Ouch - Rent problems

[Stephen Beckham]

Well friends, looks like this laser guy is going to shut down or find a new place. My landlord just informed me that he wants to raise my rent from $.85 /sq ft to $1.50 /sq ft. That's a difference of $500 more a month! He likes the idea that I'm finally making money and feels that I can afford it.

I told him my profit is my profit and not his. Just because business has picked up for me, that doesn't mean the property value has increased... Well - that's what I wanted to say. Actually I simply told him I'll have to find a new place; that I can't afford that kind of increase.

At any rate, I'm pursuing a move back to the basement and picking up where I left off from there or finding a new place. I've got enough business that will follow me now so no hard feelings - it's a business move on his behalf and I'll make my business move on my family's behalf... It's a shame - I really liked this landlord...

It's all good, everything happens for a reason and the Big Guy will take me where I need to be!

[Mitchell Andrus]

$1.50 /sq ft... Really? Is that per year or per month?

Ask him what his real estate tax and insurance costs are psf.

[Tom Delaney]

Steve - if people are clammoring for your space, you're in trouble BUT if, like most of the U.S. - rental space is more empty than full - you should be in the drivers seat UNLESS he dropped his proverbials to get you in there in the first place. The issue he will have is somebody else will have to do FIT up and he will be out of the rent until he has somebody else to move in. Remind him that a 76% increase out of the blue is more than unreasonable and when you leave, he will have to foot the entire tax, security, etc until he fills the space.
Also, look at what your neighbors are paying (per sq. foot) - if you are way low --- somebody else might jump in. You have the alternative to move back to a basement dweller (as most of us are) - so you really are negotiating from a point of strength. You have an option and if you move out... where does that leave the landlord? A reasonable increase after being there a year... maybe ...but in this economy he should be glad to have somebody showing up to pay the taxes!

[Mark Winlund]

I've got 12,000 sq ft for 40 cents sq/ft.... busy hiway, lots of office space, work space, warehouse space... in Oregon (highest unemployment in the nation.)

Mark

[Ed Hazel]

Reminds me of a story from and old builder.

When anyone asks hows business say good.
If you say great your suppliers/landlord will up their prices. if you say slow then your customers think you should be happy to do jobs for less money.

Bottom line keep your business your business.

[Bob Lloyd]

Stephen

What kind of lease agreement do you have and how long have you been there? Was it for a fixed term, do you have any right to extend or were you simply month to month or tenant at will? As a landlord in this economy that is an absurd increase unless he gave you a teaser rate to get you in or maybe has someone else lined up. As others have posted, in many areas there are lots of commercial spaces for lease. What are the going rates in your area? You posted that he wanted to raise your rent, is that how it put it or did he say that he would be raising it?

Bob

[Stanley Waldrup]

I've got 12,000 sq ft for 40 cents sq/ft.... busy hiway, lots of office space, work space, warehouse space... in Oregon (highest unemployment in the nation.)

Mark

Sorry to differ with you but We have ya beat up here in Michigan 12.6 to your 12.1 We have all kinds of places to rent just no incoming to pay it..
Still above water in Michigan
Stanley

[Stephen Beckham]

Well, the original lease runs out July 1st and that's when he wants the increase or have me leave - nothing binding beyond that. The building sat empty for over a year before I moved it because he was asking $750 a month. I knocked him down to $700 as a starter with an expectation of a 10% increase the second year to be negotiated of course - his negotiation went from 10% to mid 80% range.

The average cost per square foot in this town (smallest incorporated town in US according to Guiness Book) runs about $.60 low end up to $.90 high end. There are only three buildings (lest than 20 total retail spaces in town) for rent and they have been empty one year, almost three years and seven months respectfully. The average life span of a new business in our town is about 8 months. Then they leave to go somewhere that doesn't have the city tax sales tax (auditable and public info for gross ticket information).

He seemed a bit shocked and started asking for other concessions when I told him I wouldn't pay over $800. He asked me to wait three days and he'll come back with a counter offer. I suggested he come back with concessions because I would move at any penny over $800. Honestly, I'd love to move anyway since I can get 400 more sq/ft for the same $700. He said there wasn't anything that cheap to his knowledge in town. Again - he's from out of town and only comes up every other month. Not putting him down, but he's out of touch with the locallity and the local rates.

Craziest thing is he commented on how impressed he was with my business savvy when talking, but seems like he thinks he can strong arm me by telling me how much it's worth (in his mind - not the value he's paying taxes on - yea, I checked). He tried to convince me he's doing me a favor by giving me such a good deal. I had to look in the mirror to see if someone wrote SAP on my forehead... Maybe I should help him out with our new PVA and let her know that he's paying way under the taxes on the actual value he claims the property to be worth.

