Challenge

Nye Partners In Women’s Health had been referred to MAP Real Estate after a failed attempt to negotiate a lease for space in a nearby building. There was not enough remaining time on the current lease to allow for the typical period needed for such transactions if they involved moving to a new space that required construction.

The medical practice desired to reduce the amount of space that it had occupied on the third floor of 625 North Michigan Avenue for the previous 10 years. It’s landlord was a New York retail developer that had acquired the lower three floors of the building in order to create a new vertical shopping mall. That project had stalled, but was still on the drawing board. Nye’s landlord wanted to maintain the rent stream from the Nye lease, knowing how difficult it would be to attract a replacement office tenant, given the publicity that had surrounded its retail mall project. In an attempt to gain the upper hand, it had delayed entering into substantive negotiations with Nye and there remained very little time on the existing lease.

Complicating matters further, it was necessary for Nye Partners to remain close to Northwestern Hospital’s Streeterville complex, where it admitted its obstetrical patients, an office market that had become increasingly expensive because of the hospital’s dominance. And Nye Partners desired not to enter into a long-term lease because of its principal’s retirement timeline. That presented a further complication because construction of medical space is typically associated with a lease term of ten years, due to its relatively high cost per square foot.

Action

MAP Real Estate researched the North Michigan Ave and Streeterville markets to identify suitable spaces, with special focus on spaces whose existing conditions afforded a higher degree of reuse, thereby obviating the expense of a full build-out and the need for a longer-term lease. The logical preferred solution was relocating within the same building, the rest of which  was still owned by the original developer.

MAP engaged both that landlord and the New York landlord in negotiations, as well as landlords at several other suitable buildings in the immediate vicinity, to maximize Nye’s negotiating leverage. The New York developer finally proposed a new lease that did not reduce the square footage and included a termination option for the landlord’s benefit, providing only a very short-term notice to the tenant. Everything about the proposed renewal lease was disadvantageous to Nye Partners. MAP’s process of simultaneous negotiations with multiple buildings also provided a strong defensive position, which played out when negotiations to relocate within the same building failed because the prime alternative was encumbered by an adjoining lease whose tenant exercised its right to expand into that space.

MAP was successful in structuring a new lease for 5 years, 5 months in space that was the desired size for Nye’s medical practice. The concession package included, among other things, free use of a temporary space to accommodate Nye’s practice, while its space was built-out, a $45/sft construction contribution by the landlord, as well as a five month abatement period.