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What co-op owners should do when commercial leases expire

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Commercial spaces leased out to businesses are often a vital source of revenue for co-ops. However, as we have written about recently (see our October 4 blog), New York City has faced its own version of the “retail apocalypse” in the last few years, with Manhattan vacancy rates jumping from 6 to 20 percent between 2016 and 2018. Co-ops trying to avoid this blight and secure a continued revenue stream must be creative and forward-thinking. Moreover, many existing commercial leases were signed on a long-term basis when co-ops were first converted as many as forty years ago. [1]

The most important thing boards must do is make an accurate gauge of the space’s value, whether or not you are planning to renew with the same commercial tenant or find new tenants. This can be done with a real estate broker or an appraisal company. The co-op might also ultimately decide to reclaim some or all of the space for the building, for the purposes of expanding the physical plant or to create new units. Reclamation of the space or bringing in a new commercial tenant may require redesigns of the space prior to rental, in which case you will need to work with an architect. This is another element of the process that requires long-term planning, both for executing a redesign as well as accounting for potential lost revenue if the space is unoccupied for a period of time.

Although it can be challenging to navigate the city’s commercial real estate market as well as to corral the energies of a board to implement plans, doing so is critical for the health of co-ops. And if done correctly, it can spare your co-op the blushes of having empty storefronts for an extended period of time.

[1] How Co-ops Can Prepare Before a Commercial Lease Expires from Habitat Magazine https://www.habitatmag.com/Publication-Content/Building-Operations/2019/2019-October/Commercial-Lease-Expiration Accessed October 16 2019

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