Well, anyway - I'm going to keep on keeping on. A couple members of the city council stopped in to make sure I'm okay and that they would do anything to help me out. They're somewhat excited that I'm brining business to their little town and want to help me stay there. It's good knowing that you're loved by someone (I think their salarys are paid by my city sales tax....)

Take care and thanks for the responses of encouragement!

[James Jaragosky]

Oregon (highest unemployment in the nation.)

Mark

I thought that Elk Heart IN had that distinction.

[Rodne Gold]

Im not au fait with US legalities , but you might have some recourse to a doubling of rent , in fact over here in South Africa , you have pretty strong rights as a monthly tennant without a lease,
If you have improved the premises , you should be entitled to at least the cost of your improvements , providing the landlord knew about em.

[Bob Lloyd]

Steve

It seems that you have the power in this situation. According to your numbers, you are already paying close to the highest rate in town. There are other vacancies and your space will join them if you move. If the rent was raised to $800, that would be a 14% increase, still a large rise. You said "Honestly, I'd love to move anyway since I can get 400 more sq/ft for the same $700." So why don't you just do that? Sure, it is a hassle to move but if you get more space for less money it is a no brainer! If you do move or stay, I would have the lease drawn up so that you do not find yourself in the same situation again. Get any increase fixed at a more normal 3-5% or have it tied to some index that adjusts for inflation. Also get yourself the option to extend the lease. That way you have the option of paying a predetermined amount or moving at the end of the specified term. As I mentioned at the beginning, you appear to have the power in this instance. Good luck.

Bob

[Phil Thien]

I think that, almost without exception, you should be able to find lower rent than what you're paying, and get options on years 2 and 3 at the same rent. In fact, commercial landlords would rather forgo increases in rent and have locked-in leases because they need them in order to renew their loans every 3-5 years. And most are currently bleeding tenants.

I'd play a little hardball w/ this guy. Get some written comps from other places where you could relocate. Include options for additional years. Tell the current landlord he has to match the lowest one or else you'll bolt.

[Scott Shepherd]

I contend the bottom is here. Why? All I hear is how awful the real estate market is. It's everywhere you look. We are in the process of moving as well, and we've called no less than 5 agents, with all of them working for large firms. Not a single one of them has asked for our name, our telephone number, our company, or offered to meet us at a location to show it to us.

We asked how much the cost per square foot was and two of them from different companies said "The total cost is _____, you figure it out, I don't have a calculator".

One place was what we wanted, but the price was way out of the market normal, and we asked the guy if they would take any less and he got hot about it. He said the price was what it was, take it or leave it.

For people who are supposed to be starving, darned if I can find one that's hungry enough to want to help us. We ride through a couple of office parks that have dozens of empty spaces and they people won't even call us back.

Darndest thing I've ever seen. We're TRYING to give our business to someone and can't find anyone to take it. I think they know the bottom is here and they don't want to write a ton of leases tying up all their space at low rates, so when the market comes back, they have nothing to offer at higher rates.

[Phil Thien]

One place was what we wanted, but the price was way out of the market normal, and we asked the guy if they would take any less and he got hot about it. He said the price was what it was, take it or leave it.

I used to think that this was odd, too. But then it was explained to me that the value of the property is based on the rents. If they drop the rent, they drop the value of the property. Which also gets them into hot water when they renew their loans (every 3-5 years for commercial property).

So many would rather have a vacant spot or two than drop the rent.

Of course, many are now getting to the tipping point where they don't have enough tenants to cover their nut. But as a possible tenant there is nothing you can do about that. They are kinda damned if they do, damned if they don't.

My best advice is: (1) Avoid dealing w/ leasing agents, try to deal with smaller owners that handle leasing directly. (2) Try to find property that is owned outright.

[Scott Shepherd]

Thanks Phil, I've also had that explained to me as well. Apparently the value of the building isn't much, it's the value of the tenant and how good their credit is and how long the lease is for. If they have a great credit rating and sign a long term lease, it gives the owner the ability to borrow against that value. So you'd be better off to rent to someone with great credit versus okay credit, even thought the rent is the same.

Makes sense, but like you said, it's costing you money to have it empty, and I'd like to make that problem go away from them plus have a place. We're looking at $7-8 a sq. foot here (annually) for flex space, and the small guys seem to want $10 a sq. foot.