Rendition Developments and Colliers Canada are taking a novel approach to leasing the retail portion of Vancouver’s new Bench development.
They’re offering tenants an opportunity to pay their proportional shares of operating costs for the space — including taxes, maintenance and common-area expenses — and a percentage of revenue instead of a fixed monthly rent.
If sales were to decrease, due to a second wave of COVID-19 or any other reason, the tenant would be able to continue operations at a fraction of its initial lease cost, rather than facing the possibility of permanent closure for non-payment of rent.
“COVID has put a lot of things in flux and, with the building being completed and the uncertainty of the commercial market, we figured we had to come up with a creative way to help generate business,” Rendition founder and president Brian Roche told RENX.
“And, also (to) help the companies that are struggling and give them an opportunity to stay afloat and worry about their business and not have to worry so much about paying costs and rent and overheads and all that kind of stress.”
Vancouver-based Rendition was established in 2003 and has invested, developed and managed more than $300 million in office, industrial, residential and purpose-built rental developments.
What Bench is offering
The six-storey, 35,000-square-foot Bench is located at 353 Railway St. in Vancouver’s Railtown neighbourhood.
The ground floor, where the innovative lease is being offered, has 2,000 square feet of retail at the front and more than 2,500 square feet of space behind that can be used for production. Tenants can take one or both spaces.
The five floors above are designated for office and light industrial uses. Bench received its physical occupancy certificate from the City of Vancouver on Oct. 6 and is unoccupied at this point.
Roche said there’s interest in Bench and tours have been conducted. He would like to see it substantially leased within the next six to nine months.
“What we were hearing from people that were inquiring about the building is that they love the building and love the neighbourhood and liked what we had to offer, but they weren’t interested in signing a new lease,” Colliers senior vice-president Matt Carlson told RENX.
“If there’s a cataclysmic event like this that was completely out of their control, we didn’t want someone to face significant hardship.”
A more traditional lease is available for the space if the tenant prefers.
Flexible leasing details
There are no specific requirements to qualify for the revenue-based lease, which is flexible in its term and based on the tenant’s needs.
Roche said the landlord would look at a tenant’s business plans and projections so a fair agreement can be reached up front on the percentage of revenues owed and what happens if circumstances change.
“If they happen to hit targets and get back on their feet quicker, the percentage rent would go up to a cap. We would have a top-end cap, which would be nothing over market.”
The tenant would be obligated to provide an accounting of its monthly gross revenues, according to Roche.
“We’re not going to go and forensically audit their books,” he said. “We’re relying on good faith and we’d work with them.”
Other asset classes and buildings
While Carlson and Roche said the flexible lease concept can be applied to other asset classes, they think it fits easiest with retail. Sales and revenues can be more closely correlated to its real estate footprint than for office or light industrial uses.
Roche said he offered a similar arrangement to a tenant for another property in the past and would consider doing it again for future sites if he thinks it makes sense.
Though the two men said they’ve heard speculation similar leases are being offered by other companies, neither of them knew of any concrete examples.
“It’s something that everyone should be looking at,” said Roche. “It’s a way to help everyone else out. If we all help everyone else out, we all come out of this together stronger and more unified versus the alternative, which is continuing to struggle.”