ITRA Global News

My Building’s Ownership Has Changed. Will My Rental Costs Increase? 

August 21, 2019

Larger commercial office properties are bought and sold from time to time. What does this mean for a tenant in that building, and their lease costs?  If your company’s lease is expiring within a couple of years of the sale, then your lease costs will probably increase because of the ownership change.   

Below are the top three reasons your lease costs may increase when you renew your lease:

  1. The buyer of the building made financial assumptions about the market and rental rates.  This is applicable to both new leases and lease renewals.  In most cases, the buyer is assuming they can get a higher rent than the prior owner, otherwise they may not have bought the building.    
  2. Following the sale of many buildings today, new owners will “reposition” the building by adding amenities and redecorating common areas.  Landlords make these improvements to justify increasing rental rates.  New training rooms, conference rooms, grab and go food stations, and fitness centers will attract interest, and the landlord will expect to get more rent as a result of these improvements. 
  3. Most commercial real estate sales today are at or near all-time high prices.  In many cases, that triggers a new property assessment, and an increase in real estate taxes.  How much the taxes will increase depends on a variety of factors. In some cities, there are no caps on how much property taxes can increase.  This impacts a tenant’s costs soon after the building sale is completed and continues through the renewal term as well. 

During the two- to three-year time period following a building sale, most ownership groups will not deviate much from their original purchase assumptions.  This makes negotiations even more difficult for tenants with respect to rental rates, tenant improvements, tenant rights and options, and other lease-related business points.  

Experienced real estate advisors provide tenants with guidance about how to approach a lease renewal when a building sale has been completed and how to overcome some of the challenges outlined above.  The advisor will also outline potential relocation options, so that a tenant can fully evaluate cost projections for their current building versus relocating.   

Article submitted by Wayne Teig, ITRA Global l Minneapolis – St. Paul

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