Part 11 – last Article blog

11. Lender issues: Landlords will frequently reject tenant’s suggested lease modifications because they would impair the “financeability” of the property, so the tenant must understand lender concerns. In general, the lender’s primary concern is the assurance of uninterrupted cash flow; anything that might jeopardize cash flow will be carefully scrutinized. Sensitive lease provisions generally include tenant remedies such as rent abatement, offset rights (deducting damages against rent) and lease termination rights.

 Successful negotiation means more than just the rent  As noted above, each step of the commercial lease process and each provision of the lease agreement provides ample opportunity to improve the deal, and conversely, expose the landlord or tenant to costly and unnecessary expense. The successful negotiation will focus on more than just rent. By reducing risks and avoiding surprises, the frantic calls for help may be a thing of the past.

Part 7 – Common lease components

Below is a discussion of several provisions found in a typical lease agreement, and a brief summary of the issues and negotiating positions for each party. These are critical to focus on in every lease transaction as each could ultimately make or break the deal. Please also see the sample tenant checklist available on my webpage for other issues to consider for each lease review.

1. Construction and tenant improvements: Almost every lease provides for the construction or installation of tenant improvements to the leased premises or the surrounding areas for the tenant’s use, ranging from construction of an entire building to moving a wall. There are aspects of this process, including design, approval, timing, and execution of the construction, that are common to all leases, and are often found in the Work Letter attached to the Lease (which is often fully negotiated with the LOI). Each aspect should be dealt with to avoid unpleasant surprises later. The Work Letter can be very specific and must accurately reflect the complete arrangement of work between the parties. Also, the construction contract and related documents (not just the plans and specifications) are often prepared by an architect or other non-lawyer who relies heavily on forms and fails to notice conflicts between the language of the form and the deal as understood by the parties. The lawyer must review the construction provisions and exhibits carefully, as most construction disputes flow from the failure of the parties to have a common understanding, as reflected in a clearly worded document, and all terms and conditions should be reviewed and fully approved by the project manager or other construction personnel before execution of the lease.

 

Part 6 – Negotiating a favorable agreement

Before the parties begin negotiating the lease document, and before the lawyer is consulted, the design process typically has already begun. By the time the LOI is prepared, the parties usually have at least a preliminary space plan for an office lease or a site plan for an industrial or retail project. The basic scope and nature of the construction will have been discussed and an understanding of some sort reached. The negotiations should flush out the unstated assumptions and expectations of the parties and resolve points of conflict.

Negotiating the lease should not be difficult! In fact, many landlords recognize that providing “superior tenant service” begins by making the lease negotiation process as simple and efficient as possible, as long delays over minor details serve neither party. Increasingly, landlords are shortening the lease negotiation process through a system of alternate lease clauses used to substitute standard clauses as appropriate, to avoid having to write specific language each time an issue arises.

Part 5 – The Letter of Intent

For purposes of this article, the negotiation process begins with the Letter of Intent (or LOI), which can only be developed after the tenant understands its needs. The LOI represents a compilation of the many considerations that a tenant might have. All of the tenant’s needs and core requirements (both business and legal) should be considered when developing the LOI, as it is difficult to obtain the best result when important considerations are introduced late in the negotiation. Further, the LOI should be consistent with market conditions and what the particular tenant can attain in the current marketplace (i.e. Fortune 500 credit will normally be able to ask for more than a smaller tenant with local credit) and the LOI should be customized to properly reflect the same.

The LOI, once presented, becomes the basis for the negotiation and helps maintain a focus on issues not fully resolved between the parties. Even if non-binding, deviating from terms agreed upon in the LOI is difficult. Accordingly, the importance of initially addressing all significant items in the LOI cannot be overemphasized. For example: (1) the tenant’s negotiating leverage will be reduced if provisions such as options to extend or terminate, liability limitations, escalation and security deposit provisions, rights of first refusal, and other items of significance are not included in the LOI, and (2) it serves everyone’s interests to spend extra time on the details of the LOI to minimize misunderstandings during negotiations, together with the associated cost of attorneys and other professionals engaged by the parties. To preserve that the LOI will not be binding, the document should not only provide as such, but should further provide that it imposes no legal obligation to continue negotiations to reach agreement. Alternatively, the parties may be obligated to negotiate in good faith, and if no formal agreement is reached within a prescribed period of time, either party may terminate negotiations.

As a result, it is important to employ an effective method of tracking the progress made on deal points, while also assuring that the original points eventually are addressed. This has the added benefit of documenting the negotiation, which is useful to understand the intent of the parties and to draft language accurately reflecting all negotiated points.

