How does a lease buyout in the sale of a multi tenant commercial building normally work? (If tenants willing?)

Buyer interested in commercial multi-tenant building. Would like to have entire business for his company's use. How is this typically handled? Does Seller buy out and include in purchase price or does buyer buy out after purchase? How is value calculated for remaining lease term? All negotiable of course, but any information, previous experience would be helpful.
In Selling Property - Asked by Donna L. - Apr 20, 2017
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Answer(s)

Frederick C.
Broker/Agent
Hillsborough, NJ

There are no set standards for a landlord buying out a tenant lease. It will depend on the situation of each party. At a minimum the landlord would need to offer moving costs and an extra incentive for the tenant efforts. Other subjective considerations would be the location of the space, the additional value derived to the landlord from displacing a tenant, and the term left on the lease. In your case if seems that the building has little value (as the buyer) unless all of the tenants gone.. My suggestion to you would be to have the current owner buy-out the current tenants first, and add the costs to the total sale price of the property. That would allow you to better analyze the costs benefit of the entire project, which I also assume would include build-out costs once you move in.
FredC

Apr 21, 2017
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Dennis G.
Broker/Agent
Pasco, WA

The first step is to determine what the value of the current income stream is in your area? Depending on who i am representing i am using a Fed Discount rate to determine the value of that money which can be negotiated all the way up to a cap rate potentially. Once you have this figured out ..
Does Seller buy out and include in purchase price or does buyer buy out after purchase? Yes, This is the first item to negotiate as what do the parties want to do again depending on who you represent.
Don't forget to look at the existing leases to see if there are clauses in the lease for early termination by landlord or tenant?
Moving expenses an etc might be added to sweeten the deal but wouldn't be included my first offer. As the buyer those leases have little value. As the seller the value of the building is always based on return or potential return.
i hope this helps.
DG

Apr 24, 2017
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Kathleen K.
Broker/Agent
Sunol, CA

Tips and Tricks for Negotiating
You should know that you will usually pay about 50 to 60 percent of the balance that is left on the leasing document. The tenant and landlord usually go back and forth with counter offers until they come to an agreement. This agreement of meeting halfway usually keeps the case from going to the court system, and this can be even more expensive.
Consider the market conditions when setting up a buyout negotiation. Your hope should be that the tenant and landlord are able to win in the situation, keeping costs low and maintaining a positive relationship between tenant and landlord.
If the market is in a bad position, the costs can rise unexpectedly, making it impossible to profit from the situation and in turn making the process unnecessarily stressful for both parties. If you are a tenant, consider the possibility that your business can fulfill the terms stated on the commercial lease before trying to break your lease.
I will get back to you with more information.
Sincerely,
Kathleen Kane
Company Ventures
Irvine, CA

Apr 24, 2017
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