Process undergone in FMV adjustments in option period? (STNL)
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[{"id": "ggr7pfz", "text": "Should spell out the exact process in the lease", "replies": [{"id": "ggrd8rr", "text": "Not always. I've seen leases with national companies that don't spell out any procedure. But I have also seen leases where the procedure is spelled out in a direct verbose way. What I've seen the most seems to be each side gets an appraisal and they negotiate from there, if they can't reach an agreement then a third gets paid for by both parties and an average is taken. Also common is just getting three appraisals  (real ones not brokers opinions) right away and averaging the three.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ggramsy", "text": "How do you know they are going to extend? Hard to buy based on cap rate without knowing that, otherwise there should be a discount due to risk... and FMV doesn\u2019t mean anything if they don\u2019t exercise. \n\nWhat happens if they don\u2019t extend? How strong is the market you are in? If it\u2019s a strong market, comps should be readily available. \n\nThe option clause will spell out the exact process.", "replies": [{"id": "ggrbt5q", "text": "It is priced appropriately.", "replies": [{"id": "ggre1wz", "text": "(Value if they exercise x % chance they exercise) + (value if they don\u2019t x % chance they don\u2019t)", "replies": [{"id": "ggrgx41", "text": "I am an owner user that would re-develop the space in a heartbeat if option was not exercised so this isn\u2019t strictly viewed from an investment perspective. Probably should have mentioned this in the body of the post. Further, the asking price\u2019s capitalization rate is about 400 basis below market for this asset class in this climate.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ggrdwih", "text": "Usually the process is written in the lease exactly how its supposed to be decided. The most common being both parties higher an appraiser. Each appraiser gives their opinion of Fair Market Rent, backed up by market evidence. If those two opinions differ enough to were the landlord and tenant cannot agree on a number then a third appraiser is higher to review the two reports and chooses a number, or that appraiser does their own fair market rent analysis and gives a number.", "replies": [], "depth": 1}, {"id": "ggsqfiu", "text": "I\u2019ve often been able to simply negotiate the new lease rate. When both parties are knowledgable about the going rates, it\u2019s usually not that difficult.", "replies": [], "depth": 1}, {"id": "ggtabj1", "text": "Most retail tenants will target a % of sales as ideal for lease costs.  If they are sharing sales, I would start by looking at what the current lease represents as a % of sales vs. what the industry standard might be for that sort of use.", "replies": [], "depth": 1}]