Hint: Timing can be your greatest asset – or biggest liability.
After representing trade associations in the Washington, DC market, for the past 13 years, we can say with 100% certainty: The biggest mistake association executives make is waiting too long to engage in the leasing process.
While 24 months from a lease expiration may seem like an eternity, in the commercial real estate world time is leverage – allowing associations far greater flexibility, an organized process, and vastly enhanced leverage to negotiate optimal terms.
But two years? Absolutely. Let’s take a look at the two most likely lease scenarios to see why it’s essential to think in terms of years instead of months.
Scenario 1: Moving to a New Space
The average transaction cycle for a 10,000 square foot user (45-55 employee headcount) is 12 months – but for most situations, that’s cutting it too close. Let’s break the timing down to see why:
|• Tour and locate two to three site options to identify a short list||1 to 2 months|
|• Negotiate a non-binding Letter of Intent (LOI) with the preferred space||1 to 2 months|
|• Negotiate the lease||2 to 3 months|
|• Complete design and construction documents||2 to 3 months|
|• Permit approval and receipt (depending on the jurisdiction)||2 to 3 months|
|• Construction and delivery of space (depending on scope)||2 to 4 months|
|Total||10 to 17 months|
Based on this typical market timeline, a 10- to 17-month window is necessary to complete a transaction. Notably, this scenario makes no allowance for any strategic planning or previous Board input, which would likely add another two to three months to the process.
But what if your association has no intention of moving? Then it’s critical to engage the lease process even earlier!
Scenario 2: Extending a Lease on Existing Space
This is a common situation in the trade association world, especially among established groups. Most association headcounts remain relatively stable, so they tend to stay in the same office suite in the same building through multiple lease periods. In this situation, too many associations renew their lease without a rigorous negotiating process, not realizing their tenure can be used to their advantage.
If the association has received competent, professional brokerage services on their current lease, the document should include a variety of options to provide leverage. Chief among these is an option to terminate. Such options are usually available with two to three years remaining on a seven- to 10-year lease term, and generally, require the tenant to provide nine to 12 months’ notice prior to the end of a specific lease year.
Depending on market conditions and current tenancy in the building, an option to terminate can provide excellent leverage for an association to recast their lease and gain valuable concessions in free rent and tenant improvement allowance.
Even if there is not an option to terminate the lease, it is always much cheaper for landlords to keep existing tenants rather than recruit new ones, so the ability to execute an early lease restructure anywhere from six to 36+ months in advance of the natural lease expiration (depending on the market and the landlord) typically exists.
In either scenario, associations are often able to gain no-cost renovations that enhance the space and improve efficiency as well as secure provision for future expansion and penalty-free early lease termination – all well in advance of the current lease expiration.
Whether seeking new space or staying put, the cost of waiting not only diminishes an association’s leverage; it almost always diverts key staff members’ attention from the mission to deal with a rushed and disruptive lease process.
Undoubtedly, associations encounter internal and external forces that may prevent them from engaging the lease process at the ideal time. Yet, through decades of experience, there is no example where additional time did not benefit the tenant. For associations, the best strategy is clear: Start early and put time on your side.
Dave Belford, Senior Vice President of The Tenant Agency, can be reached at email@example.com, and his colleague, Senior Associate, Gomi Kumar can be reached at firstname.lastname@example.org. The Tenant Agency is a full-service tenant advisory firm. TTA provides expert advice on a conflict-free basis to non-profits and trade associations.