CASE STUDY:
K2 Audio

Tenant Representation: Securing Tailored Expansion Options

Client: K2 Audio, LLC
Project Type: Tenant Representation

Challenging Expansion Requirements

“Considering all of the curve balls we threw your way, you never wavered, complained or rolled your eyes at us. And in the end your process got us where we needed to be – we saved money and received the needed tenant improvements to make our space function optimally.”

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Deb Britton

CEO and Principal Consultant, K2 Audio, LLC

K2 Audio was a start-up company with big plans for growth. The company, founded by an experienced and successful high-tech entrepreneur, planned to grow rapidly through anticipated new business and the planned addition of new employees. This internal growth would require adding approximately 33% to the initial office space needs.

K2 was also negotiating to purchase another company. This acquisition was probable (more than 50% certain), but not definite. If K2 successfully completed this acquisition, it would again need to expand by doubling the size of its office space.

Because the planned work groups would closely collaborate on complex projects, K2 wanted all of its employees to be located within one office suite, not scattered amongst different buildings or even on different floors of the same office building. K2 wanted office space for lease in the Metro Denver area that had a clearly defined expansion path (that it controlled), all designed to enhance its business plans and strategy.

Challenging Expansion Requirements

We met K2 to understand their needs. The requirement was challenging. Landlords typically will grant limited expansion options, often first rights of refusal, requiring a tenant to react to an offer made by another prospective tenant and to pay a “market rate.” But, K2 needed two separate and distinct expansion rights that it controlled rather than expansion rights that were reactive in nature. And we wanted to negotiate a lease that took advantage of K2’s potential full size, to secure the expansion space at negotiated rates, not market rates.

The Strategy

We devised a strategy that would allow K2 to occupy its space in three Phases. This would allow K2 to lease its initial space (Phase One), then expand three months later into its Phase Two space via a defined “must take” provision (K2 would not pay any rent on the must-take space until it actually occupied this Phase Two space). Finally, we needed to find a Landlord that had contiguous expansion space available that K2 could potentially expand into if it was successful in completing its planned acquisition (the Phase Three space). The Landlord would not only need to agree to hold this space off the market, but to also not charge K2 until (and if) the space was needed.

The Process

Immediately upon looking for space meeting these criteria, we were met with skepticism. Many listing brokers told us flatly that “no Landlord will do that deal” or “what you are trying to do is impossible, especially for a start-up company.” After many phone calls, looking at numerous floor plans and touring many buildings, we eventually found a space and a Landlord that would agree to the proposed transaction.

The Results

We negotiated the deal using a detailed Request for Proposal and a detailed Letter of Intent to help preclude any misunderstandings that would bog down, or sabotage, the lease negotiation process. In the end, K2 utilized both the Phase Two and Phase Three expansion options. The space we located has a significant window line, providing an attractive and bright working environment for the firm’s employees. Not only are the employees happy with the office space lease, but the expansion options negotiated met K2’s need for flexibility in meeting its business objectives.

“By being creative and diligent, Guidance negotiated an office space lease allowing K2 Audio to meet it business objectives by expanding its operations in two phases, at attractive defined lease rates and terms.”

Norman S. DeHart –
Principal and Managing Broker