", "replies": [{"id": "i73qnjh", "text": "If anyone would it would be west coast. WA state instituted eviction moratoriums on commercial tenants. Insane that tenants could make money (albeit reduced revenue) and not pay rent. \n\nAlso, OP read the lease. Leverage comes from the market, the legal documents, or position of the parties. Sounds like you have 0/3.\n\nBut the lease is probably your best shot.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i73js12", "text": "Id hire an industrial broker and negotiate a lease extension contingent on your acquisition .", "replies": [], "depth": 1}, {"id": "i73m39b", "text": "Technically, you're not a new tenant. You're the new owner of an existing tenant. You buy their lease when you buy the business. \n\nIf the lease is up at the same time you plan to close on the business this is a moot point.", "replies": [{"id": "i74ha47", "text": "This is potentially not necessarily true.  I know instances where an individual might lease under their personal account and not their business account; they then \"sublet\" the place to the business.  Why maybe? Business has bad credit; yet person does not so they qualify better.  They may want to \"increase the rent\" to the business so they can take a personal gain from the business monthly. Maybe other reasons.\n\nSo \\*if\\* that were true, then OP buying the business would not actually make them an existing tenant.  It's a bit of a long shot, but it's definitely not out of the question.", "replies": [], "depth": 2}, {"id": "i775nl5", "text": "Not necessarily true. I\u2019ve see quite a few leases that were not assignable on a sale. It basically breaks the lease and opens it up for the owner to negotiate a new lease with the purchaser. It all depends on the language of the lease.  From my experience, the more sophisticated ownership groups have language that keeps a purchaser from just assuming the lease.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i73qx6n", "text": "Not a broker but a developer and LL. \n\nYou should hire a broker. Raising rented between users is normal to account for market fluctuations but if you are purchasing a business mid lease you finish out the lease in the original terms unless there are unique terms of the lease barring that. \n\nHire a broker.", "replies": [], "depth": 1}, {"id": "i73y739", "text": "What type of business is if and are you buying out the business or the space? I got fucked severely on a deal like this and biz levels have halved even 2 years into covid recovery is hard as fuck", "replies": [], "depth": 1}, {"id": "i7442v2", "text": "Assuming that you don\u2019t have a renewal option with stated terms (also assuming it\u2019s tenant\u2019s option only, no fair market rent clause, etc.), the landlord is totally within their rights. Normal course of doing business. \n\nCommercial tenants generally don\u2019t have any additional rights like a residential tenant would have in a rent controlled building. \n\nYou should definitely and obviously hire a broker.", "replies": [], "depth": 1}, {"id": "i748199", "text": "I have a property with a lease expiring this summer. The existing tenant is way under market and I sent their new lease with a 50% increase. Their new rate is still 15% under market because I\u2019d like to keep them but I have a list of interested parties willing to pay market rate +. \n\nThey\u2019re trying to negotiate still but I\u2019m likely going to sign with one of the new tenants", "replies": [], "depth": 1}, {"id": "i74ukll", "text": "In the inland empire, you are definitely in the $1 range per sq foot for industrial and easily in the high $1\u2019s for office. Retail is a different story", "replies": [], "depth": 1}, {"id": "i75ma0e", "text": "it's all about your lease contract.  I would recommend going through your lease with a fine tooth comb, and understand it 100%.  If you have no options, and there isn't a lot of vacancy, you don't have much leverage.\n\nIf you haven't bought the business yet, I would look at discussing with the owner, state that this increase was not anticipated, and that you may need to adjust the purchase price.\n\nTreat this like an unforeseen expense like any other item in P&amp;L, and how would you approach it since you haven't purchased the business yet.", "replies": [], "depth": 1}, {"id": "i75wqkl", "text": "This isn\u2019t an apartment. There are no rent protections here. The market is the market.", "replies": [], "depth": 1}, {"id": "i774wn7", "text": "You are getting some good advice here. I hope you will come back and give an update on what you did and how it worked out.  I think u/fenix1230 makes a great point about negotiating with the seller. The business you are about to buy just became less valuable\u2026 everything is negotiable so you may be able to get a reduction in the purchase price (if the seller thinks you are serious about walking).  Going through the lease with a fine-tooth comb is important too.  This lease probably is not assignable to you from the seller.  What I\u2019ve usually seen is that a business sale \u201cbreaks\u201d the lease and allows the owner to negotiate a new lease with the new owner so everything you describe sounds par for the course about what they are trying to do. You have to get into the details to know for sure. And last, I would run the numbers to see what this increase would do to your debt covenant levels.  If you are already stretched, this could push you over the edge.  Thinking out the next 12-24 months, you don\u2019t want to be underwater if revenues take a hit from a recession and you have increased costs. And hire a broker.", "replies": [], "depth": 1}, {"id": "i77cn55", "text": "I raised residential 20% this year, not in rent controlled area. Market is VERY hot, and minimum wage raise will keep everything elevated.", "replies": [], "depth": 1}]