Broker Reveals All

Guide to Understanding Commercial

Real Estate for Facility Managers

Brian Woolsey

Broker Reveals All

Contents

Seven Habits of Highly Effective BrokersI.

Start Early1.

Assemble an All-Star Team2.

Decide on the Best Transaction3.

Have Multiple Options4.

Craft a Winning RFP, Solicit Offers and Analyze5.

Negotiate like a Pro6.

Abstract and Manage the Lease7.

Types of TransactionsII.

Purchase/Sale1.

Lease2.

Sublease3.

Build to Suit4.

Sale-Leaseback5.

Appraisal v. BOVIII.

Top Ten Lease TermsIV.

Termination Option1.

Sublease Rights2.

Holdover Clause3.

Right of First Refusal4.

Renewal Option5.

Audit Rights6.

Financial Guarantees7.

Rent Concessions8.

Tenant Improvements9.

Maintenance & Repairs10.

Resource GuideV.

Market ResearchVI.

Authors’ BiographiesVII.

Brian Woolsey1.

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1. Start EarlyCrafting the best real estate solution can take time especially if it is a large project, the lease expiration is not eminent or you are

trying to build or buy something. Size matters. The larger the project, the more visible it is within the organization which means there

are going to be more people weighing in on each decision which can ultimately slows the process down. Take this into consideration

before you decide to delay a project’s start date. Moreover, lease expirations are bad indicators of when to start. If something is

happening in your business, do something. Make the decision to talk with your existing landlord, sublease the space, or talk to

management about a “Blend and Extend”. Whatever the case may be, take action now.

Here are few specific transactions that characteristically take longer to complete then others. If these end up being the best

transaction for your organization be sure to begin right away.

Buying, Selling, Build to Suit:•

These transactions can take longer to complete then leases for several reasons. First, often times there are fewer

opportunities to purchase then to lease, so the scarcity of available properties necessitates that in order to see enough

properties you have to start early. Additionally, in today’s market there are several properties that are “available” but because

of the ownership structure (i.e. foreclosure, special servicer, CMBS ownership) getting the property under contract for a price

you feel is fair may take several months, perhaps years.

“Blend and Extend” transactions:•

Despite the long-term nature of a lease contract, tenants frequently have the ability to realign their lease terms according to

their business needs, even when several years remain on the lease. Blend-and-extend transactions allow a tenant to combine

costs associated with the existing lease with current market rates over an extended new period. The key is to use the allure

of an early renewal to negotiate a new lease. Often the tenant can negotiate concessions such as lower rents and additional

capital improvements.

Depending on the landlord, a blend-and-extend can either be easy or difficult to achieve. The goal is to get the landlord to

understand that given the high vacancy rates in their markets a blend-and-extent transaction can ensure:

1. Their buildings are full of credit-worthy tenants.

2. They don’t incur the risk and costs associated with having to remarket and lease space.

Moving Takes Time: •

Moving can be a time consuming

process. If the best solution is in

another building, giving yourself

plenty of time to execute the move is

essential. Here area some guidelines

for moving an office:

I. Seven Habits of Highly Effective Brokers

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2. Assemble an All-Star TeamThere is nothing worse then discovering half way through a project that your vendor is either incompetent, not a good personality fit or

can not deliver the same value as one of their competitors. Additionally, the typical RFP/interview process can be difficult to judge the

team and to know exactly how the vendor will service your account. To use an analogy, how a present is wrapped is often not a good

indicator of what the gift.

If you can, test your vendor with a small project. Build trust and gage their abilities slowly. Ease into the relationship.

Another strategy is to proactively build relationships during down times with potential vendors so you have an arsenal of qualified and

trusted advisors that can make you look good and provide exceptional value – when you need them.

If you do not have time to qualify a vendor use the following tips as an aid to prequalify the people you hire.

Selecting a BrokerIf your Master Broker is a national/international firm they should be able to find the best talent for the assignment in the market

you are working in. Be sure to learn about their process for hiring brokers in Small Town, USA or even in the larger markets. Do

they have a “best in class” approach or do they only hire people from within the same firm? Are you comfortable with that? Do they

have the flexibility to hire outside the firm if another person/firm would provide a better service? BEWARE: Some firms never hire

local representation!

Contrary to popular belief, from a licensing standpoint, there is little that differentiates a commercial real estate agent from a

residential real estate agent. In fact, in most states the real estate licensing requirements are identical. Over time two professional

organizations have emerged to make it easier to differentiate experience and qualifications. Either of the following professional

organizations also lists their members so you can locate brokers by geographic area.

