You start by reading the lease and either conducting a thorough market analysis yourself, or hiring an experienced appraiser to conduct one for you. At each renewal point, the tenant will either renew, or he will exercise one of the other options available to him. Then analyze the situation using best-case--worst-case--most likely case methodology. For each available option, refer to the market analysis to help determine the likelihood of that outcome. Arrange these outcomes from least-likely to most-likely, and make your decision based on your experience. Again, an experienced commercial appraiser can help with this.
Much of your final decision will depend on your own opinion of where the market will be during and at the end of the lease term. Is the subject area deteriorating? Do you forsee a lot of vacancies in this area? Do you depend for the viability of your subject on retail trade? If so, is the population and residential property value in the subject's trade area increasing, stable, or decreasing? What would you forecast the market conditions to be at the end of the lease term? Why?
Again, an experienced commercial appraiser can help you reach these answers.
Nov 12, 2009