Base rent vs. Cash flow | Noah Monthly 📰

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May 2023

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Base Rent vs. Cash Flow

This month I’d like to highlight a recurring theme in the direct leases that we’ve recently negotiated, one that has created great value to both tenants (lowering overall costs) and landlords (creating compelling incentives to transact) alike.

To share this information as effectively as possible, I've turned to ChatGPT to help break down this guidance for the non-real estate focused audience.

Unlocking Hidden Value: A Fresh Perspective on Office Rental Rates

When it comes to negotiating office rents, many tenants focus solely on the quoted base rent. However, there is a lesser-known aspect that can allow you to uncover hidden value and secure a lower net-effective rent, and understanding the dynamics between base rent, cash flow, and concession packages, you can navigate negotiations strategically and achieve a win-win outcome.

1. Exploring the Formula: Base Rent vs. Cash Flow
Traditionally, the quoted base rent plays a vital role in determining a building's value for landlords. However, cash flow, which refers to the actual money generated from the property, holds less significance in the landlord's perspective. This dynamic presents an opportunity for tenants to negotiate for a larger concession package that can significantly impact the overall cost of the lease.

2. Unleashing Tenant Benefits: The Power of Concession Packages
By focusing on securing a robust concession package, tenants can gain substantial advantages. These packages may include free rent periods, tenant improvement allowances, or other incentives that reduce the financial burden of leasing office space.
This approach allows tenants to effectively lower their net effective rent—the true cost of occupying the space—while still providing the landlord with the face rents they need to maintain the building's value.

3. A Win-Win Solution: Empowering Both Landlords and Tenants
Understanding the delicate balance between base rent and cash flow enables tenants to negotiate favorable terms, ultimately leading to lower overall costs. Simultaneously, this approach benefits landlords by allowing them to maintain the appearance of face rents while accommodating tenants' financial requirements. By embracing this alternative perspective, both parties can achieve their objectives and foster a mutually beneficial partnership.

Rethinking your approach to office rental rates can unlock hidden value and provide you with a competitive edge. By recognizing the significance of the base rent for landlords and leveraging the flexibility of concession packages, tenants can negotiate for lower net effective rents without compromising the landlord's needs.

As you embark on your next office lease negotiation, consider this alternative perspective and seize the opportunity to optimize your rental rate, creating a prosperous future for your business.

Until next month,

Ben

Ben Blumenthal
Principal Broker | Noah & Co.

The Best of May

As the number of employers requiring in-office attendance continues to increase, the demand for high-end/amenity-rich office space has remained strong - led in part by a recent surge in law firm leasing.

So where is the latest action?

Feast in the East

- Teladoc Health moving into 7k SF at 10 Grand Central

- Investment firm Helix Partners is moving to 545 Madison Ave.

- Arroya Studio & Masionette Tekstil will call 230 Fifth Ave. home

Best of the West

- LM Cohen is relocating to 31k+ SF at 1359 Broadway

- Kamber Management locked in 3 new tenants at Tower 45

- Botox studio Peachy inked a 5-year lease at 1245 Broadway

- PT of the City to open its 13th NYC location at 575 8th Ave

Renewals & Expansions

- A 15-year extension will keep MRCE at 14 Penn Plaza