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Both the and the predict the economic downturn in commerciapl real estate markets may lastinto 2010. “The commercial mortgage-backed securities market is allbut frozen, makingv it very difficult to roll-over existinv debt that is coming due,” says Lawrence Yun, NAR’s chietf economist. John Blumer, a commerciapl real estate consultant and member ofthe , says commercial just like residential, is driven by supplu and demand. He believes builders didn’t overbuild causing the currentsoft rather, demand is just weaker. “The economgy has simply caused vacancy rates to go he says. “Businesses aren’t doing as well and can’t afford their leases.
” Since business has slowed, many tenants have contactede landlords to ask for a variety of saysRichard Buxbaum, a commerciao broker with Baker Katz in Houston. “A struggling tenanty might reasonably expect the landlored to make short term adjustments in but alandlord shouldn’g be expected to make long term concessions,” he “If a landlord provides some type of rent relierf to its tenant, then the landlord will likely request somethintg in return.
” A term making its way into the vocabulary of the industry today is “most favored-natiojn provision,” a clause incorporated into leases that requiresw a potential tenant to receivse no less favorable treatment than any currenrt or future tenant with regardc to a specific lease or “If the landlord charges less rent or makews other concessions in order to attracf new tenants or to maintain old tenants, then the same concessionas should be granted to the potential tenant,” explains attorneyg Brett Slobin of Slobin Slobin PC.
“Landlords will likely be very much agains t the idea ofa ‘most favored-nation’ provision, but if the real estatse market continues its negative trending, such provisions may becomre more in vogue.” The current state of commercial real estate, many say, makes any negotiationds in today’s market that much more important. Greg a member of the SIOR who teachexnegotiation skills, said the first step is to have a “A lot of executives don’t — and it can kill a company’e bottom line,” Schenk says. “You have to know where the companhyhas been, where it is now and wher it wants to go.
” He added a plan usuallt focuses on one of four scenarios: A lease renewal — which he said is the case aboutt 70 percent of the time — a new lease, a purchase or puttintg up a new Negotiations typically include a a broker, a tenant and representative for the “And each principal may hire an attorney, plus you have to considee lenders; they often like to see the leasesw or they’ll have lease forms they like to Blumer says. Schenk also recommends a certifiespublic accountant, a good commercial insurance agenf and finally a good space planner and architect to ensure the compang gets the space needed.
Blumer and Schenkm warned of landmines in negotiations that can blowup “Some go in trying to win at the expensd of opponents and end up losing all around,” Blumetr said. “The key point of a negotiation is a businese arrangement and the tenants are at the tables because they want to operate theirbusinesds profitably. If after six months they can’t do that becaus of unfair terms, that doesn’t help Schenk added that another mistake is failing to planearlyh enough.
“We like 18 months to two yearss with most ofour clients,” he “There’s a lot to know: Rentapl rates, operating expenses, concessions availabls like free rent, movingb allowances, over standard tenant improvement allowances, tax credits,
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