Commercial tenants requesting discounts-WEB ONLY

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It’s not just residential home sellers facing increasingly brazen buyers these days.

As the economy recedes, commercial brokers say a growing number of office, industrial and retail tenants are requesting steep rent reductions to cope with losses.

“They’re in trouble and you feel for them,” said Danny Marr, a partner and principle broker with Veritas Realty LLC. “Unfortunately, you’ve still got mortgage payments to make. So you do what you can, when you can.”

He and other brokers addressed the issue of discounting in a commercial real estate and construction panel discussion held last Friday at the Westin Hotel in downtown Indianapolis. The event was part of IBJ’s “Power Breakfast Series.”

John Robinson, executive vice president of Jones Lang LaSalle, said not a week goes by without office tenants making demands at the 1.2-million square foot Keystone at the Crossing complex.

Some firms threaten to move out, while others warn that they may miss monthly rent payments.

Robinson says the issue poses a dilemma for landlords, who must analyze each request.

“What do you do?” he asks. “Do you come back and say, ‘Were you overpaying me when you were making a lot of money?’ No, you really weren’t; they were just paying the rent.”

Landlords should ask for additional information when tenants start pushing for discounts, Marr said.

Some national tenants now send form letters to landlords across the country seeking rent relief, he said. In those situations, it makes sense to request financial data to see if a discount is warranted, Marr said.

For property managers who do want to help, Robinson said it’s often tricky to decide who gets a discount and who doesn’t. If one tenant successfully negotiates a price break, others will likely try to do the same, he said.

“If you give somebody a discount, then they hear it at the water fountain,” and soon others start asking for one, he said. “It’s a real pickle.” 

Click here for video excerpts from IBJ’s Commercial Real Estate & Construction Power Breakfast.

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