Challenge

Arvato Digital Services (“Arvato”), a division of Bertelsmann AG, was seeking to reduce their occupancy costs in their 534,000 SF Wisconsin distribution facility and extend their lease term.  Arvato was committed to their lease for 12 months at an above market lease rate. Additionally, the corporate structure of the company prevented them from committing to a long-term deal.  The company also desired to remain in the immediate area because of the availability of labor for their large seasonal swings.

Strategy

Jack and Fred identified an opportunity to reduce Arvato’s lease rate retro-actively and created a process to achieve results that exceeded their savings estimations. Jack and Fred performed a detailed analysis of all competitive buildings available in the sub-market.  By identifying a landsite that was not currently being marketed, Jack and Fred identified an opportunity to time the delivery of a new construction, modern, distribution building that would coincide with Arvato’s lease expiration in 12 months.  The resulting lease proposal for the new buildings represented a significant cost savings compared to their current building. 

Utilizing the new building as leverage against their current landlord, Jack and Fred were able to use the probable threat of Arvato leaving to substantially reduce the lease rate at their current building and extend the term for three years rather than the landlord preferred five years.

Results

By identifying the low-cost alternative in the market and creating a scenario where Arvato might leave to a new building at a lower rate, Jack and Fred were able to renew and extend Arvato at their current, preferred location at a substantial savings.  Aravto received a $400,000 rent reduction for the remaining 12 months of their lease term and extended their current lease for three years at a 20% annual savings.  Additionally, the landlord became responsible for $200,000 of deferred building maintenance which had previously been Arvato’s responsibility.