The Background

In 2017, Healthtronics leased over 80,000 square feet at Davis Springs Corporate Center. Healthtronics had expanded twice over the course of its lease, each time negotiating directly with the landlord. Each expansion came with its own lease expiration.

The company used the space for three distinct functions.

“Function A” occupied the original space, and “Function B” occupied a portion of the second expansion. “Function C” occupied the entire first expansion space as well as a portion of the second expansion space. There was no dividing wall between the two spaces within Function C, despite the different lease expirations.

The Challenge

The expiration for the second expansion was nearing, but there was still a year of term remaining on the first expansion space. This meant that part of the Function C space was expiring before the other part. Further, Function C required “clean lab” space – something that would take over a year to build out in a new location.

These circumstances could put Healthtronics at a disadvantage when negotiating a potential renewal with the landlord and made the prospect of relocating more difficult given the timing constraints.

The Solution

Make Relocation a Viable Option to Leverage Competition Between Landlords

In order to create leverage and hopefully find a suitable option, AQUILA took Healthtronics to market to relocate offices for Function C.

AQUILA devised a plan that would capitalize on the split expirations on the Function C space in order to make relocation a practical possibility.

In this relocation scenario, once a new lease was signed, there would be about a year of build-out for the new “clean room” lab space. During this time, the existing clean room would still be available (since the clean room sat in the space with a year of term left).

Once the first expansion space expired, the clean room in the new space would be ready for use, and the employees would be relocated into the new space.

The space for Function B could then be renegotiated separately.

With a plan in place to make relocation a reality, AQUILA began the negotiation process with new landlords and the existing landlord.

With viable options for Healthtronics to relocate this function of its business, AQUILA now had the leverage needed to negotiate a renewal that would be favorable for Healthtronics, which was its preferred scenario.

The goal for the renewal would be to make the expansion spaces coterminous. By aligning these lease terms, Healthtronics would have more leverage in future negotiations, because a relocation would be a less complicated process.

Leverage an Early Renewal on the Original Lease

With the expansion space problems solved, Healthtronics felt comfortable locking in the Building 3 lease for an extended period. This meant AQUILA could play off of Healthtronics’ larger lease extension in order to gain leverage on its smaller renewal.

The Results

AQUILA negotiated the renewal terms with the current landlord so that it was not only preferable to Healthtronics to stay, but also was the most economically favorable option.

By leveraging the competition between landlords and extending the 50,000-square-foot Building 3 lease (on top of the already remaining term), AQUILA was able to negotiate the following terms with the landlord:

• Brought both leases within Building 2 coterminous; this will prevent similar complications in future Healthtronics transactions and will provide the tenant with stronger leverage in future negotiations
• Signed a short-term lease in Building 2, well below the market average, that allows Healthtronics flexibility with Function C
• Received $170,000 in tenant improvement allowance, with the option for it to be applied towards base rent (a rare concession); Healthtronics applied this option, resulting in essentially inside-term free rent
• Negotiated new rights into the lease to protect Healthtronics from HVAC issues that had plagued them at the building in the past

 

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