The Challenge
• Mott McDonald had three floors at 999 Third which it leased as a part of the contract for the waterfront project.
• While responsible for the lease, Mott subleased space within the three floors to many other engineering firms that were a part of the project as well.
• During the course of their original term, the cost of Seattle and the building jumped aggressively.
• MM had a 5-year renewal option that provided a new lease at Fair Market Value with current market concessions, like free rent and tenant improvement allowance.
• MM’s contract on the waterfront only extended a couple years, so signing on to this 5-year term would put them in a position of controlling a substantial amount of space longer than necessary.
Strategy
• In order to understand what type of lease structure we could achieve if we did exercise our renewal option, we worked behind the scenes with the brokers for the building to develop a good faith agreement.
• At the same time, we needed to plan our exit from the lease when the waterfront contract came to an expiration. We were fortunate in the sense that another engineering firm had ambition to take the lease over for future contracts.
• We pre-negotiated an approval to assign our future lease obligations to this other firm as a part of the renewal.
• We efficiency planned and determined there was a way to fit all the necessary contractors into less space
Results
• MM exercised their 5-year renewal right, achieving rent that was at 95% fair market value and forgoing any tenant improvements, instead taking cash for rent credit and a substantial amount of free rent. The outcome
was a lease term that was substantially better than fair market.
• The pre-negotiated assignment to the other engineering firm allowed Mott to exit their obligation day 1 of the new lease.
• We downsized MM to two floors instead of three, saving millions in rent obligation while still providing plenty of space to conduct work.
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