CCIM (Certified Commercial Investment Member, www.ccim.com) Real estate agents with this designation •

have to take a series of four real estate finance courses, pass a final exam and submit a resume and portfolio

of representative transactions. Brokers that hold this designation have a good handle on the financial aspects

of commercial real estate.

SIOR (Society of Industrial and Office Realtors, www.sior.com) Real estate agents with this designation have •

demonstrated a mastery of commercial real estate through a combination of tenure in the business and

sustained production levels.

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Selecting a Project ManagerProject Managers that specialize in moving can help you avoid costly mistakes along

the way. Use them. Leverage you time or your business by utilizing their skills.

Some brokers will provide project management service as part of their scope of

service? Looked around. You can probably find someone that would offer to either

include that service or rebate a percentage of the commission to pay for those services.

Selecting an AppraiserThere is really only one significant designation for commercial appraisers.

MAI (Member of the Appraisal Institute) - An appraiser who has earned the MAI designation is qualified to

and experienced in the performance of both residential and commercial properties. Many other appraisers

are only qualified for residential property. At one point, lenders were likely to require that an appraisal be

done by an MAI certified appraiser, or a member of another trade organization. Certified appraisals can

increase the chances of a favorable lending situation, since the lender will feel more comfortable. An MAI

certified appraisal offers lenders a reliability that allows them to be confident in their investment.

Selecting an AttorneyThere is only one thing to look for when

hiring an attorney - a focus on real estate.

Most of the attorneys at the large firms

specialize in one aspect of law. Be sure to

hire one that is familiar with the customs of

the local market as wells as the requirements

of your organization. This will save you a lot of

time.

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Tip #1Depending on the size of the transaction, you may be able to find a brokerage team to provide project/construction management as part of their overall service offering.

Tip #2Trim your attorney’s fees in half. A good broker negotiates major business points early in the RFP process leaving the details for the attorneys to work out.

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3. Decide on the Best TransactionChoose the real estate transaction that best supports the business objectives of the firm. Understand what you need and which

transaction is best aligned to meet those needs. See section II. Types of Transactions, for a description of what organizational profiles

fit best with each transaction type. Taking the time to decide on the best transaction up front will save you a lot of time down the road.

4. Have Multiple OptionsIn real estate, the deal is never done until, it is done! You want to negotiate at least two deals in parallel all the way to final lease

signing. There are several reasons to do this. First, each property provides leverage in your negotiations with the other, including

the most powerful negotiations of all, the ability to walk from the deal. Additionally, if something happens at the eleventh hour to the

preferred option you have a back up in place to keep the project on schedule.

In most markets in the U.S. you can find the information you need to create a competitive bid for your tenancy by consulting online

services like LoopNet or CoStar. In the Midwest a good source is Xceligent. Most of these sites have a section that is free (although

limited in scope) for corporate users to search alternate properties.

Although, online sources are a great starting point, do not limit yourself to what is available online or currently being marketed. Make

sure your broker informs the market about your requirement. You will be surprised how many additional opportunities come your way

through this approach.

For overseas assignments, you can get market reports for most major cities for free from international real estate providers. These

reports will have current market rates as well as vacancy levels that will be useful in your negotiation.

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5. Craft a Winning RFP, Solicit Offers and AnalyzeAfter developing a negotiating strategy and conducting a market survey, in most cases creating and managing a customized Request

for Proposal (RFP) process that requests initial proposals from building owners is advisable. The objective in doing this is to:

Initiate meaningful negotiations with a clearly defined schedule for responding.•

Create level playing field for owner responses.•

Provide detailed information that will maximize leverage in renewal negotiations.•

Obtain detailed and specific information regarding each proposed facility and its ownership and management.•

Perform test-fit space planning, typically at the prospective landlord’s expense.•

Obtain preliminary construction pricing, typically by the prospective landlord’s contractor.•

Ensure that each facility is capable and caters to your optimal facility preferences.•

Here is a sample RFP. Your broker should customize this for you.

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Analyze the Offers:After receiving the proposals, your broker should prepare a financial analysis comparing the annual and total occupancy costs of

the most viable potential transactions, the facility objectives and the existing total occupancy cost benchmark. These analyses and

comparisons help to ensure that you are maximizing your leverage in the marketplace and driving down occupancy costs. Many

brokers also provide customized analysis and reporting.

You may want to also analyze the non-economic factors for each property. A “Non-Economic Comparison” organizes and rates the

intangible differences between properties. These comparisons help with ranking each property on issues such as ingress, egress,

closeness to public transportation, proximity to major freeways/highways, amenities in the building and neighborhood, as well as

many other issues that are important to your organization.

