Plenty of sublease space available, but it's risky.

The abundance of office space available for sublease has many businesses waiting to snatch up space at a discount, although the sublease market carries inherent risks.

"In this case, a little knowledge is a dangerous thing. It's clearly a 'let the buyer beware' market, although some either don't know the perils or choose to ignore them," says Dennis Redmond, Paine/Wetzel ONCOR International's senior vice president of corporate services.

Subleasing carries multiple risks for space seekers. The former tenant may default on a variety of lease conditions, from failure to pay the rent to liability for environmental hazards. There is no guarantee that the sublandlord will fulfill their obligation to pay the remainder of the rent or even hand over the sub-tenant's check.

A bankrupt sublandlord usually sends the wolf to the sub-tenant's door. Many subtenants must decide whether to stay at the former tenant's higher rate or leave the space.

A savvy real estate professional can protect subtenants when negotiating contracts. It's never easy, however, because the necessary clauses require agreement from the ultimate landlord and the building's lender.

"In essence, both parties must agree to honor the subtenants' lower rate, regardless of what happens to the first tenant," Redmond explained. "In general, the landlord and the lender have to balance the high rent of the first tenant against the lower rent paid by a business with a credit. The name of the game is credit, credit." credit."

Paine/Wetzel ONCOR International's Chicago Region Office Market Statistical Analysis the second quarter of 2001 shows downtown Chicago's central business district has more than 4.3 million SF available for sublease. An additional 6.1 million SF of sublease space is available in the Chicago suburbs, with nearly 60% of that space in the east-west corridor.

The city's sublease market reflects the real estate fallout of the dot.com bust, according to Mark Montana, Paine/Wetzel's senior vice president of corporate services. Much of the available space is offered by non-credit worthy sub-landlords, he, explained, boosting the risks for potential sub-lessees.

"The issue for potential takers is ownership. Any business considering a sub-lease must measure the risks of the sub-landlord or they could find themselves out on the street," Montana said. "Unless we can negotiate directly with the landlord, we steer clients away from dot.com spaces because of the terrible risks."

Those potential sub-landlords may also have unrealistic expectations about the value of their space. One failed dot.com company reportedly refused to accept an 80% sublease on 80,000 SF of downtown space, Montana noted.

"The key is to be wary of sublease space and the owner of sublease space. Get the cheap rate and let the landlord deal with the former tenant."

Subleasing is less risky in the suburbs. With major employers such as Lucent and Motorola announcing further workforce reductions, prime suburban space is available. Credit-worthy sub-landlords are eager to find equally responsible subtenants.

Paine/Wetzel ONCOR International is currently working with a creditworthy $8 billion insurance company interested in securing discounted space.