Lease Administration Masterclass Friday, 23rd March 2012
Managing Lease
RenewalsPresented By:Jerry King
Rent Research Consultants, Inc.
Lease Administration Masterclass Friday, 23rd March 2012
There’s Real Money Here • 600 Stores of 5,000 Square Feet• Five years Leases @ $14.00 PSF• 20% Roll over each year• 40% Exercised—60% Re-negotiated• 50% Success Rate • Average 8% Rent Reduction • Over One Million Dollars Per Year Savings
Lease Administration Masterclass Friday, 23rd March 2012
Getting Ready to Start ! • Key decisions
– Who is In-house contact?– Should I Outsource the project?– What will the program cost?– How do I Interface with store
operation?– What are the Accounting
concerns?– What are the Reporting
requirements and to who?– What are the Field notification
Issues?– Who will prepare the
Documentation ?
Lease Administration Masterclass Friday, 23rd March 2012
Work Flow -Summary1. Gather Store/Lease Information2. Refer to Operations for Decision3. Gather market information4. Evaluate Information5. Issue written recommendations6. Back to Operations for final decision7. Exercise Option or set up for
negotiation8. Negotiate with landlord9. Landlord and Operations sign-off on
deal10. Prepare documentation11. Track documentation to fully
executed12. Update Lease Abstract
Lease Administration Masterclass Friday, 23rd March 2012
Work Flow Step 1Gather Information
• Gather Store Information on Upcoming Option/Renewals– Option Notice Date and LED– Store Manager Interview– Date and rental history – Landlord information– Premises information– Store sales last three years– Amortization status
Lease Administration Masterclass Friday, 23rd March 2012
Work Flow Step 2Renew or Not Renew Decision
• Obtain Decisions– Store Size– Length of Extension?– Maintenance Problems?– CAM Problems?– Signage?– Sales projections?
• Minimum Rent vs. Percent Rent?
– Other Lease Issues?
Lease Administration Masterclass Friday, 23rd March 2012
The Site Visit• Actual Site Visit
– Pictures of site including . . .– Drive trade area– Broker signs
• Virtual Site Visit– Google Earth and Bing.com– Assessors website
netroonline.com
Vision Appraisal– Landlord’s website– Community Walk
Lease Administration Masterclass Friday, 23rd March 2012
Work Flow Step 3Real Estate Rental Information
• Rental & Vacancy Rates– Subject Site– Competing sites
• Landlord Information• Photographs and Websites• Competition & sales• Construction
– Public– Private
• Look for Change
Lease Administration Masterclass Friday, 23rd March 2012
Work Flow Step 5Evaluate Information
• Rank by importance• Rank by source
– Single source information– Multiple source information– First Hand vs. second hand– LIS, Map Info, Spectrum– Broker / Agent Comparables
• Collaboration• Test validity• Evaluate Timeliness
Lease Administration Masterclass Friday, 23rd March 2012
EXERCISE OPTION OR PASS
• Risks– Loss of store– Competitor takes your
old store– Landlord demands
higher rent• Rewards
– Lower rent– Higher Success Rate– Strong opening
negotiating position
Lease Administration Masterclass Friday, 23rd March 2012
Option Exercise Criteria
• Operational concerns– Market Penetration – Location of Competitors
• Market rent Variance• Vacancies in trade area• New Competition in trade area.• Competitors Leaving Area
Lease Administration Masterclass Friday, 23rd March 2012
Work FlowDraft Written Report
• Try to limit to Two Pages• Should have at minimum
– Current Status– Key Findings– Conclusions– Recommendations– Negotiation Goals
• Circulate to Operations
Lease Administration Masterclass Friday, 23rd March 2012
COMPLETE THE NEGOTIATION
• Choose Your Negotiator• Setting reasonable
goals• Pre-negotiation
concessions• Timing is the key• Opening proposals• When to quit
Lease Administration Masterclass Friday, 23rd March 2012
Opening Position Requirements
Create Doubt that you are staying
Reveal a reasonable alternative
Be based on facts of which Landlord is aware.
Offer solution to your problem.
Be almost reasonable.
Lease Administration Masterclass Friday, 23rd March 2012
Sample LetterRE: XYZ Corp Store #xxxx City, ST
Dear Landlord (where possible this should be personalized):
As you are aware, the economy is slowly recovering from the worst recessionary period of our generation. However, in many respects, the future holds a great deal of uncertainty as the country and economy continue to navigate this period of transition. If securing a strong creditworthy Tenant during this time of transition is of interest to you and your organization, XYZ Corp is implementing a corporate initiative offering Landlords the opportunity to secure an early extension of its lease in exchange for a reasonable restructuring of the lease terms. We will be contacting you shortly to discuss specific lease modifications. We respectfully request that you respond to them expeditiously regarding this opportunity which should benefit both parties. In the interim, if you have any questions, please do not hesitate to contact us directly at (xxx) xxx-xxxx. Thank you. Sincerely,
Lease Administration Masterclass Friday, 23rd March 2012
Negotiating the Issues
• Use multiple issues• Timing of the
negotiation• Use NPV evaluation• Incorporating new
lease clauses• Pre and Post
Conditions
Lease Administration Masterclass Friday, 23rd March 2012
DEAL SIGN-OFF• Prepare Deal Memo
– Simple LOI
• Commits Landlord to new deal
• Commits Operations to new deal
• Stops wiggle • Stop Nibbling
Expanding Knowledge...Best Practices 2010
Lease Administration Masterclass Friday, 23rd March 2012
PREPARE DOCUMENTATION
• Lease Amendments• Letter Agreement • Who’s Drafting• Obtaining last minute
concessions• Typical Add-ons
– Self Help– Notice Clauses– Remodel Rights
Lease Administration Masterclass Friday, 23rd March 2012
Track Document until Fully Executed
Remember Jerry’s Rules
1. From the time the deal is made until it is signed there is nothing good that can happen.
2. Once the deal is signed there is nothing bad that can happen.
3. People who understand 1 & 2 are called deal makers.
4. People who don’t understand rules 1 & 2 are called unemployed.
Lease Administration Masterclass Friday, 23rd March 2012
Communications • Update Lease
Abstract– Paper file– Lease Administration
Software.– Memo’s to all– Thank you letter to
Landlord
Lease Administration Masterclass Friday, 23rd March 2012
How you made your first Million1. Gathered Store/Lease Information2. Sent it to Operations for Decision3. Gathered market Data4. Evaluated the Information5. Wrote a Report6. Back to Operations for final decision7. Decided to re-negotiate the option8. Negotiated with landlord9. Got both Landlord and Operations sign-off 10. Prepared documentation11. Tracked documentation until it was fully
executed12. Update Lease Abstract
13. Got HUGE BONUS for a job well done.
Lease Administration Masterclass Friday, 23rd March 2012
SO BUILD YOUR OWN PROGRAM
• BUILD A TEAM– In-house Team– Out-source team
• SET UP PROCEDURES• NEGOTIATE• DOCUMENT YOUR
SAVINGS
Lease Administration Masterclass Friday, 23rd March 2012
Contact InformationJerry King
• [email protected]• www.rent-research.com• Rent Research Consultants,
Inc. PO Box 372 Swansea, MA 02777, USA
• Phone 1-866-635-5762• FAX 1-888-473-1121