Rent Reductions - A Macroeconomic Viewpoint

Commercial lease modifications are typically considered a landlord/tenant issue when in fact they have considerable macroeconomic impacts. Commercial rents are the meeting point between the small business owner and the global real estate market. They are also the starting point of a multi-tiered financing structure that includes a landlord, a lender, a securitization vehicle, servicers and ultimately bondholders.

In short, the lack of growth in the rental stream from the world's shopping centers directly caused the upheaval in the CMBS markets. The (poor) income assumptions were the basis for the (over)leverage.

To properly address the instability and volatility in the real estate capital markets, we need to renegotiate, modify, restructure and perhaps unwind certain legacy commercial leases. For every dollar of principal that gets written down or forgiven, commercial rent payments should reduce in some proportion.

While not every tenant deserves a rent reduction, all commercial tenanta should understand their options.

Top 10 Reasons to Consider Your Rent Reduction Options

1. You signed your lease before September, 2008.
2. Your revenue has declined and your rent has increased.
3. You pay above market rent.
4. You would like to expand your business.
5. You would like to make a long-term commitment to your space.
6. Your rent represents an unsustainable percentage of sales.
7. Your lease expires in the next 5 years.
8. You have already cut payroll but remain unprofitable.
9. You have multiple locations and are considering closing 1 of them.
10. You have a new landlord.