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Today's Economy Forces Landlords to Get Aggressive...Tenants Reap the Rewards

International Tenant Representative Alliance discusses a timely affect for tenants suffering from the soft economy: large amounts of vacancies make today a perfect time to begin lease renewal.

(PRWEB) September 2, 2009 -- Landlords have a lot of empty space. In fact, Roger Vincent recently reported in the LA Times they "are swimming in empty space." James Helsel, Treasurer of the U.S. National Association of Realtors, claims that commercial real estate is the next shoe to drop." The banking crisis is affecting landlords who have reached the "reset" on their non-amortizing balloon commercial mortgages, which must be renegotiated every few years to market rates. This helps tenants - if their building owner has diminishing rent rolls - to have an upper hand in lease renewal.

Many industry experts wonder if the commercial real estate market is due for a crash. While few predict a downturn of the magnitude of the recent debacle in residential real estate, the pain for many landlords already is real and there is no better time for tenants to: 1) negotiate better lease terms for their present lease, 2) upgrade to better quality space by moving to another building, or 3) reduce or expand their space at advantageous terms.

The good news: now is the best time in the last twenty years to be a tenant. The commercial office and industrial market is a slow motion train wreck - and the landlords see it coming. Landlords also see the downward pressure on their tenants. It is no secret that tenants continue to face dwindling markets, stock prices crashing and their business horizons in doubt.

While interest rates are relatively low, based on historic standards, the qualifications to refinance the mortgage may increase. Recessionary pressures on businesses have lead landlords to reduce their effective rents, especially when confronted with an experienced tenant representative broker. These lower rent rolls may result in some landlords being unable to qualify to refinance their existing mortgages. This unanticipated "cash call" may have some of the weaker landlords scrambling for capital at a time they can least afford it.

The caveat is that opportunities in this economy may vary from market to market and building to building. Some landlords - generally those with stronger portfolios - are better positioned to do what it takes to keep tenants They will negotiate lower rentals, escalations, new construction allowances, free rent, lease extensions and space reductions to encourage early lease renewals. This is where exclusive tenant representation as offered by ITRA representatives, who never represent landlords, can use their un-conflicted, objective market knowledge to negotiate better terms for office tenants. Here are a few examples of what ITRA offices across North America are negotiating on behalf of tenants:

In Manhattan, ITRA's Andrew Stein and Bert Rosenblatt, recently completed a lease renewal for a client. Negotiations started 12 months ago at $73 per square foot, which at the time was $7 per square foot less than the asking price. As negotiations progressed, the landlord got more and more aggressive. Now a year later the transaction closed at a $53 per square foot rent for 15 years with the tenant securing 4 months free rent and even securing exterior signage on the building, a rare and valuable asset in NYC.

Mark Rosen of ITRA San Francisco reports that landlords in his market are tripping all over themselves to compete for credit tenants. Rosen started a search for a client for new commercial real estate space in the Downtown CBD many months ago and received a proposal for full floor of 15,000 square feet in a Class A building at around $40 per square foot. By advising his client to wait, Rosen was able to revisit the same property six months later, securing a letter of intent from the landlord for $29 per square foot for the same space. Rosen also secured a bundle of incentives that included the use of a 1,200 square foot storage and workshop for free, 2 months free rent, a turnkey construction allowance valued at $25 per square foot, expansion rights, and even an option to reduce the amount of space early if the tenants needs change during the lease term.

Ross Selinger of ITRA Long Island had to take a more aggressive approach to secure a reduced rent for one of his clients. His strategy was to survey the market with his tenant, and negotiate aggressive terms with comparable buildings. He used those aggressive deals to create leverage, forcing his client's landlord to compete. The landlord was initially resistant but once he realized that we were serious about moving he met all of our demands and gave us a great deal reducing the rent from $36 per square foot to $26 per square foot.

Only an experienced tenant representative who is out there every day can understand the rate of change, and exactly how it can be used to the benefit of office tenants. At ITRA, exclusive tenant representation is not just our business, it's our only business. A global organization providing tenant representation for small and large companies, International Tenant Representative Alliance finds the most suitable commercial real estate space, assisting only tenants in negotiating the best possible lease.


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