Uncertainty about the economy, about business and sales, aboutthe real estate market, all suggest that companies should enterinto short-term leases as a means of protecting their abilityto remain flexible. For some companies,short-term leases are the right approach. However,when seeking to renegotiate leases as a means of extractingliquidity and mitigating risk, short-term extensions offer littlevalue to landlords. Consequently, in those instances,short-term leases would similarly provide little value totenants.

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Like the Phoenix rising from the ashes, uncertainty and chaosbreed opportunity. The greatest elements of wealth are oftencreated in down markets. Those who carefully plan, areprepared to take action, and then execute intelligently, tend toachieve beneficial outcomes while others scramble to survive.

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Given the extreme lack of demand for leased office space in mostU.S. commercial real estate markets, landlords are keenlyinterested in attracting tenants, and retaining those they alreadyhave. With the right advanced planning, most landlords can beinspired to structure creative transactions that permit them tocapture new tenant leases and restructure existing leases, therebyincreasing the occupancy and cash flow in their buildings,while supporting the business and flexibility needs of thosetenants.

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Remember that everything has a cost. The benefit to atenant of a short-term lease strategy is the flexibility thatresults from not being bound to a lease term beyond a particularhorizon. Flexibility can be extremely valuable in business,but costly. The price? With short-term leases,it can often be difficult for tenants to secure lowoccupancy costs.

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When prices are low in any commodity, the smart money stocks upand buys more for future use. That's true in commercial realestate, too. By executing longer term leases, tenants createtheir own benefits, while providing landlords with the fuel theyneed to accomplish their financial objectives. With longerterm leases, landlords can, in turn, provide benefits to tenantsthat make such transactions profitable for both parties.

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So, what's the cost of a longer term transaction, where acompany would likely achieve lower occupancy costs? In atraditional long-term lease, that cost might include lessflexibility. Most companies don't really need the completeand total flexibility they seek, and usually end up overpaying forthe privilege.

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Which makes more sense...long orshort-term leases? There is not one correctanswer. It really depends on the needs of both tenant andlandlord. Advanced and intelligent business planning and akeen understanding of commercial real estate markets, as well as,knowledge about the unique challenges faced by commerciallandlords, is the best approach for companies asking themselveswhether short or long-term leases make more sense in thischallenging economic climate.

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What do you think?

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Follow me at http://Twitter.com/RealStrat

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Where is Andrew Zezas?

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Check out '2010: More Business,Now!'

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Copyright Real Estate Strategies Corporation 2010. AllRights Reserved.

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