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6. Negotiate like a Pro“In life (and real estate) you don’t get what you deserve, you get what you negotiate.” Frank Sherwood

The three critical elements of a negotiation are time, information and power.

A. Time: The Chinese are masters at understanding time. They have the patience and the discipline that few western managers

can muster. Ideally, you need 12-24 months to complete a transaction. Negotiations have an ebb and flow of their own and time

is needed to leverage the marketplace. Regardless of when you start, most concessions occur at or near the deadline.

B. Information: Half of the negotiation issues are handled by preparing properly. A properly crafted RFP and managed process

can provide you with a lot of the information about the market that you will need to leverage your desired landlord.

C. The Power of Win-Win: Many people think “win – win” means I win twice. You need to understand what a win feels like to the

landlord. Know what the landlord wants and know what you can afford to give up. Then be methodical in giving it up slowly. Learn

to keep your automatic defenses under control and respond appropriately to issues from the other side.

Resources: The one human freedom that cannot be taken from you is the capacity to choose your attitude in any given set of

circumstances – to choose one’s own way. (Viktor Frankl, Man’s Search for Meaning) That statement holds the key to many of life’s

problems and is very useful in the art of Negotiation.

If you are looking for a good resource on negotiating we recommend You Can Negotiate Anything by Herb Cohen. He is widely

recognized as an expert in the negotiating field. His sequel Negotiate This is also worth a read.

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7. Abstract and Manage the LeaseWhat do you do now that your deal is done?

One of the easiest ways to prove your worth,

over and over to your boss is to come to

them proactively with reminders of your

fabulously negotiated lease options. To do

that you need to have those lease terms easily

accessible. If you have fewer then 10 leases in

your portfolio we would recommend a lease abstract for each lease and a master spreadsheet with everything rolled up - a master

timeline of sorts.

Each of the options you have negotiated has a time frame associated with it and the landlord is not going to remind you of when they

are. In fact, most of the time they are holding their breath hoping that the date passes without a peep from you. Sometimes just letting

your landlord know that you are aware of your options is enough to get them to come to the table to get a better deal.

Here is a simple template that you can use to begin abstracting your leases.

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Tip #3Get lease administration/abstract/audit services for free. Several of the larger brokerage firms will provide lease abstracting, lease administration and lease audit services with an exclusive transaction management agreement. If your portfolio is not large enough to do that, you may be able to negotiate fee rebates to offset the costs for some of these services.

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Lease MaintenanceThe industry average for incorrect rent

invoices is 90%. How are you managing

rent disbursements? Now that you’ve just

negotiated the best real estate transaction

of your career how do you ensure that all of

these great economic terms and options are

enforced properly?

A. Don’t leave it up to your Landlord.

B. CAM Reconciliation: how do I know if the CAM reconciliation I got from my Landlord is accurate, what questions should I be

asking?

C. Real Estate Tax Protest: how do I know if I have a case, if I have several sites how do I prioritize, how do I select and manage the

attorney and their fees?

“The (real estate) market doesn’t value your (brokerage) services the same way that corporate real estate directors do. The market pays you huge sums of money to negotiate transactions when really that is only part of the equation. We see just as much value in managing the leases that we have in place.” - Minneapolis Fortune 50 Corporate RE Director

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Tip #4If you haven’t done any lease/CAM audits recently, find a commercial real estate company that will do this work on a percent recovery basis. The savings can be enormous and the services are free. Sophisticated companies do these each year.

Purchase/SaleFor privately held firms a purchase can provide tax advantages and can potentially reduce long term occupancy costs. It may also

provide equity appreciation.

For publicly held firms acquisitions are usually strategic in nature or support a unique long term capital investment in the Real Estate;

i.e. clean room, manufacturing, or other specialized functions where real estate is just a portion of the overall occupancy costs of the

location.

Generally these are a good fit for companies with the following characteristics:

Steady business •

Good access to capital, •

Return on investment in Real Estate is the same or better then investment in business.•

LeaseThis is a fitting transaction for organizations with the following profile:

Little to no up-front capital costs•

Need flexibility•

Want little to no management responsibilities•

Lease might be the only option to get into the type of space your business requires (40th floor of a central Business District, •

for example)

Timing – shorter time to get in•

Capital is made available to invest in business•

SubleaseThis is a fitting transaction for organizations with the following profile:

Start up business•

Location does not matter•

Economics are a major concern•

Need furniture, phone system or other office functions•

Timing – typically little to no Tenant Improvements (TI) given. The “glove” either fits or it does not. Take the space or not. •

Get in quick.

