The Wise Move: Optimal Blend & Extend Strategies
Sep 22, 2023
As the global business landscape navigates through the aftermath of the pandemic, the real estate sector too finds itself in a period of recalibration. Tenants who entered into lease agreements before the pandemic might be facing the financial brunt of these unprecedented times in ways they hadn’t anticipated. If you’re one of them, you might be surprised to learn that there’s a way to alleviate some of that burden and potentially lower your rent costs.
Most commercial office tenants who signed their leases before the pandemic find themselves paying rents that are 40 to 60 percent higher than current market rates. This substantial disparity is largely due to market dynamics that have shifted in response to the pandemic, with factors such as an increase in remote work reducing demand for office space.
Enter the Blend and Extend Strategy…
A ‘blend and extend’ strategy offers a win-win solution for both tenants and landlords. Here’s how it works:
1. Blending the Rent: Tenants can negotiate with their landlords to blend their remaining high rent obligation with today’s lower market rent.
2. Extending the Lease Term: In return for this reduction, tenants offer to extend their lease term, effectively amortizing the reduced rent over a longer period.
Why Landlords Are Onboard
You might wonder: why would a landlord agree to this?
The reality is landlords are wary of the increased competition in the market. They recognize that other building owners might be eager to absorb a tenant’s existing obligations if it means securing a long-term tenant. Losing a tenant can also mean extended vacancy periods, additional fit-out costs, and
the risk of getting a tenant of lesser financial strength. By agreeing to a blend and extend deal, landlords can ensure continuity and stability.
Engaging a qualified real estate broker can be invaluable in this scenario. Not only do they have a finger on the pulse of the current market rates, but they also possess the negotiation skills to strike a favorable deal. Best of all, tenants often don’t bear the cost of the broker’s services in such transactions.
Unlock the potential to reduce your rental costs and secure a stable future for your business. If you’re a commercial office tenant with approximately two years left on your lease, it’s time to consider the blend and extend strategy. At Starboard Commercial Real Estate, our expert agents are ready to assist you in negotiating a win-win deal with your landlord. Act now to ease your financial burden and ensure long-term stability. Contact us today to learn more about this opportunity.
Written by: Hans Hansson
Hans Hansson is the President of Starboard Commercial Real Estate. Hans has been an active broker for over 35 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email [email protected] or call him at (415) 765-6897. You may also check out his website, https://www.hanshansson.com