Dueling Perspectives... Last week's Dispatch, Wanted: Lease Flexibility (Apr 8), triggered some interesting comments. However, nobody suggested that a "premium" rent might bridge the gap between owners (and their lenders!) and tenants.

Kent Goodwin with GIC Real Estate in New York offers an owner's perspective. "My guess is that in a stabilized market, for a tenant to give back space would require reimbursement of all of the owner's unamortized up-front capital costs (tenant improvements, free rent, lease commissions, etc.), plus a rent penalty of two years (the time it might take to re-lease the space in a soft market, and taking into account capital costs and rent differentials at that time)." Subleasing is the real key to tenant flexibility.

In fact, Goodwin argues that lease inflexibility is actually a good thing. "In essence, inflexible leases create a smoothing effect that takes some of the volatility out of abrupt economic and leasing market cycles. ... To introduce flexibility would increase volatility and have a major impact on investor attitudes toward the sector."

Buddy Langston with Hall Financial Group in Dallas writes about the importance of financing. "The real question is how much flexibility lenders will have with lease flexibility -- either termination options with penalties or an ability to reduce space during a typical five-year term. The lender usually will take this into account and reduce the amount a landlord/owner can finance on projects."

Jim Wadsworth with United Properties in Minneapolis agrees that the need to finance tenant improvements hinders flexibility. "The old saw is that landlords are not the obstacle; lenders are the obstacle. ... The core dilemma is that landlords' interests are generally long-term and corporate tenants' interests are often short-term."

Tell the World... Many thanks to Rich Kelley at Real Estate Media, who reminds Dispatch readers about two upcoming conferences: RealShare Net Lease in New York City on April 22 (see Tuesday's Dispatch) and RealShare Multi Family Investment & Finance in Phoenix on April 28-29 (see below). If you would like to make an Announcement about your product or service, send e-mail or call 415-485-6700.

--Peter Pike