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acceptable practice throughout the commercial real estate indus-
try, including in the Denver office market, for Partnership to
provide an 11.5-month period of zero rent in the lease agreement
in order to induce the lessee, BCE, to sign the lease agreement
which covered approximately 25 years and under which BCE, and not
Partnership, assumed the risk of subleasing the building at a
time when about 29 percent of it was vacant.17
16(...continued)
illustrative of commercial practice in the Denver office market
at the time Partnership and BCE entered into the lease agreement.
In Mr. Atkins' opinion, at the time the lease agreement was
executed, granting rent holidays like the 11.5-month period of
zero rent provided in the lease agreement to lessees who did not
occupy the leased space was a reasonable and acceptable practice
in the Denver office market.
17 According to Mr. Atkins, a period of free rent with respect
to leased space is equivalent to having a vacancy for that period
because no rent is being paid with respect to that space. He
indicated that the average vacancy rate for leased space over the
term of a lease can be calculated by comparing the length of a
period of free rent to the total term of the lease. Thus, for
example, if a 5-year lease were to provide for 6 months of free
rent, that would be equivalent to having an average vacancy rate
of 10 percent over the term of the lease. Providing the 11.5-
month period of zero rent in the lease agreement, which covered
approximately 25 years, was equivalent to an average vacancy rate
of approximately 3.8 percent over the lease term. In the opinion
of Mr. Atkins, Partnership experienced less risk (viz, an average
vacancy rate of only 3.8 percent over the lease term) by execut-
ing the lease agreement with the 11.5-month period of zero rent
than if it had assumed and retained the risk of leasing Republic
Plaza, including the approximately 29 percent that was vacant at
the time the lease agreement was executed, to one or more lessees
who intended to occupy the building. BCE, as sublessor, assumed
the risk of leasing the approximately 29 percent of Republic
Plaza that was unoccupied when the lease agreement was executed.
That risk included its incurring expenses in order to attract
tenants, such as providing improvements to the unleased, vacant
(continued...)
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