Deals never go according to plan

At the outset, most lease deals look pretty straightforward. There is an expiring lease, a defined need, and an established geography. The tenant engages a real estate broker to explore options in the market and identify the best possible options, enter into negotiations, and ultimately settle on a short list of buildings with which negotiations will start. Best and final terms are reached, a deal is struck, and leases are drafted with the best possible facility. In an ideal world, this is how the process would go. And the entire thing could take as little as ninety days from start to finish. Everyone is cooperating and there are enough “atta boys” to go around.

In my experience, this never happens. Whether they are minor snags or major problems, something is always comes up. It can be tenant driven issues such as a shift in business strategy, a layout change, or loss of a major account. The landlord might pull their property from contention or dig his heels in during negotiations. Nobody likes to think about these things, but it can create significant exposure for the tenant. They may end up in holdover (paying double rent) potentially exposed to damages (if the landlord has leased their current space) and put operational objectives into limbo while waiting for the dust to settle.

Some suggestions to hedge against a small hiccup turning into a major problem:

1) Start the process early. There are few situations that some extra time can’t fix.

2) Keep an eye on the market and a back up list of alternatives. Knowing what else is out there not only gives you negotiating leverage, but also allows you to refocus if your primary choice disappears.

3) Negotiate (in good faith of course!) with multiple buildings simultaneously. There is nothing wrong with engaging multiple buildings during the process, and I expect that landlords are doing this as well.

I’ve had many instances where we have been close to requesting leases only to hear from a client that they’ve decided to change the headcount, consolidate multiple operations, or move the facility closer to customers. I’ve also received calls from landlords informing me that the building we were considering just got leased to another tenant. These things happen. From experience I know that the better job I do of alternatives planning, the smoother the deal will go.

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