Every office lease company knows that in most cities, there are buildings that are financially healthy and always fully leased, while others go through various phases of financial change. Companies that occupy space at a location which sees its shares of ups and downs can also be affected by this instability, both negatively and positively. Some businesses may even be able to negotiate for more favorable leasing terms with the help of experienced tenant reps.
The Lifecycle of Financial Distress
A building that is underperforming can easily become a financial burden to its owner, sometimes reaching the point where they lose the building and lenders assume ownership. Foreclosure does not happen overnight, although there are a number of things to indicate that foreclosure may be around the corner.
These steps start when the owner does not bring in enough money to cover operating expenses, which can progress to a default in payments followed by foreclosure negotiations. Although this should have no bearing on tenants in the building, every experienced office lease company knows this is not the case. Tenant companies need to pay close attention when signs of such circumstances begin.
Why Tenants Must Pay Attention to Building Stability
A building in financial distress can directly affect tenants in a number of ways. The most drastic way a company can be affected is in a foreclosure that negatively affects leasing terms or conditions. Yet a company working with skilled tenant reps may be able to benefit from some creative lease restructuring if they approach an owner at a beneficial time.
If a company is large enough and occupies enough space in the building, they may be able to secure more favorable terms while helping either the existing owner looking to avoid foreclosure or a new owner who has just gained possession at the same time.
There are two ways that an office lease company can help tenants avoid the pitfalls that may occur when a building becomes financially unstable.
- Watch for key points in the building’s lifecycle when renegotiating leases can actually benefit the landlord. This is when owners are most willing to negotiate if it can help their cash flow and put off foreclosure. Yet to have any impact, a tenant company needs to be sizable, occupying a good amount of space in the building.
- Take advantage of the time after a foreclosure when the new owner has just gained possession of the building. New ownership means new financing based on current market conditions and new capital available for improvements and other concessions. This is always a good time to involve tenant reps who can help existing tenants renegotiate current leases for the mutual benefit of new owners and existing tenants.
The important thing to keep in mind is that even when everything seems fine, there are commercial buildings that go through financial ups and downs in every market. Occupants of these buildings, along with their tenant reps, must always keep an eye on what is going on financially to avoid unpleasant surprises.
Most of all, working with an office lease company at key times could benefit tenants, even when a building is experiencing financial distress. The trick is in knowing when to act for the benefit of all parties involved!