How To Work With Institutional Landlords

The Logistics of Leasing

Most tenants don’t realize that landlords fall into different categories, and these landlords have different motivations for owning the types of commercial real estate investments that they do. When it comes to institutional landlords, typical types include banks and insurance companies. You may not have thought of your bank or insurance company as a commercial landlord, but most of them are indeed just that. One of the safest places for banks and institutional landlords to invest their profits and your deposits is commercial real estate. An institutional landlord can generally afford to leave a property vacant rather than take a low-rent deal from a tenant. To these institutional landlords, cash flow is important, but property value is paramount.

If you have an institutional landlord, and it is increasingly becoming the case that you do, I recommend having your broker contact the existing landlord to make them aware of your potential need to expand. Your broker is the best person to do this. Why? Because your broker is your voice in the marketplace, and you want to make sure that your landlord knows that you have a broker making you aware of all opportunities in the market. In most cases, your landlord will be happy to hear that you are thinking of expanding and is going to give you the first look at any new building in their portfolio.

Another benefit to this approach is that your lease expiration date, which is usually rigid, becomes flexible, as many landlords are willing to let you out of your current lease concurrent with the signing of a new building contract. The inverse is true as well. If you can move to another building within your landlord’s portfolio, but that new building isn’t ready until two months after your current lease expires, they will extend your lease at your same rate to bridge the gap.

I have a client who is a private food production company in Los Angles that has been operating for three generations. I’m proud to have been able to work for two of these three generations of the family. A few years back, we worked on the extension of their 50,000 SF warehouse near the Port of Los Angeles for 5 years with one of the largest industrial landlords. This landlord literally couldn’t be any more experienced or more sophisticated. Since that prior lease extension, we have considered consolidating this facility with another 30,000 SF warehouse in West Los Angeles. At first, we thought we would need additional space for future growth. However, after some careful considerations and initial space planning, we figure out that we would be able to consolidate into on modern 80,000 SF and find enough efficiencies that we would have room for 7-10 years without the need to pay for extra overhead. Our institutional landlord was able to provide several options for us to choose from in advance of our lease expiration. These were buildings that were not on the market and that nobody knew would be coming to market other than us. Imagine the hours saved from having to go to market for months, possibly even years, to find the right fit when it was sitting right under our nose. It is incredible what is possible when you have a good relationship with your institutional land, and you keep them appraised of your current growth plans.

While it may seem obvious, it bears repeating, your landlord is your trusted partner, but you must still work to ensure that you receive the best agreement for your company. Your landlord will not do this for you, and they will prevail unless you make sure you have a skilled team working for you. While we turned to our institutional landlord in this example, we did not do so in a vacuum. We approached out landlord within the framework of competition. The upside of having an institutional landlord is that they have a portfolio of property to choose from, the downside is that they have an extraordinary amount of market data.