“Blend and Extend” is becoming more popular in commercial real estate. Alec Pacella, CCIM, Sr. Vice President of NAI Daus discusses this concept in the June issue of Properties Magazine. This blog entry will provide you with an example of Blend and Extend.
“Blend”- A tenant’s schedule of lease payments is altered.
“Extend”- The length of the lease is lengthened.
This concept is simple and it can be beneficial for tenants and landlord, but there are potential pitfalls. With the economy in the pits, most companies are scrambling to cut expenses, and real estate often jumps off the page, particularly if the company is leasing space. As a result, companies are approaching their landlords looking for rent reduction with increasing frequency.
For example a company’s business is down 40%, already had to lay workers off, froze wages, and cut extraneous expenses. The company signed a 10 year lease in 2001 and currently pay $5.25 per square foot, and contracted to increase by $0.10 per square foot each year for the rest of their term. If the company does not reduce expenses further, they will not be able to operate.
The company approaches the landlord. If the landlord reduces the current rent by $0.75 per square foot, the company would be willing to extend the lease by another eight years, and continue the annual $0.10 per square foot increase in rent. Is this option a deal-maker or deal-breaker for both tenant and landlord?
Are you currently a tenant or landlord in this situation? NAI Daus would like to assist you in any current lease or sale negotiations you have with your current space. We know commercial real estate negotiations may be a roller coaster ride in this economy, we will provide you with the best commercial real estate guidance in Northeast, Ohio and beyond.
Alec Pacella, CCIM, Sr. Vice President
216 831 3310 x125