May represent the only option to get into a desired building•

Depending on the size of the space they are often available on short term basis•

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II. Types of Transactions

Build to SuitThis is a fitting transaction for organizations

with the following profile:

Construction based on operational •

issues can create efficiencies

The building will reduce occupancy •

costs

Improve operational productivity•

Other alternatives to lease/purchase •

do not exist

Sale Leaseback

This is a structured finance transaction that involves two transactions that happened simultaneously. Typically, it involves the owner

occupant of the real estate selling the property to an investor and then leasing the space from the investor.

The sale price is based on a number of factors including: rental rate, tenant’s credit rating, length of lease, capitalization rates,

availability of funds, and other lease terms.

This is a popular transaction when the business is performing extremely well and cash is needed to reinvest in the business.

A Sale Leaseback can be helpful in:

Maximizing the sale price•

Eliminating debt from balance sheet•

Possibly shifting management responsibilities•

Reducing occupancy costs •

Reducing exposure to market fluctuations •

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Tip #5Be sure to design the building with the “end game” in mind. Companies that build buildings for their exclusive use have a tendency to over engineer them and this hurts them when they go to exit the property. Think about the properties next life. What simple adjustments can you make to the building’s design so it can be more easily re-purposed when you are done with it?

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Appraisal: an estimate of property value typically derived by an appraiser who is trained to “look backwards” in time to find prices of

“comparable properties” that were sold. Typically, they use three approaches to establish value. Virtually every appraisal needs at least

two approaches to serve as a check on one another. The three approaches are:

1. Income Approach

2. Sales Comparison Approach,

3. Cost Approach (Replacement Approach)

When to order appraisal: Tax Protest, Financing/Refinancing, Compliance with State and Federal licensure requirements, •

Public Agencies responsible to State Auditor, Insurance Companies, Eminent Domain proceedings

What to look for: MAI, highest professional designation among commercial appraisers•

Time: 3-6 weeks, 8 weeks in some cases•

Price: $4,000-$10,000 (ask about differences in scope) •

Receivable: 100-150 page document. •

Broker Opinion of Value (BOV): an estimate of property value derived by a commercial real estate broker who is typically an expert on

the market that the subject property resides and given recent transactions, activity in the market and alternatives can provide a price

that the market would pay for the property. Generally, these estimates are based on recent sales, pending sales or investment activity

and CAP rate trends.

When to order a BOV: Making decision to buy/sell property, lease another property.•

Time: 1-6 weeks•

Price: free-$3,000•

Receivable: 3-15 page document. Typically includes, comments on the market, summary and analysis of the existing •

property’s position in the market, comparable sales and an estimate of value.

III. Appraisal vs. BOV

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Termination Option 1.

This is an agreement by Landlord to provide Tenant the right to terminate the lease early on a predetermined date and

for a specified price. It may also be referred to as an Early Termination Option or Cancellation Option. Like many other

options (i.e. renewals, expansions) terminations options are not part of the landlord’s boilerplate lease. The only way you

will get this into the agreement is if you demand it. Do not get lulled into believing that you cannot get one either. While

almost all landlords take an extremely hard line on termination options if they want to gain or retain your tenancy they will

accommodate this request.

This is an extremely powerful option - perhaps the most powerful. Whether the company is growing extremely fast,

contracting, or simply needs the ability to react to a changing market a termination option is a must.

A typical termination clause will allow you to cancel the lease with 6 to 12 months written notice and provide a payment

for the unamortized transaction costs. These costs include tenant improvement allowances, project management fees,

legal fees, free rent and brokerage commissions. The tenant’s objective in this discussion is to reduce the amount of

notice required and to reduce the potential penalty fees. Focus on negotiating a lower interest rate, eliminating the

penalty and discussing the calculations for what is included as a “transaction cost”.

When negotiating a termination option remember that the first priority is simply to have this option. The penalty payment

is really a distant second because although it may seem like a large number, when it is compared to the next best option

(paying rent for the remainder of the term or subleasing) it often presents a compelling business argument. If your firm

is fortunate enough to have to exercise the option to accommodate its’ growth often times the penalty can be off-set by

concessions in the marketplace.

Sublease Rights 2.

This is the name given to an arrangement in which the tenant assigns the lease to a third party, thereby making the old

tenant the sublandlord (sublessor), and the new tenant the subtenant (sublessee).

