Bought a commercial building. Want to extend our current tenant from a monthly lease to an annual lease but have some questions.
Hi all, new to the forum, and really to real estate.  We recently bought our first building, a medical practice building with two tenants.  One of the tenants, a physician's practice, is currently on a month-to-month tenancy after having recently completed a two-year lease term.  From what the previous landlord has told us, the tenant is solid, pays on time, and doesn't require much attention.  That said, he is on a month-to-month lease and we would prefer to get him down for at least a year.  So here are some questions I ﻿have: ﻿
﻿﻿1) We want to assess whether the current monthly rental payments are appropriate for the location/building specs.  Does anyone know how we can procure an analysis or conduct our own analysis to see what the going rate is, or what we should be charging? 

﻿2) The tenant had mentioned in the past that he would like to explore a larger space at some point and therefore never considered an extension.  However, the previous landlord has told me recently that ﻿she was notified from one of his office managers that he isn't likely to leave anytime soon, but did not indicate why.  With that said, any recommendations on how to get the tenant off of a month-to-month lease and onto an annual lease?  I prefer not to lose him but the month-to-month tenancy isn't ideal.  Unclear on how to proceed. 


Any guidance is greatly appreciated!﻿
[{"id": "hyme1f3", "text": "Give some capital towards paint and carpet and ask him/her to renew for 2-5 years.", "replies": [], "depth": 1}, {"id": "hymffex", "text": "All you can do is ask.  Consider increasing the rent every 12 months based on the CPI (consumer price index, which is basically inflation.)  \n\nGive them the option of subleasing to qualified tenants if they're hesitant about committing to a long term lease.\n\nThe biggest advantage of a long term lease for tenants is protection from an increase in the rent.  We usually bump up the rent based on the CPI every 3 to 5 years regardless.  \n\nBut your current tenant is a bird in the hand, so I wouldn't press them too hard unless there's another tenant in the wings.  It can take months to fill a space, especially a niche space.  \n\nIt depends on your market.  Are you near a hospital?  Do you live in a fairly large city with lots of doctors?  Is your city growing with new doctors coming in, or is it stagnant?  Are there lots of empty commercial buildings or are vacancy rates low?\n\nCould the space be easily repurposed for other types of tenants?  \n\nFor pricing, you may need to talk to a commercial leasing agent.  Unless you know a few dozen physicians who don't mind sharing.\n\nCheck Crexi and Loopnet to see if there are any similar medical offices for lease in your area.  Not all commercial properties are on those sites.  Check the listings of local real estate firms.\n\nCommercial agents will have local knowledge and will have access to Crexi.  Crexi basically has a monopoly on commercial rent data.", "replies": [], "depth": 1}, {"id": "hymmn57", "text": "Why do you care so much about the month-to-month aspect? You know its a dependable client. Let the money come in.\n\nIf you push them around for no good reason when they're already thinking of switching to a larger space, you might just give them the nudge they need to call it quits and go elsewhere.", "replies": [{"id": "hynskt2", "text": "This is the exact opposite mindset you should have. Especially with a small asset, lease term and stability is the most important thing you want. Offer some TI in exchange for a long term lease. If they resist entirely, start marketing the space.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hynggfv", "text": "Pricing is best advised by a local broker. They can usually give you form leases as well. Is he net?\n\nI\u2019d push for a year or more. You\u2019re not losing much since he can terminate anyway.", "replies": [], "depth": 1}, {"id": "hyohpmd", "text": "I'll voice the opposite of FunFun and say insist on an annual or greater with three months notice to renew. If they won't accept a one year lease, they're leaving anyway, give 'em 30 day notice to vacate immediately. When they freak out and balk at that (because their new space isn't ready), tell 'em that's how it feels on the LL side to lose a tenant with no notice, so now let's proceed with some mutual understanding about what each side really needs. I'd offer them either a lease term acceptable to you at market rate, or if they only want six months, offer them six months at 150% of market. \n\nYou're not trying to push them out but you can explain that mtm is unacceptable from a business perspective. At a minimum you need annual commitments with 90 day notice so that you can find a new tenant. If they want less than that they need to pay for it.\n\nFor example, whenever my light industrial tenants come up I try to renew them for 3-5 years. I typically send them an offer where 5yr is the lowest rate and 2 or 3yr the highest. If they only want a one year commitment, I'll do it at 125-150% of whatever the highest offered rate was.  After 9 months I send over a new 3-5 year offer, or when they say one year, ok 125-150%. I have a tenant who has been taking the \\~130% each of the last 3 years. Apparently the flexibility was valuable to them, and now whenever they leave they've already paid for the re-lease costs. \n\nThis might seem sharp-elbowed but just remember they have to pay for flexibility.  You can word it nicely where first a market rate offer is made with long term, and then if they don't want that, the short term rate is much higher. No hard feelings, you made them a fair offer first, overpaying for flexibility is their choice. Make it clear the long term offer at the market rate is always available upon renewal.", "replies": [{"id": "hyqkmse", "text": "When you resend the 3-5 year offer after 9 months are the terms the same as the initial 3-5 year offer or higher? If higher by how much. \n\nThis is a great step by step process of presenting a deal. I love it!", "replies": [{"id": "hyqndlp", "text": "I don't have a formula for that. My rates have been up like everywhere last couple of years (light industrial). In the end I don't want anyone to leave, I keep offered rates very competitive, I just get tired of every single tenant saying they can't commit more than a year on renewal.", "replies": [{"id": "hyshad8", "text": "Thanks! Please don\u2019t delete original comment. I have saved it for future reference", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hysz1gr", "text": "There should be a benefit to both the landlord and the tenant for a stable leasing arrangement.  However, supply and demand dictates who has the upper hand in these negotiations.  \n\nYou should determine what the demand for your space is and what the costs to swap out tenants would be.", "replies": [], "depth": 1}, {"id": "i1ot4ms", "text": "Hi all, just wanted to say thank you to everyone who posted.  My apologies for responding so late to your feedback, was unable to login but I really appreciate the strong words of wisdom!!", "replies": [], "depth": 1}]