Slo Mo No Mo
One of the oldest tricks in the landlord playbook is the “Slow Play”. This is when your landlord (figuratively) puts his arm around your shoulder and says, “…don’t worry, we’re going to make you a great offer, it’s just a bit early”. What he’s really saying is, “…we want to back you into a corner so that you have fewer options, so you’re more captive, less likely to relocate. This way we can achieve more favorable terms”. Well, when you put it that way…
The Slow Play benefits the landlord both when market leverage is in their favor, and when it’s not. In the case of the former, forcing a tenant to wait brings the possibility of competitive demand for the space, possibly fueling a bidding war, pushing rents even higher. In the case of the latter, peak tenant leverage is when the tenant has credible options, when the threat of vacancy is real. Accessing such leverage requires well-timed market engagement, a credible market process that clearly shows the landlord it must compete or risk vacancy. How do you avoid being slow played by your landlord? Engage a qualified advisor and run a full market process beginning at least 18 months ahead of your lease expiration.
The office lease is a complex financial transaction with many moving parts. Rental economics are broadly reflective of the market, yes, but they’re also heavily influenced by the unique circumstances of each asset and its ownership. Things like vacancy, cost basis, and debt. The best broker advisors understand how to create tenant leverage through a competitive market process in which landlords are forced to compete. Note the use of the word “forced”…it’s not by accident. Landlords would rather not compete. They prefer a captive audience. Captivity, in the context of office tenancy, is when a tenant fails to access its leverage. The most common cause of captivity is the failure to use time wisely. The longer a tenant waits to engage the market, the lower the probability it will relocate due to the time necessary to negotiate a new deal, and to design and construct new space. Landlords are attuned to the actions a tenant takes in the months running up to its lease expiration. They underwrite both the probability a tenant will extend its lease and the extent to which they need to offer aggressive economics. They’re watching.
You love your building? Great. Your landlord is the best? Awesome. You want to stay in the same space? Let’s make that happen. But let’s make sure you get the full benefit of the market leverage to which you are entitled. Let’s not fall prey to the Slow Play. Say it with me, “…slo mo no mo!”