Comm Prop - Tenant Lease contract RENEWAL question

General Real Estate Investing
1

Location is in SoCal - Riverside Co.
Tenant is a anchor - a national Paint supplier in 10K sqft storefront retail tilt-up, since 1990
3 units in 20K sq ft bldg. 2 are rented. one is empty for last 2 yrs.
Market has gone from $0.85 → 0.60/sqft

October their 5yr lease is expiring and our manager says there are rumors of them wanting to MOVE OUT! In the past years we have gave them a reduction in rent due to losses in their market and not wanting them to move, it was at their request. Our manager says he would like to negotiate the lease renewal and if successful wants 3% commission for the life of the contract. He has no guarantee he will win a contract. With past in-house managers it was a fixed fee.

Does the offer(3%) and rumor passing of manager sound suspect? What else should we be aware of?
(It’s my moms property, she’s 85)

Our thinking is to write the corporation lease person with an offer to match any competitive bid and they will not have to move. Also mention the property improvements in the past five years and the cost to us. There are some major ones, like removal of 60ft tall palm trees surrounding and obscuring the bldg, a dozen palms were damaging the roof; Roof was re-roofed and has 10 yr warranty (expansible to 18); concrete driveways/parking scheduled for re-paving to meet safety inspections codes. New landscaper hired to improve appearances of lawn and garden areas.

Any general advise on lease renewals?

2

Tenant lease renewals can be very stressful, particularly when you don’t have transparency to the tenant to discover what their problems, needs, and wants are.

Your first step should be to have a meeting or phone call with the decision maker first to gather as much information as you can about:

Their concerns about the location and their business
What they have in mind regarding rent and lease structure
Who the other decision makers are in the deal

Then, you can share with them how you’ve worked with them in the past, would like to continue your relationship, and would like to work toward a mutually agreeable solution.

If you’d like to hire your manager to handle all of this for you, maybe you consider paying him a flat fee for his services versus getting into an annuity style payment. But, it cash is short, having him finance his fee along with the risk of receiving rent from the tenant may be your best solution.