When good real estate goes bad…

October 15, 2004

Talk about bad timing. Back in April 2000, VA Linux (LNUX) , whose stock was still soaring, signed a 10-year lease for 2 buildings in Fremont. It’s not clear how much of that space — 139,311 square-feet — they eventually wound up using. But by December of 2000, they were already subletting some of that space to a company that has since gone out of business. Fast-forward four years to Linux’s current K, where the company discloses a new sub-tenant for about 75% of the space — Linux takes up the remaining 25%. Under Linux’s initial agreement, it’s required to pay $274,393 a month for the space during the fifth year of the lease — it goes up to $318,096 a month in year 10. But the subtenant, who is getting four months free rent, will only pay Linux around $70,000 a month (though that figure also rises gradually). And just to sweeten the deal, Linux is throwing in whatever furniture and equipment left behind in the empty space.

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