Newsletters

August 2010

A primer for the blend-and-extend strategy

Naturally, the last few quarters have raised a lot of questions about how to best handle office space. I have spent a great deal of time with clients just talking about ways to alleviate expenses or take advantage of a market full of concessions and beneficial office opportunities.

So, for our second article of a three month focus on this tenants’ market, allow me to introduce the “blend-and-extend” lease strategy, a terrific way to seize market momentum, remain in your current space and continue growing your business.

Because of the market concessions available, it makes perfect sense for you to explore other space options when the time is right. A blend-and-extend helps you seize the advantages of the market without making the investment in relocating. In this scenario, your landlord terminates your current lease and a new lease is negotiated for a longer term but with richer concessions, such as reduced or abated rent among other potential perks such as additional tenant improvements, lower operating expenses and signage.

A blend-and-extend is best for tenants with more than a year left on their current term, allowing them to take advantage of their occupancy leverage sooner than only a few months away from the termination date of their lease and when market conditions are most favorable.

Like all office leasing scenarios, there are a number of things to be considered. For example, while your new lease may have reduced rent for the near future, rates may end up higher than average market as the lease reaches maturity. However, given today’s current tenants’ market, landlords may not have a whole lot on which to base future increases.

Additionally, your current building’s occupancy, as well as the state of your landlord’s entire portfolio, can be a factor. Some landlords are hurting, to be sure. Those with a healthy rent roll, however, may not be as generous with the concessions. And, there may be a new tenant on the way that will stabilize the property in favor of the landlord, also making them less likely to be aggressive.

We have only scratched the surface on the ins and outs of blend and extends but have a couple of case studies available that feature clients who have exercised this strategy to great success. Read here about Greenhorne & O’Mara, Inc.’s savings of 35 percent on lease costs and here to learn more about ad firm McKinney’s successful “blend and extend.”

Please don’t hesitate to call if you have questions about this unique, market-driven strategy.