When Going Dark is No Option

going dark - 250This is a vicious market for lessees. Owners are increasingly finding their spaces going dark as the market takes a toll on Tenants and the economic performance of their businesses.

Many businesses predicate and sustain their business model on the economic relationship they have with their lease. When the line of profitability intersects the economic demands of the lease, business owners are faced with tough decisions…so, too are Owners.

Truly, a lease is a function of sound business planning and, in these days, may prove pivotal with respect to sustaining profitability. Revenue for some businesses has decline by almost 30 percent, a huge and life-threatening decline for just about any endeavor.

My Property Performance Analysis (PPA) was orignally designed to assist owners with assessing their property performance and financing options in this “vicious market” but I am extending it to a new approach that assists tenants with evaluating their lease, lease options and streamlining their lease.

The Tenant PPA looks at a number of factors from the Tenant’s side of the relationship, then seeks to formulate a strategy of lease modification that will prove accepatable to the Lessee and Lessor. Some of the components of the Tenant PPA are:

  1. Financial review of business performance
  2. Creation of ecomomic model for lease performance
  3. Streamlining the lease to cycle through the downturn

Bottom Line. As a result of the Tenant PPA, rental rate modification may result if supported by the financial analysis. The Owner maintains leased space with creative offsets to the streamlined lease that serve as incentives against a space “going dark.” These incentives may include early renewals, extensions and rent adjustments associated with positive market and business performance improvements.

The Cost of Going Dark. Going dark is expensive. Re-letting space in a highly competitive market is costly, time consuming and almost always results in revenue decline when measured against a well drafted lease modification.

When an Owner/Tenant relationship is economically strained beyond the breaking point, our position at Arizona Commercial is a simple one, keep the lights on! In a rapidly appreciating market with vacancies below seven percent, this would not be the normal case. However, these are not normal economic times and the decision to execute a Tenant PPA may be in the best interest of the Parties.


Donald Teel is Senior Associate with Arizona Commercial a central and northern Arizona commercial brokerage firm. Need more information call 1-877-777-9100 or, if you prefer, you may email Donald Teel

How 2s for Investment Today

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Posted by Donald Teel – Arizona Commercial

Everyone, everywhere, is talking about the real estate market. Even people who do not know anything about the real estate market are talking about the real estate market.

Understandably, much of the discussion remains negative. After all, some estimates tells us that the net value of all commercial real estate in the United States has plummeted by as much as 30% since 2006. I would like to address the shiny side of this very ugly coin.

As we come to the end of 2009, how can we successfully invest in commercial real estate?

Many small to intermediate investors have been discovering that buying was the easy side of commercial real estate investment coin…the shiny side! Managing and turning properties in the volatile environment of 2009 has proved to be the tarnished side of our coin.

With respect to the fundamentals of investment, nothing has really changed. Yet, we all know much has changed and continues to change, especially with respect to the acquisition and cost of capital and sustained values. For the purpose of this article, I would like to place a market spin on what I think are the 10 most important principles for small commercial real estate investors to follow in 2010 and beyond.

Property Type. Who could have predicted that the multi-family sector would be where it is today based upon our assumptions ten years ago. We must remind ourselves that our assumptions are merely momentary conclusion based upon ever-evolving data and that the moving data is almost always something over which we have most likely, no control.

Type-casting isn’t just a Hollywood phenomenon, it’s imperative with every real estate transaction these days and in the case of multiple tenant revenues each lease will need to be sifted and ground down in order to determine its viability and value going forward. There are “leases” and there are “Leases” and there are “LEASES.” Nothing works well if the tenants don’t!

Inventory, absorption rates and occupancy rates and CAP rates are imperative to the investment equation. There is no negotiating these issues and they are deal breakers.

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Still, it’s Location. It appears that the newest and perhaps safest strategy for small to medium investors is to get big by investing small all over. Just as mix of property types is essential to a sound investment strategy, so also is the principle of multiple locations based upon regional economic dissimilarities. Atlanta’s medical office values and projected demands will be different than those of Seattle and it would be ridiculous to compare Phoenix multi-family to say Manhattan multi-family.
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Property Performance Analysis

Property performance is now under assault with many factors coming into play that are not controlled by owners and potential investors.

Often, owners can become complacent with respect to ensuring long term property performance and that is why Arizona Commercial recommends an annual Property Performance Analysis (PPA).

Listen to the following PPA podcast by Donald Teel, then call Arizona Commercial for a FREE analysis of your property or your targeted investment.

Arizona Commercial Launches Blog

Prescott Arizona Commercial

CommercialWebPage.com is the official blog of Arizona Commercial, serving for Prescott, Arizona commercial real estate. The blog provides commercial property owners and potential investors with commercial property and real estate investment information for Prescott, Prescott Valley, Chino Valley and of course, all of the commercial real estate markets throughout central and northern Arizona.

Arizona Commercial is the area’s premiere commercial real estate company with a dominant market position and share.

“Our real estate team consists of experienced agents/brokers who hold the CCIM and CPM designations and more than 150 years of brokerage experience, making us uniquely qualified to represent commercial property owners and investors…the commercial blog is the logical next step for us to take in order to continue to provide people with the information they need and want,” said Jim Pullaro, Broker/Owner for Arizona Commercial.

Preview our properties or, if you have an investment need, contact us or call us at (928) 776-8460. If you are interested in our Real Estate Owned Services (“REOS”), please register for confidential inclusion, mortgage consulting services and bank owned property updates.