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Commercial Leasings Insights--Part 1

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Learn how to negotiate your small business commercial real estate deal like a pro! Brokers secrets are revealed in this interesting presentation!

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Commercial Leasings Insights--Part 1

  1. 1. Secrets of Leasing Commercial Real Estate Part 1 Presented by Dan Oster, Vice President Industrial Team Member, NAI Alliance
  2. 2. Introduction Dan Oster, Vice President Industrial Team Member NAI Alliance (775) 336-4665 [email_address] Adjunct Professor Graduate School of Business Advance Seminar on Supply Chain Management The Industrial Team has negotiated > 500 Sale and Lease transactions valued in excess of $500,000,000 since 2004.
  3. 3. Today’s Topics <ul><li>Commercial Real Estate Cycle </li></ul><ul><li>Vacancy Rates </li></ul><ul><li>Vacancy Rates vs. Lease Rates </li></ul><ul><li>National Market Report </li></ul><ul><li>Negotiations </li></ul><ul><li>NNN vs. Gross Leases </li></ul><ul><li>Fixed Rate Options </li></ul><ul><li>Personal Guarantees </li></ul><ul><li>Beneficial Occupancy vs. Free Rent </li></ul><ul><li>You Covet Your Neighbor’s Space </li></ul>Dan Oster [email_address] (775) 336-4665
  4. 4. Commercial Real Estate Cycle Dan Oster [email_address] (775) 336-4665
  5. 5. Vacancy Rates Dan Oster [email_address] (775) 336-4665
  6. 6. Vacancy Rates vs. Lease Rates Lease Rates Vacancy Rates Dan Oster [email_address] (775) 336-4665
  7. 7. National Market Report Dan Oster [email_address] (775) 336-4665
  8. 8. Negotiations <ul><li>Negotiation Video </li></ul><ul><li>He (or She) who cares MOST – loses </li></ul><ul><li>Time Kills All Deals </li></ul><ul><li>A third party can diffuse emotional situations </li></ul><ul><li>Leases are like marriages – winning at all costs can really cost you! </li></ul><ul><li>Big NO, little Yes </li></ul><ul><li>The cost of moving can really cost you </li></ul><ul><li>No two situations are the same (so don’t expect the deal your neighbor got!) </li></ul><ul><li>Civility is always appreciated </li></ul>Dan Oster [email_address] (775) 336-4665
  9. 9. NNN vs. Gross Leases <ul><li>Every Building Has Operating Expenses </li></ul><ul><li>Property taxes </li></ul><ul><li>Owner’s Insurance </li></ul><ul><li>Common Area Maintenance </li></ul><ul><li>Gross Leases – Included in the rent number - you see nothing </li></ul><ul><li>NNN Leases – Added to base rent – Reconciled Annually </li></ul><ul><li>Broker Secret: All things being equal, Gross Leases cost you more because the owner is absorbing the risk of unforeseen expenses like heavy snow removal, property tax increases, etc. </li></ul>Dan Oster [email_address] (775) 336-4665
  10. 10. Fixed Rate Options <ul><li>Fixed Rate Option is typically an additional time period added to a lease at an agreed upon price at the Tenant’s sole election </li></ul><ul><li>Options in Leases almost always favor Tenants </li></ul><ul><li>Landlords know that when a lease rolls and the option rate is higher than the market, Tenants renegotiate. When the market favors the Landlord, Tenants exercise the option. </li></ul><ul><li>Broker Secret: Landlords reluctantly grant options to win deals. If you want to control your lease exposure farther into the future, consider a longer term. Longer terms typically come with lower occupancy cost from day one. </li></ul>Dan Oster [email_address] (775) 336-4665
  11. 11. Personal Guarantees <ul><li>Personal Guarantees allow a Landlord to pursue the personal assets of an individual should the business entity on the lease fail. </li></ul><ul><li>Startups (new) businesses, Businesses with negative recent operating history and/or expensive Tenant Improvements often require Personal Guarantees. </li></ul><ul><li>Broker Secret: Businesses build credit worthiness over time. Ask for the guarantee to be removed after a period with good payment performance, the T.I. is paid off or offer a performance bond to limit your individual liability for a lease. </li></ul>Dan Oster [email_address] (775) 336-4665
  12. 12. Beneficial Occupancy vs. Free Rent <ul><li>‘ Beneficial Occupancy’ is the period of time before a lease starts when the Tenant has access to the building to prepare it for operations. </li></ul><ul><li>‘ Free Rent’ periods are less restrictive – you can be in full operation and are usually responsible for just the operating expenses during this time. </li></ul><ul><li>Broker Secret: What’s the Difference? From the Landlord perspective, the Free Rent Period, a concession, is often included in their calculations of the financial return of your lease while Beneficial Occupancy, a necessary step toward operating in the space, is not. </li></ul>Dan Oster [email_address] (775) 336-4665
  13. 13. You Covet Your Neighbor’s Space <ul><li>Landlords typically love to have an existing Tenant expand; usually 50% growth (or more) will compel a Landlord to tear up an existing lease for a new one covering more square feet. </li></ul><ul><li>If you’re moving into a space and want to control the adjoining unit for expansion in the future, what are your options: </li></ul><ul><li>Right of First Refusal (ROFR) </li></ul><ul><li>Staged Take Down </li></ul><ul><li>Right of First Offer (ROFO) </li></ul><ul><li>Broker Secret: ROFR and ROFO are typically one time options – use ‘em or lose ‘em. </li></ul>Dan Oster [email_address] (775) 336-4665
  14. 14. Q and A <ul><li>Questions??? </li></ul>Dan Oster [email_address] (775) 336-4665
  15. 15. Recap and Next Time <ul><li>Today’s Topics </li></ul><ul><li>Commercial Real Estate Cycle </li></ul><ul><li>Vacancy Rates </li></ul><ul><li>Vacancy Rates vs. Lease Rates </li></ul><ul><li>National Market Report </li></ul><ul><li>Negotiations </li></ul><ul><li>NNN vs. Gross Leases </li></ul><ul><li>Fixed Rate Options </li></ul><ul><li>Personal Guarantees </li></ul><ul><li>Beneficial Occupancy vs. Free Rent </li></ul><ul><li>You Covet Your Neighbor’s Space </li></ul><ul><li>Next Time </li></ul><ul><li>The Secrets of Leasing Commercial Real Estate Part 2 - March 23, 9-10 am PST </li></ul><ul><li>Trade Fixtures vs. Tenant Improvements </li></ul><ul><li>How Much Space Do You Need? </li></ul><ul><li>Options to Purchase </li></ul><ul><li>Representation </li></ul><ul><li>Why Competition Between Landlords Helps You Get a Better Deal </li></ul><ul><li>For a Copy of 10 Leasing Insights or the NAI Global 2011 Report contact me today </li></ul>