A Lion In The Tall Grass – Part 2

On February 10, 2010, in Overview, by Admin

In our last post, we discussed the importance of having good, competent representation when negotiating a commercial lease.  To summarize, the person representing you should have good local knowledge and experience with the type of property you’re trying to lease.

Today I want to write about trying to lease space at a property that’s been troubled financially, perhaps a newer project, that has a new owner.  This scenario could apply to any type of property that uses a triple-net lease to “pass-through” certain operating expenses to the tenant, however it is specifically applicable to retail properties.

There a many projects around today that fit the example described above.  Most were developed between 2005 and 2008 when rents were sky high and lenders couldn’t find a project they didn’t like.  Many tenants both national and independent signed leases with over inflated rents.  Then the housing bubble burst, credit dried up, consumers pulled back and landlords buckled.

Today there’s still an allure about these projects seen by prospective tenants because there’s vacancy, they’re newer, (attractive to established tenants in older properties and by start-ups wanting something nice that’s now somewhat affordable).   There may also be the attraction of a national retailer or two left still doing business.

A newer, mostly vacant retail property "For Lease"

Now the Lions.  A new property owner is going to be anxious to put their own touch on the property trying to overcome any stigma left over from the failed ownership.  For instance, the landscaping may have died off or maybe additional signage will be constructed.  Whatever it is, you can bet your umm,  mule these costs will be passed through to each tenant for reimbursement of the landlord.  The unexpected surprise cost to each tenant is often thousands of dollars.

How would a person leasing space know this?  They wouldn’t.  In fact many tenant representing agents wouldn’t give it a thought.  This costly oversight will take almost every new tenant by surprise within the first year of their lease.

Only someone with expertise in managing and leasing specific property types will know this and be able to protect the tenant before the lease is signed.  Even then some agents are indifferent and will pass it off on the attorney who reviewed the lease when the stuff hits the fan.  You have to know and trust your agent or be eaten.

To your prosperous business.  Cheers!

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