TMC has recently been completing several leases in the San Francisco East Bay. Our latest was on behalf of our fine client Optima Steel International. We completed a 6,300rsf office lease for them in a Class A space on Willow Pass Road in Concord. It was a smooth transaction for our client as we worked closely with the landlord to expand from a smaller space in the middle of the lease term.
Over the years midterm expansions are often one of the more challenging types of transactions to do. It’s very hard for companies to predict future events where they will run out of space due to business expansion, or adding in operations into existing space. We always try and control options for our client’s growth by negotiating rights for expansion such as first rights of refusal into their leases.
But predicting that on a timely basis is tough to do. There are several things a tenant can do to help make a transition like this work:
- Think about whom your neighbors are when you lease space. Are they bigger than you? If they are smaller you’ll stand an easier chance of growing into their space if you run out of space yourself. Are they a large or small company? Large companies will often expand operations and have leverage with the landlord that you might not have. Smaller firms often grow slower and more consistently. In general take a good look at your future neighbors before you lease, so you can understand the dynamics of their sizing.
- Pick a good landlord and create a good relationship with them. In the exuberance to over negotiate, landlords and tenants are often left with not such a great relationship after the lease is signed. If you are in the middle of your lease and you need 10% or 50% more space, having had a good and cooperative relationship with a good quality landlord can really help create expansion or relocation options in your existing building. As your expansions generate more revenue for them.
- If you are out of room and you are in the middle of your lease without contiguous expansion rights, engage the landlord in finding a relocation space that requires the least amount of buildout. If a landlord put $25/rsf into your tenant improvements on the original space, it will be tougher to move out of that space and relocate to another space that needs a lot of TI dollars. It benefits the tenant to find a space that doesn’t need much in TI’s.
- Finally and very importantly, if you grow by expanding into additional space, make sure the term is co-terminus with your original space. Not doing that is a mistake we often see.
When it came to properly representing Optima Steel International, we recognized them doubling in size in the middle of the term wouldn’t be a breeze. But by implementing good tenant strategies together we created a successful expansion with the current landlord without paying more rent.