Office tenants prefer high face rates and concessions to lower rents and having the build out space on their own dime. Even when landlord's mark up their cost of capital, is still cheaper than the WACC of most companies to borrow through the landlord and amortize the cost into the rent than finance the TI dollars themselves.
I’ve never heard of a lender on an office building stipulating a minimum rent in the loan documents. Maybe it happens, but I think it’s the exception not the rule.
The free rent game has been around for decades, and most appraisers - and investors - look at effective rents not face rents.
My guess is it’s more about pricing psychology - and maybe in 10 years it helps to have a higher face rent when renewing the lease.
Office tenants prefer high face rates and concessions to lower rents and having the build out space on their own dime. Even when landlord's mark up their cost of capital, is still cheaper than the WACC of most companies to borrow through the landlord and amortize the cost into the rent than finance the TI dollars themselves.
I’ve never heard of a lender on an office building stipulating a minimum rent in the loan documents. Maybe it happens, but I think it’s the exception not the rule.
The free rent game has been around for decades, and most appraisers - and investors - look at effective rents not face rents.
My guess is it’s more about pricing psychology - and maybe in 10 years it helps to have a higher face rent when renewing the lease.