The Challenge
- One of my tenants wanted to lease the end cap of a proposed pad building with a drive-thru.
- The space was available.
- The tenant and landlord were both interested.
- The tenant’s workletter was rather involved.
- The Landlord’s construction estimates were taking a notable amount of time and LOI negotiations had stalled.
- Early indications were the estimates were going to come in quite high, thus making the economics and corresponding rent unaffordable.
Action Taken
- I needed to make the turnkey lease easier for the landlord to achieve in order to secure the space for my tenant.
- I was able to have the tenant’s construction department tell me approximately how much it would cost from a warm, dark shell to complete the tenant’s workletter.
- Therefore, I suggested the landlord simply provide a warm, dark shell and a tenant improvement allowance in order to finish the construction.
- Knowing the tenant would have to run utilities through the floor, I didn’t want to see the landlord pour a new concrete floor only to have the tenant spend time and money cutting into it.
- Therefore, I suggested the landlord not pour the floor when building the shell.
- The landlord would provide the tenant with a floor credit.
- The tenant would pour the floor once they had run the utilities to the necessary positions.
The Result
- By providing the warm, dark shell without a floor, and a tenant improvement allowance, the cost estimating and ultimate rent calculation was reduced to a very manageable level.
- Since the landlord did not regularly build this type of custom space, their cost estimates were coming in quite high.
- It was easier for them to provide a shell which they were very used to constructing and then providing a tenant improvement allowance, which made calculating the rent a much easier and quicker exercise.
One of the most attractive qualities of the retail real estate industry is the opportunity to be creative when trying to overcome obstacles. With these types of problems, my job is never boring. I have written these two sentences before, but it is why I like this profession so much. Time is the enemy of all deals. We have heard that phrase many times. Too much time was passing in these negotiations and the LOI had stalled. We needed to keep the discussions moving forward to avoid perhaps another tenant showing interest in the space and to maintain everyone’s interest in the transaction.
