Posted by Tim on January 21, 2011 at 21:24:51:
Does any LL do 10 year straight leases on industrial or commericila property and if they do, what kind of terms?
Lease; how to protect for hyper inflation? - Posted by Tim
Posted by Tim on January 18, 2011 at 20:30:33:
I have an industrial property for lease in Los Angeles. I am worried about signing a 5+5 year lease on it on the standard 3% annual increase, because I think there will be high inflation in the near future. How can I get some protection for possible hyper inflation without spooking the prospective tenants with unusual clauses on the lease?
Would it be a deal breaker or unusual to insert a clause; 3% annual rent increase unless inflation rises above 10%, in which case the annual increase will be based on official US inflation figure. In other words I would be willing to eat the inflation loss up to 10%. This way the tenant would get some discount if the inflation stays under 10% and I would be protected if there is a hyper inflation situation. Thanks for any advice, my current broker is not keen on anything?
Re: Lease; how to protect for hyper inflation? - Posted by Brutha
Posted by Brutha on May 28, 2011 at 20:35:07:
Indexed Leases
Re: Lease; how to protect for hyper inflation? - Posted by PeteH(NYS)
Posted by PeteH(NYS) on January 30, 2011 at 21:33:16:
Guys I worked for in NYC – mostly apartments, but half their properties had commercial spaces on the first floor – made all their commercial tenants 100% responsible for any increase in property tax and insurance. (Proportionate to their share of the frontage, e.g., if the bldg had two storefronts, each store covered half the increase; if three storefronts, each store covered a third, etc.) This seems a very workable way to make tenants responsible for the prime drivers of YOUR expenses going up. If your financing is fixed rate, and tenants are responsible for your other inflatable expenses, then hyperinflation needn’t be a concern.
Unless what you’re saying is, “hey, if inflation is high, then my return should be higher,” in which case you should invest in commodities or inflation-indexed T-bills. Or Picassos.
If you want to stay in real property AND hedge for inflation (and I suspect your concern is overblown), then (a) index rent bumps to inflation, and/or (b) keep your lease terms shorter. Just don’t make it as complicated as your “if/then” scenario, which is most likely to introduce worries to your potential tenant that he never had in the first place.