Organizations do their best to match their growth strategy with their real estate strategy. Inevitably there are surprises to the upside or the downside (and global pandemics) which upend even the best plans. So how do you know that a sublease could be the answer to realigning your strategy with your real estate?
Establish the goal of your sublease
- Remain in the space but bring in a subtenant to offset costs while maintaining a built-in expansion plan
- Get the space entirely off your books and go remote
- Expand into the space which meets your accelerated 3 year growth plan
Evaluate the marketability of your sublease offering
- Is it even possible to sublease under your existing lease agreement?
- What’s the current value of your space? Most subleases are marketed at a discount to the landlord’s advertised rate. If you’ve been in your space for two years or more, you’re likely paying a below market rate. You can then pass along the savings in the form of a discount to the subtenant without “feeling all of the financial pain”.
- How much time is left on your lease? Less than a year remaining can make it tough for an incoming subtenant to justify the transition. Likewise, asking a subtenant to commit to three years or more can be a turnoff (by definition, most subtenants are avoiding long term commitments and seeking savings)
- What improvements might an incoming subtenant desire? “As-Is” will be your gold standard. Any reconfiguration costs will be bourn by you as sublessor or the subtenant. The larger the improvement costs, the smaller the savings when compared to a traditional lease.
Launching your sublease offering
- Obtain professional photos, floor plan and 3D tour to minimize traffic/interruption
- Prepare marketing flyers and script for your offering
- Pay online advertisers like CoStar/LoopNet, Crexi, OfficeSpace.com, Craigslist to expose your offering to potential subtenants
- Communicate with prospects, coordinate tours and follow up with interested parties
Qualify prospective subtenants
- Is the subtenant financially qualified? Qualified is loosely defined as having the same or better financial metrics than your organization (which was previously acceptable to the landlord). Some leases stipulate very specific financial ratios – others leave discretion to the landlord’s quantitative or qualitative whims.
- If the space will be shared, is there a “fit” with culture, workplace habits, COVID compliance, amenity sharing and data privacy
- If the space is being overtaken entirely by a subtenant,
Write up your sublease agreement and get it approved by all 3 parties
- Draft a letter of intent (LOI) format covering major bullet points
- Get buy-in from Sublessor and Subtenant, then send a signed LOI to the master landlord for approval.
- Once all 3 parties have approved of the LOI terms, it is time to write up the sublease agreement. Be sure to have your commercial real estate attorney review your work or prepare the agreement from scratch.
As experienced brokers and investors with decades in the industry, Atlanta Leasing and Investment is perfectly suited to help business owners with this critical decision. Whether you need help comparing offers, determining your needs, or negotiating for the best terms don’t hesitate to contact us today.