This is a transcript of an episode of the LeaseSmart Podcast.
Craig: I struggled with this one. I couldn’t decide really whether I should mention this or not but I don’t hold anything back from my listeners and this is a really golden, important feature that, in the right circumstances, is like a free lunch. This is like the power of a good idea.
What I’m talking about now is if you’re leasing a building and it’s mostly vacant or all vacant. Say it’s free standing, empty building and you’re gonna take the whole thing. It’s got a certain value as empty and it’s got a certain higher value as full, and so by just using a little bit of thinking, you realize that the tenant should benefit from the increasing value. What I’ve seen done would be a lease that has an assignable option to buy the building at a fixed price. The price that it’s worth when it’s empty or close to it.
So the moment we do this lease, the value of the building now is up above the value we have the right to purchase it for. As I said earlier it’s an assignable option to purchase.
Let’s say the building was worth a million dollars if vacant and now it’s worth 2 million dollars full. It depends on the quality of the tenant and the rental rate and the length of the lease but that could happen for the purpose of our discussion. So now we can go to the investment community and we can assign that purchase offer to an investor who would gladly pay us lots of money of the spread in between what we have the option to buy it for and what it’s worth now.
That’s awfully close to a free lunch. Tenants have inserted a very simple clause in their lease and I have actually seen this earn $3 million for a tenant.
N: That’s great!
C: Yeah. Now it depends on the size. Maybe it could have been more; it depends on the size of the building and tenancy but it’s just something for tenants to keep in mind that may some day really pay off. You know they say there’s no free lunch but I don’t know. I can’t figure it out. This one seems to awfully free to me.
N: That was a good day Craig!
C: Yeah exactly! You’re looking like a hero to your client and of course to the tenant rep/broker most likely was involved in the resale and he made the commission so everybody’s happy! So anyway, that’s my secret for the week that I wanted to share with our listeners.
N: Cool! Thanks, that was a great one.
Closing: Alright! That’s our show for today. Feel free to contact us at LeaseSmart.com. Thanks! We’ll see you next week.