Too Good To Be True? Navigating the Sublease Market

 

Too Good To Be True?  Navigating the Sublease Market
By: Andrew Rebennack

Looking for office space?  Chances are you’ve come across the term “sublease.”  It may seem like a great deal, but is it?  Could your business benefit from a sublease?  What does it really mean and what are the risks lurking in the fine print?  Unfortunately, there’s no one-size-fits-all answer for these questions.  While every tenant has a unique set of circumstances, there are some key pros and cons to consider.

The Pros

1.  Lower rent.  You can often secure an attractive, below-market rate on a sublease.  The Sublessor is often highly motivated to make a deal and turn over the space.  If saving money is a hot-button issue for you, this can be a huge upside!
2. Shorter term.  Most landlords in our market prefer a 3- to 5-year lease.  In the sublease market, there’s opportunity for a much shorter-term lease, ranging from a couple of months to 1 – 2 years.  As an example, for a growing start-up that’s unsure of how much space they’ll eventually need or when, a short-term sublease creates much needed breathing room in a time of volatile growth.
3. Flexible qualification.  If your business is new, or has had a complicated operating history, it may be easier to qualify on a sublease.  There are fewer hoops to jump through and a little less focus on the quality of credit.
4. Lower security deposit.  Typically, a subtenant’s security deposit is less than it would be on a direct lease with the landlord, which preserves precious working capital.
5. Furniture included.  Depending on the situation, a subtenant might even be able to lease the space with furniture included, significantly reducing the time and out-of-pocket expense of setting up your new office.

The Cons

1. Shorter term.  A moment ago, this wan an item in the pro column, but it has a dowside as well.  If you’re actually ready to settle in for the long term, any rate saving on a sublease could be offset by the unnecessary headache of moving sooner than you’d like, or finding less-favorable terms available in your next landlord negotiation. 
2. Landlord might recapture.  Let’s say you find a sublease space tha tyou love, you spend weeks negotiating the deal, and then the landlord decides to recatrue the space and totally blows everything up.  Now, you’ve wasted a ton of time and find yourself back at square one. 
3. Landlord consent.  In almost every sublease, the landlord must give formal consent to the transaction.  That means no matter how fast or how well you negotiated a sublease, you’re still stuck waiting (as much as 30 days) and hoping the landlord will bless the deal! 
4. No tenant improvement money available.  Usually, sublease spaces are leased “as is.”  That means the landlord isn’t offering any money for improvements.  You need ot make sure the space works for you in its current condition, or be prepared to use your own funds to make any changes you need.  
5. Eviction.  This is a Big One.  If the sublessor defaults on the lease, your company is at risk of eviction on short notice.  We talked about your financial strength, but you need to be sure the company you’re subleasing from is strong too.  During negotiations, your broker should negotiate for your right to be notified if the original tenant defaults.  

As you can see, there’s a lot to consider.  The attributes of a sublease that benefit one company could be a significant liability for another.  A leasing specialist can help you navigate the market and find the right s[ace.  If you have questions or are actively looking for office space, give us a call–our expert services come at no cost to you!

Learn more about my practice here. 

Andrew Rebennack, Sales & Leasing Associate, BRE# 02025935

Brokers, skeeball, beer, and $$ on the line…
Well, that sure is one way to be #BuildingGreatRelationships.

On Monday, October 16th, TRI entered the rink as the 1st Annual Brokers Skeeball Tournament kicked off.  Alongside other brokerage firms including Urban Group, Colliers, Paragon, and more, the night was full of camaraderie, connecting, and of course–a bit of healthy competition.  Though Urban Group took the win this time (and in quite the dramatic fashion) you may rest assured that we will be back at it with our A-game next year for Round II of these festivities.

 

Andrew Rebennack at 301 8th Street, San Francisco:

As prepared to you by your friends at: TRI Commercial / CORFAC International

Mark Gedymin, our in-house surfer, took TRI to the waves this year.  The Pedro Point Surf Club event benefits worthy causes like Ride A Wave, The Surfrider Foundation, and the Pacifica Beach Coalition.  It had an excellent turn out and unusually not-foggy skies–what better way to spend a seaside day then to be #BuildingGreatRelationships? 