Blog Series, part 1

Both landlords and tenants seek help to resolve a dispute that has arisen with their commercial lease because they signed a misunderstood or poorly negotiated agreement. This is especially true of less sophisticated tenants who, for whatever reason, have chosen to sign the landlord’s “standard form lease” with few, if any, changes. Additionally, inexperienced landlords often use a form lease without fully understanding the terms and conditions imposed upon them.

The potential for dispute in a commercial lease can result from many things; however, the focus of lease negotiations is often limited to rent, concessions and other economic considerations. As a result, many important issues are often overlooked; misunderstood or under-negotiated (even by sophisticated landlords and tenants) that could materially affect the long-term success of the deal and are often the reason for their calls for help.

Commercial leases are often called “living” documents, as they govern the ongoing relationship of the landlord who owns or manages a property and the tenant who operates its business on that property. A lease is like a partnership agreement because it provides the parameters of a business relationship, and unlike many legal documents, the real work of a commercial lease commences when the document is signed and the deal is done. Negotiating the best possible deal is done throughout the entire leasing process, from the initial decision to move forward through lease execution. There are many significant terms and conditions that should always be considered when negotiating the deal.  This article sets forth a few of the major lease provisions that landlords and tenants should focus on, but is not intended to serve as a substitute for consulting with a real estate attorney.

Rent: Just One Side of a Commercial Lease Agreement

My blogs for the next week or so will contain excerpts from an article I co-wrote for the ACC Docket, November 2010 edition, titled “Rent: Just One Side of a Commercial Lease Agreement.”  The discussion contained in the article was written for corporate lawyers, but applies to a much wider audience as it describes the importance of careful planning and analysis throughout the leasing process, and also emphasizes the need for the tenant to focus on each provision contained in the definitive lease agreement.  A successful lease negotiation focuses on more than just the base rental amount, as vital components of reducing a company’s occupancy costs include mitigating risks and exposure to unforeseen expenses, maximizing flexibility and operating efficiencies, and aligning the company’s real estate strategy with its overall business plan. 

I hope these postings will be enjoyable to read and informative.  Feel free to call or email, and we’ll show you why we’re Studley!

How well does your lease protect you?

The selection and acquisition of facility for a company’s business is one of its most important decisions it will make, and it can mean the difference between profitability and failure. Commercial leases are made for the long-term, and the payments made under a lease often represent a significant portion of the business’ expenses.  The total financial burden of rent, costs of tenant improvements and other lease charges can significantly impact the overall success or failure of a business. 

The focus of lease negotiations by a tenant is often limited to rent, concessions and other economic considerations. As a result, many important issues are often overlooked, misunderstood or under-negotiated (even by sophisticated tenants) that could materially affect the long-term success of the deal and the company.  Negotiating the best possible deal is done throughout the entire leasing process, from the initial decision to move forward through lease execution.  To reach the best deal, and to prevent costly disputes or unforeseen expense, it is crucial to negotiate a favorable and highly detailed agreement. 

This really speaks to the heart of a serious problem.  On-the-job training has traditionally been the primary path to knowledge by brokers when it comes to leasing, and as a result, you could spend years of expensive trial and error and still never attain competency.  Did your tenant rep professional help protect you throughout the lease negotiation process, or were your left to fend for yourself once the base rental amount was agreed upon?  Was your broker willing to fight for you when negotiating lease provisions with the landlord?  Did your broker bring years of legal training and lease negotiation experience on behalf ot the tenant to your transaction, and take ownership of the terms and conditions of the lease agreement? 

How well does your lease protect you?  Are you confident that you’ve negotiated a favorable lease?  Let us protect your company from unpleasant problems, it’s not just about rent when it comes to negotiating a good lease deal.  You can better serve your company’s interests by mitigating the risks concerning your corporate occupancy, to negotiate the best possible deal in the marketplace.  We’d be happy to show you why we’re Studley!

Will Smith video on Success

I really liked this video and wanted to share it with others.  I hope you enjoy this as much as I did!

Negotiating the lease deal

It is amazing how often companies find themselves looking for guidance because an unpleasant surprise has come up during the term of their lease, with the vast majority of such issues costing them significant dollars (that wasn’t included in their budgets) in attorneys’ fees and costs to remedy the situation.  Often such surprises are due to having signed a poorly understood or poorly constructed lease agreement and could have easily been avoided.  This is especially true of smaller, less sophisticated tenants who, for whatever reason, sign the landlord’s “Standard Form Lease” with few, if any, changes. 

