As the office market bottoms out, many corporate space users recognize that this as an opportune time to extend and renew existing leases. Corporate real estate service providers are touting the benefits of early renewals and restructures; even some landlords, eager to retain tenancy, are proactively approaching existing tenants to initiate discussions.

For corporate space users looking to cut costs, this could be a viable option. But before action is taken, be sure to not ill-advisedly jump on the bandwagon. What if a tenant needs to maintain flexibility? What if current space is no longer functional? How well is the submarket known?

If rents are still declining, restructuring an existing lease now for a longer term may not be the best option. Most important, are you in a position to realistically forecast long-term space needs?

Ultimately, the practicality of a lease restructure is determined on a case-by-case basis. Listed below are a number of factors related to the tenant, landlord and market conditions that influence a decision to restructure.

• When is lease restructure a viable option? Restructuring an existing lease makes sense only when it is economically beneficial over the long term. Factors that lead to this conclusion include: the space in question is a core asset and/or there are plans for a large capital expenditure; or restructuring the lease fits into the overall business objectives and long-term strategic plan. With that said, just because it would be economically sound for a corporate tenant, it doesn’t mean the landlord will buy in. So a tenant needs to do their homework and leverage their standing to maximize the opportunity.

• How well is the submarket known? A landlord knows what’s going on in the market – so should the tenant. Even if a tenant doesn’t intend to take different space, they should examine their options Â… and it doesn’t hurt a negotiating position for a landlord to hear that a tenant is testing the market. Where is a tenant’s specific submarket in the real estate cycle? Are rents trending up or down? How about vacancy and new construction?

• How well is the building known? Depending on the circumstances within a particular building, this micromarket could potentially fly in the face of submarket conditions or further reinforce their impact. For instance, regardless of market status, if a building is 95 percent leased with the majority of tenants in 10- to 15-year terms, the negotiating leverage is significantly reduced. Conversely, a 70 percent leased building with numerous expiring leases puts the tenant’s standing in a more favorable light.

• How well is the landlord known? Whether a building is owned by a REIT or is privately held can affect the negotiating strategy. Does the landlord have debt on the building? When does it mature? What is the ownership’s history – do they buy and hold, or do they trade assets frequently? Answers to these questions could determine if timing is a source of leverage in a negotiation.

Once the required homework is completed to determine that restructuring is a viable opportunity, the tenant has also laid the groundwork for negotiation. Understanding a position in the market, as well as a landlord’s, is essential to creating the necessary strategies and tools for effective negotiation. There are several keys to an effective negotiating strategy:

• Use knowledge as power – In timing a negotiation, make use of the information learned not only about market conditions but also about the individual building and building ownership. Try to match your negotiating strategy to fit a landlord’s specific needs, whether it is for continuation of cash flow, long-term asset value or refinancing of existing debt.

• Leverage your credit and relationship – Following the post dot-com collapse, landlords have been much more sensitive to credit. If good credit or a good credit history exists with a landlord, be sure to leverage the valuation benefits and minimization of risk. A landlord is aware that building valuation is based on income stream and the quality of tenants.

Provide an analysis of the costs of acquiring a new tenant at market rates versus restructuring and renewing an existing lease. Build a revenue model that shows the landlord’s potential return over six to 10 years, including items such as the realistic downtime for marketing and construction, tenant improvements, full market commissions and the revenues eventually generated by a new tenant acquired at future market rates. This way, the tenant can demonstrate the landlord’s projected revenue stream. Using that same model, the landlord can shown how to achieve the same total revenue and eliminate risk by retaining a tenant through a restructure at a reduced rate.

For the tenant, the benefits of a successful lease restructure can include improved economics, additional capital for improvements, increased flexibility in lease term (possibly cancellation rights), and expansion and contraction opportunities for the future. On the whole, a wisely crafted restructure can be a win-win for both parties: strengthening long-term asset value and stabilizing rent flow for the landlord while generating savings for the tenant.