TRI Commercial was presented as the Gold Award Winner of CORFAC International‘s Fifth Annual Standards of Excellence Awards at the Fall Summit in Denver, CO.
Recognizing a company’s leadership, participation, referrals, industry awards, CORFAC branding, and reporting, we at TRI are honored, humbled, and excited to continue embodying these valuable attributes!  Thank you for your acknowledgement and support!
https://lnkd.in/gF6F8xh

TRI held a strong presence this year at the Bi-Annual CORFAC International Summit held in Denver, CO.

With seasoned agents, new associates, a panel speaker, and the TRI CEO and President in tow, TRI had the distinction of being the best repped affiliate in The Mile-High City!
As always, it was an excellent and information occasion full of the sharing of knowledge that goes hand in hand with #BuildingGreatRelationships.

As one of our newer agents and first-time CORFAC attendee noted, “It was inspiring to see so many CORFAC affiliates come together from all over the world.  Witnessing the synergy first-hand really shifted my perspective of this global CRE community.”

Looking forward to networking @ the Spring Summit in Austin, TX, February 28-March 3, 2018!

Erik Reese is no ordinary restaurant and retail real estate adviser. In fact, restaurants are kind of his super power. He comes to the table (no pun intended) with an impressive set of credentials including receiving his BSBA in Hospitality Management at the University of Denver, and graduating at the top of his class from Le Cordon Bleu Paris. From there, he went on to hone his skills at Le Taillevent, famed for being the only restaurant to twice rank #1 in the world.

When he moved to the Bay Area, Erik turned to the business side, parlaying his considerable talents into a 20-year career creating, designing, and opening restaurants, including Asqew Grill, BurgerMeister, Cream, and Fleur de Lys (Las Vegas).

(Shown above: Watercolor Rendering, Parliament, Oakland, 2014)

Over the years, Erik built great relationships with leading Bay Area hospitality companies like Restaurant Design Concepts and MCG Inc. Today, his network of restaurateurs, consultants and contractors keeps Erik on top of all the latest industry news.

“I’ve always had a passion for restaurants. It takes something special to ride this roller coaster and be successful. Over the years, I’ve worked with so many talented creative people in the industry and it’s great to be able to share that knowledge and experience with my clients, to help feed their success.”

Erik’s “Ingredients” for a Great Restaurant Site (plus a couple of Showstoppers)

1. Smart Kitchen layout – How well does it flow? Is it a 2-person line or a 5-person line?
2. Good Ventilation –  Is there make up air? (Drawing from the outside, not just recycling,) Where does it come from and where is it blowing?
3. The Building has “good bones” – Everything is up-to-code including ADA, fire and building requirements.
4. Tested and Fully-functioning Plumbing and Electrical Systems

Here’s a couple of Bucket List items, just for good measure:

1. Wood-burning Stove
2. Handmade Wooden Bar

(Shown above: Completed Restaurant, Parliament, Oakland, 2014)

Looking for more information on restaurant real estate? Email Erik.Reese@tricommercial.com or call (415) 268-2200. To learn more about TRI Commercial/CORFAC International, check out our web site at www.tricommercial.com .

Building Great Relationships with Collaboration  

Commercial real estate negotiation can be adversarial, even among parties on the same side of the deal. Experienced professionals like TRI agents Scott Vix and Gary Cohen use collaboration to turn the tables on conflict. Recently, they had a chance to demonstrate the power of cooperation and compromise. 

For more than 10 years, Scott and Gary have had a successful relationship with a client who shared ownership of multiple SOMA properties with a group of family members (a total of nine entities). Several months ago, the family decided to sell one of the buildings, with separate ownership groups wanting their own agent-representative involved in the process.  

The situation spiraled into a stalemate, a common issue with family-owned property, and it could easily have derailed the $1.68M sale. To break the deadlock, Scott and Gary volunteered to team up with another agent and share the listing.  

“At the end of the day, it’s all about doing what’s best for your client,” they noted. 

In the end the property closed to the satisfaction of all parties because the brokers put family considerations before their own.