slide1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
#2 Negotiating Leases during the Downturn: Creating Value and Avoiding Cost PowerPoint Presentation
Download Presentation
#2 Negotiating Leases during the Downturn: Creating Value and Avoiding Cost

Loading in 2 Seconds...

play fullscreen
1 / 19

#2 Negotiating Leases during the Downturn: Creating Value and Avoiding Cost - PowerPoint PPT Presentation


  • 97 Views
  • Uploaded on

#2 Negotiating Leases during the Downturn: Creating Value and Avoiding Cost. Moderator: Ken Ashley , CCIM, MCR, SIOR Cushman & Wakefield Speakers: Kitty O’Connell Henry Munsch Hardt Kopf & Harr, P.C. Trex Morris Ernst & Young October 13, 2009. About the Panel Members.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about '#2 Negotiating Leases during the Downturn: Creating Value and Avoiding Cost' - lethia


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

#2 Negotiating Leases during the Downturn:

Creating Value and Avoiding Cost

Moderator:

Ken Ashley, CCIM, MCR, SIOR

Cushman & Wakefield

Speakers:

Kitty O’Connell Henry

Munsch Hardt Kopf & Harr, P.C.

Trex Morris

Ernst & Young

October 13, 2009

about the panel members
About the Panel Members

Ken Ashley, CCIM, MCR, SIOR

Senior Director

Cushman & Wakefield

Atlanta, GA

(404) 853-5325

ken.ashley@cushwake.com

www.cushmanwakefield.com

Kitty O’Connell Henry

Shareholder

Munsch Hardt Kopf & Harr, P.C.

Dallas, TX

(214) 855-7506

khenry@munsch.com

www.munsch.com

Trex Morris

Americas Director, Real Estate Services

Ernst & Young

Atlanta, GA

(404) 817-5482

Trex.morris@ey.com

www.ey.com

2

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

overview
Overview

NewsFlash

3

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

overview1
Overview

NewsFlash

4

Negotiating Leases During the Downturn

overview2
Overview

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

the marriage of tenant and landlord
The “marriage” of tenant and landlord

Tenant Flexibility

OPEX

Self-Help

Lease / SNDA

Exculpation

Letter of Intent / Deal Funding

Parties to Lease

I love you. You are my one and only…but please sign this document.

Wedding

First Date

Engagement

Pre-nup

Issues

Budget

Hobbies

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

first date parties to lease
FIRST DATEParties to Lease

Is she creditworthy?

Is he married?

Parties must be clearly defined.

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

first date parties to lease1
FIRST DATEParties to Lease

Who is the Landlord?

A multi-billion dollar pension fund…

Or a single-asset subsidiary of one?

Creditworthiness is key.

Can the Landlord fulfill its promises to pay?

Due Diligence.

Do your due diligence before you sign…

and maybe even afterwards

8

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

engagement letter of intent deal funding
ENGAGEMENTLetter of Intent / Deal Funding

Promises, promises

Landlords “woo” the Tenants throughout the LOI process.

Will you be my Tenant?

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

engagement letter of intent deal funding1
ENGAGEMENTLetter of Intent / Deal Funding
  • Now is the time to ask – list the critical information you need from the Landlord (and/or its Lender)
  • Insure that Landlord can do what it promises with regard to commissions, allowances, etc.
  • Explore confirmation from Lender; parent guaranty; Letter of Credit; escrow account; self-help

10

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

pre nup exculpation
PRE-NUPExculpation

Exculpation

I love you. You are my one and only…but please sign this document.

  • Landlords’ liability generally capped at its “equity in the property.”
  • Equity…? What equity?!
  • How can Tenant recover for Landlord default?
  • Guaranty; Letter of Credit; negotiated cap on liability; self-help

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

wedding lease snda
WEDDINGLease / SNDA

Speak now or forever hold your peace.

  • If you want an SNDA, you need to get it now - to wait until later may mean never!
  • Landlord may not be able to guaranty an SNDA from current lenders - should at least make commercially reasonable efforts
  • Future subordinations should be conditioned on SNDA.
  • Negotiate and attach the SNDA to your lease - don't let it amend your lease.

CommitmentSTRAIGHT AHEAD

(or else!)

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

wedding lease snda1
WEDDINGLease / SNDA

Potential SNDA "Gotchas"

Lender not liable for Landlord default.

No recognition of Tenant’s rights under the lease.

Excessive cure periods for Lender.

No obligation to complete tenant improvements.

No obligation to pay commissions or allowances.

No rebuilding obligation after casualty or condemnation.

Not liable for security deposit.

Get Landlord’s signature!

13

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

self help issues
SELF-HELPIssues

Relationship Issues

As in all relationships, sometimes a promise is broken. What if Landlord doesn’t do what the lease promises?

Consider a “zombie” building – no janitorial, maintenance, repair.

Steps to self-help:

Written notice to landlord - and lender?! Check the lease and SNDA and comply.

Services vs. repairs; Structural vs. non-structural.

Beware of potential liability for shoddy self help work.

Offset... Can you? When? How much?

14

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

budget operating expenses
BUDGET Operating Expenses

OPEX

33%

  • In 2009, many Tenants received Opex of as much as 20%-25% or more
  • Landlord wants to shift risk of unexpected costs or price increases to Tenant through operating cost pass-throughs
  • What is an operating cost? More importantly, what is it not?
  • Cap on "controllable" operating costs; but what's controllable?
    • Understand the cap - is it cumulative and compounded?

Operating Expenses typically account for one-third of Occupancy Costs.

15

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

budget operating expenses1
BUDGET Operating Expenses

OPEX

33%

  • For Base Year concept, make sure Land-lord fully “grosses-up” cost in Base Year
  • Don’t let Landlord profit on operating expenses.
    • All expenses should be actual and reasonable.
  • Recalculate proportionate share if building size increases

Operating Expenses typically account for one-third of Occupancy Costs.

16

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

budget operating expenses2
BUDGET Operating Expenses

OPEX

33%

  • Reconciliations
    • When will Landlord deliver annual statement? Need a drop dead date.
    • Require audit right; make sure timing works... what if Landlord never delivers its statement?

Operating Expenses typically account for one-third of Occupancy Costs.

17

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

hobbies tenant flexibility
HOBBIESTenant Flexibility
  • To whom can a tenant assign or sublet? Must the landlord consent?
  • Third parties:
    • Landlord should be reasonable in granting consent
    • Beware of "prohibited" transferees - they are often a tenant's best candidates!
  • Permitted transfers – what flexibility does tenant need for its overall business plan?
    • Affiliate (parent, subsidiary, entity under common control)
    • Successor by merger
    • Asset Purchaser
    • Net worth issues - when do you measure?
  • Ancillary rights – make sure you don't affect renewals, ROFRs, etc.

18

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost

marriage and they lived happily ever after
MARRIAGEAnd They Lived Happily Ever After…

19

Negotiating Leases During the Downturn: Creating Value & Avoiding Cost