A lease is much like a partnership agreement in that it governs a business relationship that could last for many years.  When everything goes as planned, most leases will serve the parties well but the true test occurs when there are hiccups in the relationship.  If the lease has not been carefully drafted, a hiccup can become a major problem.  Tenants often lose sight of the fact that the “Standard Form Lease” represents the landlord’s wish list, and if not appropriately modified, will likely not serve their interests when issues arise. 

Most tenant rep firms do not fully protect their clients throughout the entire leasing process, as achieving a favorable deal includes the careful negotiation of the definitive lease agreement.  This is where our Studley team differs from the rest.  We’d be happy to show you why we’re Studley!

2012 Animal of the Year – the honey badger

 

I love this video.

U.S. Commercial Real Estate Investors Turn Bullish on Office Sector for Acquisitions,

U.S. Commercial Real Estate Investors Turn Bullish on Office Sector for Acquisitions, According to Latest PwC Real Estate Investor Survey™

NEW YORK, Dec. 20, 2011 /PRNewswire/ — As 2011 comes to a close, commercial real estate investors continue to seek buying opportunities with the office market gaining increasing interest, despite a mixed bag of improving commercial real estate fundamentals, according to the fourth quarter 2011 findings of the PwC Real Estate Investor Survey, released today.

According to the report, buying opportunities beyond the core markets remain tricky due to a protracted recovery outlook for both the U.S. and many secondary markets.  Surveyed investors cite that commercial real estate continues to offer attractive yields compared to alternative investment vehicles.  In the office sector, investors are bullish regarding their prospects for tenant retention and expect office rent growth in many markets in the coming year.

U.S. Rating Outlook Cut to Negative by Fitch

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I thought this was interesting and just in time for a joyous holiday season.  – Ty.

Bloomberg

The U.S. lost its last stable outlook from the three biggest credit-ranking companies after Fitch Ratings lowered the nation to negative following a congressional committee’s failure to agree on deficit cuts.

Fitch’s outlook on the U.S., which it still assigns its top AAA grade, reflects “declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path will be forthcoming,” making the probability of a downgrade greater than 50 percent over two years, the company said yesterday in a statement. Standard & Poor’s and Moody’s Investors Service said Nov. 21 that the so-called supercommittee’s inability to reach an agreement didn’t merit downgrades because the inaction will trigger $1.2 trillion in automatic spending cuts.

U.S. government debt rallied the most since the end of 2008 after Standard & Poor’s stripped the U.S. of its AAA ranking on Aug. 5, while global equities lost $9.7 trillion in market value during that period. Even with lawmakers reluctant to embrace the automatic cutbacks that helped prevent downgrades, President Barack Obama has pledged to veto any efforts to undermine the spending reductions.

“There’s a much broader recognition out there that you can’t just cut discretionary spending, you have to actually cut into the meat and bone of the programs driving the deficit,” Noel Hebert, a credit strategist at Mitsubishi UFJ Securities USA Inc. in New York, said yesterday in a telephone interview. Fitch is “catching up to the dysfunction that’s been widely perceived by the American electorate for the last decade.”

Treasuries Outperform

Treasuries have returned 3.8 percent through yesterday since S&P made its rating cut, according to Bank of America Merrill Lynch indexes. German bunds gained 1.9 percent, Japanese bonds rose 0.1 percent, and U.S. corporate debt handed investors a 0.4 percent loss, the indexes show.

The MSCI All Country World Index dropped 6 percent, and the Standard & Poor’s GSCI Total Return Index (MXWD) of commodities was little changed.

Treasuries due in 10 years and more have returned almost 28 percent in 2011, the most among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for changes in currency rates.

Debt to GDP

The 10-year yield rose three basis points, or 0.03 percentage point, to 2.01 percent as of 2:53 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The Standard & Poor’s 500 Index rose 2.9 percent yesterday.

The supercommittee’s failure was “a missed opportunity,” David Riley, Fitch’s head of sovereign ratings in London, said yesterday in a telephone interview. “The scale of any subsequent budget cuts are probably going to have to be larger than they otherwise would have been and certainly implemented in faster manner.”

U.S. federal debt held by the public will exceed 90 percent of gross domestic product by the end of the decade, while interest on the debt will require more than 20 percent of tax revenue, Fitch said. Gross debt, including local and state governments, will climb to 110 percent of GDP during that span, a level that “would no longer be consistent with the U.S. retaining its ‘AAA’ status,” the firm said.

