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Know What You Are Bidding

Like the ELR calculator, the bidding calculator is another negotiating tool for you to use. When considering how to make an initial offer and respond to a counteroffer, it is often tempting to just say, "Let's just try to get one dollar off the lease rate and go with it." Bidding can be more psychological than logical, at times. Be sure that you understand the value of what you are trading.

The bidding calculator can help you focus on the economic value of getting an extra month of free rent, versus another dollar of cash/work allowance, for example. After you have determined a baseline range of how your current deal terms compare to the market with the ELR, you can refine the bidding process with the bidding calculator.

An example is as follows:

You know you are in the range of a market transaction based on the ELR and are negotiating on a 5,000 square foot space. You want to minimize your up-front costs but are willing to bet on your company's long-term financial ability to pay increasing lease term rates.

Current Offer On The Table $35 per square foot
Term 7 years
Free Rent 3 months
Workletter $25 per square foot
Discount Rate 10% (use estimated borrowing rate as a proxy)

You want more free rent. What is it worth in comparison to other factors?

Value of one month's free rent: $14,583.33
Equals $0.60 psf change in lease rate over term
Equals $2.91 in cash/work

As a starting point, you might say, okay, I would like one more month of free rent and know the corresponding value of an increase in the lease rate to the landlord. If in the negotiations, he/she agrees to the extra month of free rent but wants another $1 per square foot in lease rate over the term, you immediately know that the previous deal was better because one month is worth a $0.60 per square foot change in the lease rate over the term. Your up-front cash flow concerns may cause you to pay the extra $1 per square foot but at least you know what you are trading.

Give the calculator a try with some hypothetical numbers, and get a feel for how it can help you.

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