Easing tenants into new leases where sqft has gone up.

[Chris H.]

I recently had my office complex re measured and maped out to BOMA standards. Usable sqft when up by 1000sqft and rentable sqft went up by 9000 sqft. 50 of the 60 leases are up for renewal (negligence of the previous property manager). Rents are below market. Utilities were covered in the gross lease but utility expenses have went up by 15% yoy over the past few years. It's time to break utilities out of the gross lease and offer modified gross leases.

We are at 100% occupancy. I realize I will probably lose a few tenants more so if all these changes happen at once. I've only ever rented usable sqft, not covering any of the shared common areas. Is it common to use a flat price per sqft or are common areas generaly lower then usable? How would you guys handle this issue?

• SQFT will go up by 30%
• Rents need to go up by about 20% to market rents. (Rents havent been increased in 3 years.
• Tenants will have to start paying thier own utilities.   

My thought is keeping the sqft cost the same for the first year of the lease and having kickers plus CPI to get more in line with the market. The new rentable sqft alone will boost NOI greatly.