My landlord wants to buy me out of the awesome lease I have. Their goal is to redevelop the whole massive property into a booming retail & residential & office complex that will multiply their square footage as well as what they charge per square foot. I spent a year hunting hard to find the best possible office space for my company with the most long term benefits. The landlord stopped by today and had a conversation with me about all of this. Here is my opening thoughts to him on what the lease buyout could be structured like. What do you think? Also, I included his initial response.
Name changed for privacy:
I really enjoyed our meeting today! It was by far the best start to a relationship we have had with anyone representing <Landlord Company> so far. Being pressured by other <Landlord Company> employees in the past to leave my lease was very unpleasant. I think we will be able to figure out something that is fair and makes sense for both of our businesses so you can get a much better use out of the property here. It’s much better to work as allies than the other options.
- We took possession of the property in April 2014 and the lease runs through to April 2024 I believe. We have a little over 7 years left. Approximately 87 months left on our lease I believe. It sounds like you guys would like to begin construction perhaps when we have about 70 months left on the lease, so you would like us out before then? We currently pay something like $2.10 per sq ft. A comparable space will probably cost us $4-6 per sq ft per month. (estimate: $4.50 – $2.10 * 70 months *5000 sq ft = $840k)
- We also have the expense of the disruption to our business:
- Probably a couple of months of lost revenue from the time and effort and downtime and distraction of moving (estimate: monthly revenue of $250k * 2 = $500k)
- Changing all of our marketing & sales & advertising materials ($30k)
- Informing all of our clients and employees and prospects (??)
- Losing employees who don’t want to move to the new location (anticipate 20% staff losses of in office people with related expenses) (estimate – we have 20 employees, based on my experience last time I would lose 4-5. Cost of recruiting 4 * 20k = $80k)
- Losing clients from the distraction of the move / clients who like being in close proximity / etc (estimate: based on last time we lost 5-10% from the disruptions .. included probably in the first bullet with lost revenue)
- Paying contractors / construction to build out the new space ($50k?)
- New furnishings / desks / chairs / decorations / art in the new office ($40-60k?)
- Breaking our multiyear contract with the fiber provider (not sure)
- Loss of easy access to the metro station which was a major reason in why we selected this location – makes us much more attractive by removing the commute from lots of areas of the city (not sure)
- Increased cost of parking in new location. We pay $75 per spot and the local garages were asking $200 when I asked for a spot for new employees. (probably $1k a month over the remainder of the lease = $70k)
- Loss of easy access to all the local partner companies, as well as the great restaurant and social scene here. (not sure)
- Moving company expenses & breakage (not sure… $5k?)
P.S. – Also one factor I forgot to include would be tax implications. Perhaps also legal issues with a less favorable lease?
The landlord’s response:
I also enjoyed our meeting. Great to know you are a UW guy!
As I said, we have a lot on our plate right now in terms of development and quite honestly don’t know that I can recommend to the family to move forward with everything at once!
We have other tenancies in the buildings that will also be looking for compensation on a move-out.
I will take your notes below in to consideration but at first blush it is higher than I would have anticipated
Lets keep the dialogue open and friendly
All the best