Lease re-gearing of Ford España HQ offices in Madrid
FORD occupied 7104m² of office space in calle Caléndula 13, Miniparc IV Building, Alcobendas, Madrid.
In 2008 Ford España S.L. along with their internal Real Estate Manager decided to negotiate the lease renewal of these premises without external real estate support from C&W. The terms agreed between the Landlord and tenant directly were a 5 year lease contract (until 1st March 2013), with a tenant break option at anytime with 1 years written notice to the Landlord in advance.
In 2010 we were given the opportunity to review the terms agreed/current contract and quickly identified that the economic terms agreed were above the current market rates. The challenge we faced was to achieve a reduction in the current rent to market level and to exclude any dilapidations liability.
The estimated dilapidation costs were estimated by our Project Management team to be in the region of 425,000 euro's. Our instruction from Ford was to re-gear the lease contract and to obtain direct and indirect savings for Ford.
Being mindful of the contractual status and Ford's desire to remain in the building. We reviewed the options available to us and devised a strategy to take this forward. In order to open negotiations with the Landlord we needed to unsettle his confidence in the tenancy. We gathered market information and proposed to approach the Landlord in a timely manner, to ensure that he believed that Ford were considering a relocation in the future and therefore, exercising their break option was a real possibility.
Once this information was registered, we presented to the equation the possibility of securing a longer term, on re-negotiated terms. We weren't under-estimating what we were asking of the Landlord; a decrease in rent price plus the additional dilapidation cost savings. The Office market in Madrid was on tenant side and this was essential for our purposes. We re-iterated to the Landlord that Ford is a multinational company requiring time to comply with their internal process of approval.
Cushman & Wakefield was able to convince the Landlord that the way to secure Ford as a tenant was to negotiate in advance one addendum to the existing contract, with a new lower passing rent. We prepared a risk assessment and were able to demonstrate to the Landlord the risk of losing Ford as a tenant the following year and coupled with a difficult economic environment, this would have a massive impact for the Landlord. We were aggressive and firm in our approach to the Landlord, but, were polite and delicate when necessary, being mindful of the need to maintain a good relationship between the Landlord and tenant and also protecting our own existing relationship with the Landlord and the local team.
After several months of negotiations Cushman & Wakefield achieved both economic objectives:
We achieved a 20% reduction in the passing rent.
We negotiated the exclusion of the dilapidations costs, which secured future savings on dilapidations estimated at 425,000 euro's.
We achieved 190.000 euros of savings in rent plus 425.000 euros of savings of dilapidation cost over the remaining length of the term.
We secured the longer lease term which was desired by Ford giving them continuity of service & security.
None of the relationships were affected by the negotiation process. We maintained a good working relationship with the Landlord and secured the relationship between the Landlord and the Tenant for the future.