Viking Compressors – Resetting a Lease vs. Renewing a Lease – Warehouse Space in Los Angeles

Posted by: encon commercial real estate services | September 20th, 2012

Following four years of commercial real estate market malaise, we continue to find landlords who increase rents on tenants that have paid on time and fulfilled their lease commitment.  As tenant representatives in Greater Los Angeles, Encon Commercial is versed in securing warehouse and office space for our clients and assisting tenants in managing landlords who are proposing more of the same in rental increases and tightened lease terms. The choice is yours, to fight for a below market rate and garner incentives for your continued tenancy or close one eye and accept the landlords’ version of market conditions. Moreover, consider extending your stay with a new lease contract and renewed incentives and protections, instead of accepting a standardized renewal letter that promises more of the same, with less protection. At Encon Commercial, we encourage you to think about what you gained when you first moved in and strive for the same incentives you achieved and more.

In the second quarter of 2012, Viking Compressors (based in Los Angeles, CA) engaged Encon Commercial’s real estate advisory team to renegotiate their existing lease and deliver viable alternative locations in order to achieve a reduction in overhead costs. In brief, after nineteen years of tenancy, Viking Compressors had succumbed to a systematic tightening of lease terms with steadied increases in year-on-year overhead costs, resulting in a growing divide between real lease rates and the Landlord’s version of higher rents. Tightening of Lease Terms: defined as a change in lease obligations, wherein economic benefits and base protections for the tenant have expired, and consequently, these costs will come due and payable by the tenant, as opposed to the landlord. As we have seen, most landlords implement a strategy of increased rents to achieve their profits, edging existing tenant’s rents higher in order to carry those tenants who pay less or who have achieved favorable concessions, including free rent, turn-key improvements and move-in allowances, to name a few.

After reviewing Viking’s lease, Encon’s team of advisors argued for a preferred position amongst tenants, a reduced rate, more incentives, and a solution which evened the playing field. Encon Commercial created a position of strength for Viking Compressors by securing offers from alternative Landlords vying for their business and tenancy.  While working within Viking’s budget and growth objectives, Encon’s strategy achieved a 22.0% percent cost savings in leasing over a five-year period, added more stability and resources for the company and employees, and above all, delivered a newly refurbished space. By resetting Viking’s lease, Encon achieved a potential cost prevention of $28,000 in expenses and improvements, which otherwise would be due by the tenant. As a result, Viking Compressor launched a new five-year growth strategy and transferred savings into employee retention and new equipment. Cost Prevention: Lease term considerations that allocate certain costs to Landlord instead of Tenant, commonly negotiated into the lease contract for the cost benefit of the tenant.

Encon Commercial: With more than ten years of continued success in representing tenants in industrial and office transactions, Encon’s real estate advisors have managed landlords fixated on extending a lease with tighter terms. Strategically, tenants may want to refrain from signing an extension or renewal amendment, and instead, opt for a new lease commitment that resets the terms and protections for the tenant, especially important in a depressed market where landlords continue to pass extra charges through to the tenants. The key is to reset and draft a brand new lease, add the protection and warranties back into the contracts in order to protect your interests and achieve a brand new experience within the building while you benefit from real overhead savings.

As John Scatoloni, Managing Director of Encon Commercial, comments, “When landlords benefit from an un-informed tenant, that tenant is laden with more costs at every turn.” Fortunately, Viking Compressor engaged Encon Commercial to find a solution to escalating costs, and to implement a proven strategy to create a fair and balanced lease commitment. Our advisors believe that when a strategy works, we repeat the process and share the knowledge with each and every client.  At Encon Commercial we treat every renewal or extension as an opportunity for a new beginning, which includes incentives, protections and an even playing field with the landlord.

Does your continued tenancy deserve the same rewards? At Encon Commercial, we think so, and we make your success worth fighting for every time. What does Viking Compressor’s situation teach us? It teaches us that our team at Encon Commercial can do the same for you and we can apply our knowledge, transactional experience and success to your real estate concerns. You can build your real estate team based on success and overhead cost savings. 

To find a warehouse, please visit us at our website.

Kind regards,

John Scatoloni

Encon Commercial, Inc. | Commercial Real Estate Services

12145 Mora Drive  |  Suite 7

Santa Fe Springs   |  California  90670

Tel: (562) 777-2200 | Fax: (562) 777-2201

Mobile: (310) 663-6688 | DRE #01780335

Email: jscatoloni@enconcommercial.com

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