Deficit Reduction

A failure by Congress to agree on a “credible deficit reduction plan” combined with a “worsening” economic and fiscal outlook would likely result in the U.S. being stripped up its AAA ranking, the rating company said.

“Fitch’s action is a reminder of the need for Congress to reduce the country’s long-term deficit in a balanced manner and to avoid efforts that would undo the $1.2 trillion in automatic cuts negotiated last summer,” Colleen Murray, a Treasury Department spokeswoman in Washington, said yesterday.‬

The 12-member bipartisan committee, created in August by the Budget Control Act that raised the U.S. debt ceiling, reached an impasse amid Democrats’ opposition to reductions in programs such as Medicare and Republicans’ reluctance to increases in tax revenue.

“Further deficit reduction will not be credible if it relies solely on further cuts in discretionary spending rather than reform to entitlements and taxation,” Fitch said.

The panel’s implosion is likely to delay any major deficit- reduction agreement until after the next presidential election and may pose an immediate threat to the struggling U.S. economy. The lack of a deal means several tax programs, including a payroll tax holiday, risk expiring at the beginning of next year, weighing on the household spending that accounts for about 70 percent of the world’s largest economy.

Reserve Currency

The dollar’s role as a reserve currency is among the reasons Fitch affirmed the U.S.’s AAA rating, Riley said. “That does provide a tremendous amount of financial flexibility for the U.S.,” he said.

“We’re waiting for a plan to be presented,” Riley said. “Our expectations are that we won’t get substantial fiscal reform this side of congressional and presidential elections.”

The U.S. downgrade to AA+ from AAA by S&P followed months of political gridlock about deficit cuts as the government almost reached its borrowing limit. The rating company slammed the country’s political process and criticized lawmakers.

New York-based S&P’s August decision was flawed by a $2 trillion error, according to the Treasury Department. S&P disputed the Treasury’s assertions and said using the department’s preferred spending measures in its analysis didn’t affect its credit grade. S&P was criticized by Obama and Berkshire Hathaway Inc. Chairman Warren Buffett, who said the U.S. should have been upgraded to “quadruple-A.”

Marketable Debt

The $1.3 trillion U.S. budget deficit in the fiscal year ended Sept. 30 was about 8.7 percent of gross domestic product, the third-largest percentage in the past 65 years, exceeded only by the deficits in 2009 and 2010, according to Treasury statistics. U.S. marketable debt outstanding has doubled to about $9.7 trillion since the end of 2007 as tax receipts plunged and the government boosted spending amid the worst recession since the Great Depression.

“It’s certainly a hit to market sentiment and confidence that nothing was done,” Eric Stein, a money manager in Boston at Eaton Vance Management, which oversees $203 billion, said Nov. 21 of the supercommittee’s failure. “It’s one more piece of bad news in addition to the other bad news that the market’s been digesting.”

Read more: http://www6.lexisnexis.com/publisher/EndUser?Action=UserDisplayFullDocument&orgId=101728&Em=1&topicId=101090012&docId=u:1551570938&md5=4a86e9e68dfd746d75ad4ad9e52b58

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It’s official: Target taking over Tamarac Square in Denver

Southeast Denver‘s Tamarac Square will be razed and replaced by a Target store and other retailers, Developers Diversified Realty Corp. announced today.

The Beachwood, Ohio-based firm characterized Tamarac Square as a “non-income producing parcel” that will be sold to Target for construction of the store.

Developers Diversified said it intends to redevelop adjacent retail space to accommodate “demand for additional high-quality retailers.”

The company, which owns and manages approximately 520 retail properties around the country, said it is also razing the Terrell Plaza Shopping Center in San Antonio and selling that property to Target.

“The redevelopment of the two non-income producing assets into prime shopping centers is a perfect example of the continued execution of our redevelopment strategy,” said Paul Freddo, Developers Diversified’s senior executive vice president of leasing and development.

Freddo said that Tamarac Square is currently 90 percent vacant.

The redevelopment will provide Target access to a market exceeding 720,000 people within a seven-mile area, said Freddo.

He said that upon completion of the 135,000-square-foot Target store and the renovation of the adjacent 33,000 square-foot convenience center, the project will be 98 percent leased.

The combined gross investment for the Denver and San Antonio projects is $40 million, according to the company.

Howard Pankratz: 303-954-1939 or hpankratz@denverpost.com.

http://www.denverpost.com/business/ci_18086707