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Persistence Pays Off for Commercial Lease Negotiator

Since commercial tenants usually consider their lease a valuable business asset, they also value the relationship they have with their landlord.

They fear asking for rent relief to help them through a rough spot could jeopardize that relationship.

So says veteran San Diego business attorney Bill Reedhead, who is offering to make that call as principal of Commercial Lease Advocates.

Since launching his new business in May, Reedhead says he’s closed 10 deals resulting in lease reductions.

At present he handles the client load by himself, but he has three contract attorneys currently in training.

His clients are primarily restaurateurs and small businesses occupying strip malls or neighborhood centers that have two years or less remaining on their leases.

Historically they’ve had a healthy revenue stream, so their chance of succeeding once the economy improves is good. They just need a little help to get over the hump that the recession has created.

Landlords most likely to agree to a reduction, he says, are small-scale players whose properties have a 15 percent to 20 percent vacancy rate.

“Most neighborhood centers or strip malls are owned by small investors and the one thing they fear more than anything else is that vacancies will go up,” Reedhead said. “They’re struggling with the economy in the same way tenants are and for that reason they’re generally amenable.”

According to the most recent report from the San Diego offices of Cushman & Wakefield, the countywide retail vacancy rate stood at 4.4 percent at the end of 2008 compared with 3.6 percent at the same time the year before. The biggest vacancy increases occurred in Class B and Class C properties.

Large real estate investors with cash in the bank and shopping centers with vacancy rates in the low single digits aren’t likely to provide rent mitigation, he said.

Likewise, landlords that bought properties when the market peaked a few years ago, have high mortgages to pay and are undercapitalized would be unable to offer rent mitigation even if it meant losing tenants, he added.

Reedhead insists there’s no magic in what he does. Yet the trick is to offer a long-term lease commitment in exchange for a rent reduction. That way both parties give something to get something.


Middleman

So why can’t tenants do that on their own?

They can. “But they’re reluctant because of their pride,” he said.

Furthermore, landlords usually reject such proposals on the first try and tenants, feeling rebuffed, are apt to give up.

“I expect to get turned down once or twice and sometimes three times,” he said. “But I’m not discouraged. I come back in a respectful manner. I don’t argue anything. I’m simply a facilitator of a conversation between the landlord and tenant.”

The amounts negotiated differ, but in all cases, the tenant is looking for a reduction in the base rent, not utilities, maintenance, insurance and management fees.

Commercial Lease Advocates, which has an office in Mission Valley, charges clients a fee equal to 25 percent of the first year’s rent savings. Since the company works on contingency, there’s no fee if results aren’t achieved.


Rent Reductions

Jennifer Nguyen, who heads BuySell Inc., a business brokerage, said Reedhead has helped five of her clients get rent reductions ranging from 18 to 24 months.

“They would have suffered a lot without rent reductions,” she said. “I don’t think they’ll go out of business, but even if they’d wanted to sell they couldn’t because their rents were too high.”

Reedhead, an attorney for 38 years, previously devoted his practice to commercial leasing. He’s also served as a real estate broker, dealing primarily with commercial properties.

Commercial Lease Advocates “is a business whose time has come,” he said.

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