Enjoy reading this week’s guest post from Lynn Drake, President and Founder of Compass Commercial and author of Do You Speak Lease?.
For those of you who believe that a “Free Lunch” or “Free Rent” really exists in the leasing world, or comes without strings attached, you may then be surprised by hidden costs in leases–particularly leases for commercial space. In the past, landlords may have been willing to lure in new clients with the promise of “free rent,” but those deals are quickly disappearing. If you think you have stumbled across a deal that seems too generous, or too good to be true, you’re probably right and should proceed with caution.
Found a deal that seems too generous? Watch Out!
Also, hidden costs may hit you hard, as landlords seek to recoup lost revenue from the bleak years. Individual tenants may risk more than they bargain for by walking into a landlord’s office and demanding a drop -in rent.
Here is an example:
We were hired as a tenant representative for a national firm with a building in Denver. Our Needs Analysis indicated the client/tenant had about 1,500 square feet more than they really needed. The local contact swore she needed every square inch, but the national management company disagreed. Frankly we couldn’t understand why this particular office needed so much space. Something was hidden and our task was to discover what and where.
The landlord was unusually angry about a national firm stepping into his firm’s business. We explained that all of our client’s lease arrangements were handled by a national brokerage. He calmed down, but it appeared he was hiding something and we asked for specific information on the lease in question.
The answer was in the rentable/usable factor, how much space is used by the tenant and how much is an add-on factor to pay for common areas such as an atrium, hallways, and shared lunch rooms. This client was being charged a whopping 22.5 percent rentable/usable factor on an old building with no amenities. They were paying for phantom space – at least 10 percent of its imagined square footage.
What looked good as a nice round number wasn’t a fair price when all the factors were included.
With the strength of a national organization behind us, we successfully lowered the rate. But the lesson served as a warning for tenants in buildings anywhere in the country to look closely at this rentable/usable factor and see what is contained within that number.
If you are concerned about a deal and you don’t know what to do next, you may want to check out a tenant representative. A tenant representative specializes in analyzing hidden costs, comparing rates in surrounding buildings and developing a strategy for rate reduction. These are the kinds of services we offer, and our aim is to help furnish the kind of information that helps you, as a lease holder, make wise decisions.
Hidden costs do exist. Be on the lookout! If your gut is telling you that the numbers aren’t working out, it’s worth investigating further.Hidden costs do exist. Be on the lookout! If your gut is telling you that the numbers aren’t working out, it’s worth investigating further. Click To Tweet
Lynn Drake left the world of corporate real estate departments after 15 years to become a commercial agent in 2000. Ten years later, she started her own firm. Strictly focusing on tenants and buyers of commercial real estate, Drake is recognized in the industry for her focus on maintaining “true north” for her clients. With a BS degree in Business, concentration in accounting, and a Masters of Corporate Real Estate Certificate, Drake has completed 2,500+ real estate transactions over her 30-year career. The recipient of many awards, including Crain’s Detroit Real Estate Excellence Award, GLWBC Outstanding Achiever for Oakland County, Midwest News Hall of Fame, and the GSSE Michigan Leadership Award, Drake also volunteered on the City of Troy’s planning commission for many years. She is known for her adventurous nature and love for new challenges, which has led her to bungee jumping, skydiving, repelling down waterfalls, and climbing a mountain.
Follow Lynn Drake on LinkedIn: https://www.linkedin.com/in/lynndrake/