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The office and industrial sectors are not uniformly weak
across the country, but in those cities where empty space has
been bountiful, an aggressive tenant’s market has emerged.
Without waiting for lease terms to conclude, tenants are
going back to landlords asking for rent abatements and other
concessions in return for longer term leases. It’s a blend &
extend phenomenon dependent on weakened markets.
“Not a day goes by that two or three of the tenants,
whose leases I’ve done in the past few years, don’t call
me,” says Soozi Jones Walker, SIOR, CCIM, president of
Commercial Executives in Las Vegas, Nevada.
“This is the biggest tenant market I’ve seen in the 25
years I’ve been doing this,” adds Gregory Schenk, SIOR,
CNE, president of The Schenk Company Inc. in Columbus,
Ohio. “In the past three years, 80 percent of my business has
been lease reneawals and restructuring.”
Tenants, reading the tea leaves, if not the local news-
papers and internet, go back to their tenant reps imploring
them, in turn, to contact landlords and demand everything
from 50 percent rental reductions to world-class build-outs.
The trouble is, even in weak markets, nothing is that simple,
and lease renegotiations require skilled hands and knowl-
edge of the local market.
“Lesser experienced brokers will call and say, ‘my tenant
has two years to go on his lease, he’s paying too much, and
if you don’t lower the rent he is going to move’,” observes
James Mosby, SIOR, CCIM, a senior managing director
and principal with Cassidy Turley in St. Louis. “If I was the
landlord, I’d say move out of the building, I don’t care.”
Some tenants feel that because the market is soft, land-
lords have no option. That’s just not the case, says Walker.
“Every phone call begins, ‘rents have dropped everywhere, I
want to cut my rent in half.’”
What these hysterical tenants are missing, Walker
stresses, “is that each of these renegotiations are done on an
individual basis and a blend & extend has to be a win-win
for both sides. The whole key behind the blend & extend is
that there is a benefit to the landlord for having the longer-
term lease. The financial dollars have to work for the land-
lord as well as the tenant.”
Schenk agrees. “I am pretty much a win-win negotiator.
If a tenant gets too greedy, the landlord won’t be able to
run the building in the manner needed,” he says. “And if the
tenant really needs that extra 25 cents in lease reduction, he
may be in such bad shape eco-
nomically, the landlord may not
want to work with him.”
Blend & extends can be
easy, but mostly they are not.
It takes a lot of scrutiny on the
part of the landlord and tenant
to make sure these go down
smoothly and gain traction.
Negotiations: Take One
When meeting with a landlord on a blend & extend, it’s best
to take a non-confrontational, beneficial approach, Mosby
asserts. “When you talk to the landlord, say, ‘we’ve done
some modeling on your building looking at what would hap-