October 30, 2009

Lease Modifications - Resistence Remains from Landlords

There have been some interesting topics at the Cleveland Metro Bar's annual real estate law institute. While addressing commercial leasing in a distressed market, a panel participant from Developers Diversified Realty (DDR) stated they have had about 900 lease modification requests - they have so far agreed to 41.

Not a very good rate of success from a tenant perspective. Of those 41, most were national tenants and in all cases, DDR received something in return - payment, extension, rent bumps, etc. Though we've been hearing tenant's have been able to negotiate modifications by threatening going dark or vague claims of bankruptcy, it's clear that's not true across the board. A tenant's ability to modify depends on all kinds of factors, including geographical footprint, lease terms such as ability to go dark, state of the actual location such as multi or single tenant and current occupancy, bank or lender terms and requirements. The list is long.

The lesson is that modifications may be possible, but not a sure thing. Not even in this market in which one would expect the negotiating pendulum to have swung far to the tenants.


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