Who pays for a major medical office renovation - potential tenant or landlord or shared - if lease is 5 years.

In Leasing Property - Asked by Larry C. - Feb 8, 2010
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Answer(s)

Thomas E. A.
Broker/Agent
Lake Havasu City, AZ

Larry: It really depends on a lot of issues: 1. Is this an existing tenant; 2. what lease rate are you charging? 3. How badly do you want the tenant? 4. Is your lease rate fair compared to others; 5 What is the financial strength of the tenant? etc. It is all negotiable

Feb 8, 2010
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Minnette L.
Broker/Agent
Brooklyn, NY

It also depends on who wants to limit the lease to 5 years. If that is all the owner will give, he should pay more, or most, of the cost. That is not enough time for a tenant to recover an investment in a space. And in this market, a buyers market, the landlord may want to go a little further for a committed tenant. But again, it is all negotiable.

Feb 8, 2010
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M.E. C.
Broker/Agent
Pasadena, TX

All is negotiable. Especially in todays down market. If you are the landlord, it is to your advantage to have a space go dark. Whatever works, but do keep in mind that if you have a note on the property, you got to make the numbers work whether short term or long term.
A med renovation can be expensive especially if the building has not been renovated in a while. I would suggest you investigate with the city what the impact will be when renovating. Would you have to bring the premises up to code?
Medical facilities are bound by additional reguglations such as hazard waste disposal, radiation if x ray machines. etc etc.
The cost of a cosmetic renovation could be moderate, that is if the tenant is not asking for a state of the art decorator in which case you may be able to absorbr the basic ie paint, restoreing light fix, chaning kknobs doors etc. And leave the decoration to the tenant.
If you are the tenant you can ask for what would be reasonable. A tenant can always ask especially if you have been a good tenant. If this is a primary lease of 5 years you probable will be looking at the first 3 yrs at one rate and the remaining 2 with a bump. As a tenant you may want to consider asking for a second 5 yr option even a third 5 yr option if your practice merits your stay for 10 - 15 years.
Rmember that the landlord may have a note on the property and numbers should work for botht of you. Meaning the landlord if not a national entity may not be able to run the red if makes all the renovations the tenant wants.
As a tenant you may want to renovate part of it yourself and in turn request a rent reduction for 6mos to a 1 year.
It is all in the meeting of "reasonable, business minds" and it can work. Go into negotiations with an open mind keeping your counter part's position in mind and asking how woul you negotiate ir were your building? How would you negotiate if you were the tenant?
Negotiating is not who beets the other out of something, its who to make it work for both parties.

Feb 9, 2010
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Larry K.
Owner/Investor
Mahwah, NJ

If it is a long term lease (10 years) the landlord should be willing to give you a standard fit out for a market rent. If you want a special/more costly fit out he will either raise the rent proportionately or you would have the pay for the overage in construction costs. In this market though, many landlords are giving a nicer fit out for market rent.

Feb 9, 2010
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Scott R.
Broker/Agent
Asheville, NC

If the landlord is able, they could finance some or all of the improvements for the tenant, charge an additional payment (with return of course) to the tenant (would work great on a 10 year lease) to recover that cost. The landlord could take the cost recovery on the improvements over 39 years. If the tenant moves out in 10 years, the landlord will write off the adjusted basis that year if the improvements are torn out. If they can remain for next tenant, the landlord can stay on schedule with the depreciation.

Feb 24, 2010
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