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Understanding this structure clarifies commercial rent negotiations for business owners: The landlord can't negotiate on rent, but he can negotiate on a ton of

Understanding this structure clarifies commercial rent negotiations for business owners: The landlord can't negotiate on rent, but he can negotiate on a ton of other things that are financially equivalent.

wrs 2y ago
Indeed, it’s even common to negotiate for some months of discounted (or zero) rent, as long as you don’t change the official rent!
- blackeyeblitzar 2y ago
  Isn’t this deceptive? If a buyer thinks they’re getting a priority with one kind of rent potential but the truth is that there’s a lot of these negotiations that distort things, couldn’t they be fraudulent? Also how does property tax get affected by all this?
  - lotsofpulp 2y ago
    Free rent doesn’t fool a lender or commercial property buyer. It’s elementary to take annual income and divide by 12 to get actual monthly rents. Appraisals for property tax are similarly unaffected. “Free” months are to prevent advertised rents from being lower to prospective and current tenants. It helps set a higher price anchor so that future negotiations are based off of that.
    - bruce511 2y ago
      It's also an important offset against the cost of moving. Obviously norms in different places will vary. We have not moved a lot as a business, but when we have it's been -expensive-. Leaving aside the cost of actual movers (reasonably low) it costs money to prepare a new office for us. Granted, we place a premium on employee comfort, so we spend a bit on kitchens etc, but also networking, furniture, the offices themselves and so on. Then there's down-time for the move itself (packing, moving, unpacking.) And "rent overlap". Once construction starts we're effectively renting 2 offices, the old one and the new one. In cases where serious work was done this can span 2 to 3 months. So we've always negotiated "rent free" starter months. This mitigates (some of) the extra expenses incurred. In some cases this translates as discounts for the first year or whatever.
      - wrs 2y ago
        Speaking of construction, another thing that might be surprising is the “tenant improvement allowance”. If your lease is long enough (at least 5-7 years), it’s often expected that the landlord will pay to hire an architect, rip out whatever interior the previous tenant had, and build out the interior to your specs. (Up to some limit, which is the “allowance”). But again, that isn’t counted as a rent discount. In the other direction, there’s the whole area of “net” rent (and “triple-net” rent), and the bizarre calculation for shared spaces that makes “square foot” a semi-imaginary unit.
  - CydeWeys 2y ago
    You have to look at the actual income statements to see how much they're actually being paid in a year, and look at the signed leases to see how much the building will actually make in future years. It's all part of due diligence for buying a high value commercial property.
- pfannkuchen 2y ago
  I thought that was about rent control?
  - deleted 2y ago
    [deleted]
Waterluvian 2y ago
Ah this clarifies why I’ve had an employer talk about “millions in free upgrades” for office space they looked at.
- rdtsc 2y ago
  That's how it works. We signed a new agreement but to be "convinced" to stay the lender did some renovation in the space, added some extra amenities, new carpet everywhere, and a bunch of other stuff like that.
- quickthrowman 2y ago
  ‘Tenant improvement allowance’ is what that is called. Your employer’s facilities director/real estate person is a bit naive if they claimed it’s free money since it’s not free money. The TIA cost is just priced into the 10 year lease over the duration. Nothing is free.
  - Waterluvian 2y ago
    Nothing is free?!
    - quickthrowman 2y ago
      Not if a landlord is involved :) I do business with CBRE, JLL, and Cushman Wakefield. All of them make me pay them a fee to send them an invoice, and that fee is built into my price since as I’ve said,

wrs 2y ago

Indeed, it’s even common to negotiate for some months of discounted (or zero) rent, as long as you don’t change the official rent!

blackeyeblitzar 2y ago
Isn’t this deceptive? If a buyer thinks they’re getting a priority with one kind of rent potential but the truth is that there’s a lot of these negotiations that distort things, couldn’t they be fraudulent? Also how does property tax get affected by all this?
- lotsofpulp 2y ago
  Free rent doesn’t fool a lender or commercial property buyer. It’s elementary to take annual income and divide by 12 to get actual monthly rents. Appraisals for property tax are similarly unaffected. “Free” months are to prevent advertised rents from being lower to prospective and current tenants. It helps set a higher price anchor so that future negotiations are based off of that.
  - bruce511 2y ago
    It's also an important offset against the cost of moving. Obviously norms in different places will vary. We have not moved a lot as a business, but when we have it's been -expensive-. Leaving aside the cost of actual movers (reasonably low) it costs money to prepare a new office for us. Granted, we place a premium on employee comfort, so we spend a bit on kitchens etc, but also networking, furniture, the offices themselves and so on. Then there's down-time for the move itself (packing, moving, unpacking.) And "rent overlap". Once construction starts we're effectively renting 2 offices, the old one and the new one. In cases where serious work was done this can span 2 to 3 months. So we've always negotiated "rent free" starter months. This mitigates (some of) the extra expenses incurred. In some cases this translates as discounts for the first year or whatever.
    - wrs 2y ago
      Speaking of construction, another thing that might be surprising is the “tenant improvement allowance”. If your lease is long enough (at least 5-7 years), it’s often expected that the landlord will pay to hire an architect, rip out whatever interior the previous tenant had, and build out the interior to your specs. (Up to some limit, which is the “allowance”). But again, that isn’t counted as a rent discount. In the other direction, there’s the whole area of “net” rent (and “triple-net” rent), and the bizarre calculation for shared spaces that makes “square foot” a semi-imaginary unit.
- CydeWeys 2y ago
  You have to look at the actual income statements to see how much they're actually being paid in a year, and look at the signed leases to see how much the building will actually make in future years. It's all part of due diligence for buying a high value commercial property.
pfannkuchen 2y ago
I thought that was about rent control?
- deleted 2y ago
  [deleted]

Waterluvian 2y ago

Ah this clarifies why I’ve had an employer talk about “millions in free upgrades” for office space they looked at.

rdtsc 2y ago
That's how it works. We signed a new agreement but to be "convinced" to stay the lender did some renovation in the space, added some extra amenities, new carpet everywhere, and a bunch of other stuff like that.
quickthrowman 2y ago
‘Tenant improvement allowance’ is what that is called. Your employer’s facilities director/real estate person is a bit naive if they claimed it’s free money since it’s not free money. The TIA cost is just priced into the 10 year lease over the duration. Nothing is free.
- Waterluvian 2y ago
  Nothing is free?!
  - quickthrowman 2y ago
    Not if a landlord is involved :) I do business with CBRE, JLL, and Cushman Wakefield. All of them make me pay them a fee to send them an invoice, and that fee is built into my price since as I’ve said,