When a new office building is still little more than blueprints or is under construction, a developer will offer deals to entice potential tenants to sign up.
That`s the observation of Nicholas Wilder, regional vice president of Jaymont Properties Inc., which is developing a 26-story, 300,000-square-foot office tower at 303 W. Madison St. in downtown Chicago. First occupancies there are scheduled for the autumn of 1987.
”Developers are in a much better position to offer the best rental rates and advantages when the building is just coming out of the ground,” Wilder said. ”Savvy potential tenants can wind up with some excellent deals on prime space.”
Every developer makes up a pro forma budget for each project, including a certain amount of time for the building to lease up, Wilder said. If a tenant can occupy space as soon as the building opens, there`s more money in that budget to bargain with.
There are other economic advantages, Wilder notes. For instance, many tenants today expect a new landlord to take over an old lease. Because the lease cannot be assumed until the tenant moves, the developer of a building still under construction has less time left to pay on the old lease than does the owner of a completed building.
Additionally, office moves are planned many months in advance, and a tenant seeking space usually won`t be ready to move for some time. If a tenant chooses a completed building, the owner has to hold that space rent-free for as long as it takes a tenant to move, sometimes many months.
But in a building under construction, the tenant can time the move to the date of completion, so the space won`t be empty for long, Wilder says.
Build-outs and tenant finishes also may be less expensive if a tenant signs up early.
”Not all the advantages are related to economics,” Wilder said. ”A tenant signing up during construction usually gets the pick of the best space, or a large tenant may have the building named after his company.”
