Converting Annual Lease to Multi-Year Lease Results in 32% Savings
Client Objectives
The Georgia Vocational Rehabilitation Agency (“GVRA”) has occupied 10,086 RSF at 500 East Walnut Avenue in Dalton since October 2010 under an annual lease. The premises were built out to GVRA’s specifications and were well maintained by the Landlord. Due to the favorable location and good condition of the building, the Agency wanted to continue exercising its renewal options under the lease and remain in the space. However, the State Properties Commission (“SPC”) noticed that the rent for this location was unusually high when compared to the average market rents for similar buildings in Dalton. This was partly because the 2.5% annual rent escalations in the existing lease had driven the rental rate up to $29.17/RSF, or nearly $300,000/year.
Results
In exchange for converting the annual lease agreement to a five-year lease, the landlord agreed to a 32% reduction in the rental rate from $29.17/RSF to $19.75/RSF. The 2.5% annual rent escalations were eliminated and replaced with a flat rate for all five years of the initial term. The excess operating expense provision was removed from the lease, eliminating the risk of additional charges. The multi-year lease has a 5-year renewal option at $21.75, which will also remain flat throughout the entire renewal term. Additionally, Cresa negotiated a refurbishment improvement allowance of approximately $50,000, if the renewal option is exercised. Any unused refurbishment allowance may be used as a rent credit.
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