Leveraged Commercial Lease Negotiations

By: Forrest Blake

Commercial leasing transaction success is not about doing deals, it is about working deals. Doing is a passive action of processing paperwork that almost always leaves good money on the table. Working a commercial real estate deal means digging in for a good fight that demands your total attention to get your best value. From today forward, I want you to approach every deal with a full commitment to create a comprehensive plan—one that constantly looks for leverage and strategy to satisfy your needs and get the deal done (the way you want).

I measure a successful transaction as a completed deal that is better than what the current leverage could have provided.

If your enterprise is like most companies, your commercial office rent plays a role as the second largest business expense to the company, which directly affects your bottom-line. As the CEO and franchise owner of GolfTEC Southern California, I experienced this exposure personally with a $70,000-monthly-base rent expense spread over the fifteen leased locations. Note: I am not counting other triple net expenses in this amount; just base rent alone. As you may know, paying large rents can be very painful. And, often untimely when it comes to managing cash flow.

My perspective on the liability of leased space really changed as every month when I wrote those checks. I have experienced the pain you feel as a business owner, when it comes to balancing revenue and expenditures. As a lessee myself, this impact hit me very differently than when I had prior acted as a commercial tenant broker who would ask my clients to sign multi-million-dollar leases. I quickly realized that rent paid must provide value to the company far beyond the cost of the space. If not, don’t lease the space, alternatively take actions to get value from this painful monthly reoccurring expense.

Correctly-made commercial leasing decisions will provide that extra economic value. They can help propel a company past its competitors and increase profitability. We do this by negotiating below market leases, with facilities that maximize productivity, providing a great work environment to retain employees, and examining square footage reduction by using alternative workplace strategies.

Tenants especially when leasing office space must continually ask themselves: “What actions do I need to take to improve my leased facilities?” Executives must dedicate time and effort to do this analysis, and must include both the financial and functional aspects. I know, this may distract key individuals within the company from the day-to-day operations. However, the benefits will far outweigh the time investment.

The compounding effects of a poorly negotiated deal can be fatal for a business in today’s competitive climate. In order to emphasize this point, I have created the illustration 1.1, based on simple assumptions of a 10,000-square-foot office transaction.

CLICK HERE to read the entire Chapter Leveraged Deal Making and then you can request the entire 140 page digital book called, “Art of the Commercial Real Estate Deal.”

Disclosure: Content is general information only. Information is not provided as advice for a specific matter, nor does its publication on this website create any relationship between the writer and the reader. Neither this website nor Forrest Blake is giving commercial real estate advise or soliciting if you are currently represented by another commercial real estate broker, or legal or accounting advice on any subject. Please consult with your real estate broker, attorney or accountant regarding any of the concepts written on this website. This website, Forrest Blake or any of his affiliated companies will not be liable for any actions you take as a result of reading anything contained within.

Copyright 2013 – Forrest Blake

Please contact me if you would like to use any tenant representation or expert commercial real estate information contained on the site. I promise to get back to you within 24 hours if we don’t connect right away.

Forrest Blake
CA Real Estate License # 01054174

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