Subleasing is a challenging process. Make sure you maximize your organization’s ability to get out from a lease liability by

eliminating or at least minimizing your landlord’s ability to block the transaction.

When negotiation sublease rights focus on:

A. Minimizing Landlord’s Time to Approve: Typically a tenant is required to notify the landlord in writing, asking

for prior approval of a sublease or an assignment. At a minimum you should add language that says the

landlord’s approval shall not be “unreasonably withheld”. However, you should also state a specific time limit

by which the landlord must respond. As they say, time kills deals. Don’t give you landlord the opportunity to do

this to you. Minimize the time the landlord has to approve your transaction. For example, ask to have a written

response within 5 days. If the landlord does not respond within the 5-day period you are free to execute the

sublease.

B. Minimizing Landlord’s Abilities to Veto your Transaction: The most common reason a landlord vetoes a sublease

is they do not like the subtenant’s finances or use. Your argument is this, so long as they can pay the rent and

IV. Top Ten Lease Terms

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your firm is still on the hook, what difference should it make who it is? Have your attorney negotiate language

that is air-tight.

C. Extending the Subtenant the Same Rights: Additionally, you want to make sure that any options and rights that

you have, including rights to expand, renew and extend are able to be transferred to the subtenant. Landlords

like to restrict those rights as pertaining only to the original tenant. Failure to clarify the transfer rights can

significantly reduce the value of the sublease.

Holdover Clause 3.

The Holdover Clause describes the rent the tenant will pay after the lease expires. A lease without any term adds no

value to the building so landlords add Holdover Clauses to their leases with heavy penalties for staying in the space past

the lease expiration to create an incentive for tenants to make another long-term commitment to their space

Most landlords will typically start out asking for a 200% holdover penalty on the gross rent if the tenant stays beyond the

original term. Most brokers settle for a 150% holdover penalty. Perhaps you ask for 6 months beyond the original term

at the current rate. You can usually negotiate a more favorable result like 3 months at the current rate and 3 months at

125% if you do it early in the negotiation.

Expansion Options - ROFR or ROFO4.

Right of First Refusal (ROFR) – This is a contractual right that gives its holder the option to enter a business transaction with the owner of something,

according to specified terms, before the owner is entitled to enter into that transaction with a third party. This is

especially useful for any contiguous space. This allows the tenant to have the option to expand at favorable terms if

the business is doing well.

There are several variations of the ROFR. It is rarely part of the landlord’s boilerplate lease so it is up to the tenant or

its’ broker to make sure this is part of the negotiations. Your attorney can help you craft the perfect language for this

option.

In ordinary business how this would play out is the landlord would provide a proposal to a prospective tenant. At

such time as the prospective tenant and landlord have reached a preliminary agreement, the landlord would come

to the option holder to inform them of the terms of the deal and offer them the option to do the deal. Some things

to think about: as a tenant you want as much time as possible to make this decision. As the saying goes, “time kills

deals” so even if your decision is not to take the space you still might not want to inform them until the last day that

you need to as this time could derail the deal with the prospective tenant.

Right of First Offer (ROFO) - Rights of First Offer are pro-tenant expansion rights which obligate the landlord to notify the tenant possessing such

rights (i.e., the ROFO tenant) that it desires to lease space subject to the ROFO. Although the landlord may or may

not have a specific tenant in mind for the space, a ROFO usually requires the landlord to makes a proposal covering

the business terms of a proposed lease for the applicable space. With a ROFO, usually no third party deal provides

the business terms for the landlord’s proposal, which is normally the case with a right of first refusal. These are

especially useful with contiguous space that is currently occupied. If possible, your goal should be to get a right to

lease the space before the existing tenant can renew.

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If the ROFO tenant does not elect to lease the space on the terms offered by the landlord in its notice, the landlord is

normally free to try to lease such space to any third party, provided it does so based upon the terms in its notice (or,

in some cases, on terms no more favorable than those contained in the landlord’s ROFO proposal). In many cases,

the landlord must make a deal for the space involved within a certain period of time, or the ROFO will “revive,”

requiring the landlord to offer the space to the ROFO tenant anew before making a third party deal.

Option to Renew5.

This clause gives a tenant the right to extend the term of the lease, usually for a stated period of time and at a rent

amount provided for in the lease. Typically, the tenant has to give 6-12 months notice to landlord to exercise this option.

Negotiating a fixed price renewal eliminates the need to enter into a long negotiation 5 years down the road when you

may have fewer options in a tight market. A landlord’s typically position will be to offer a renewal at market rates. The

“market rate” statement introduces a lot of ambiguity into the process. To increase you flexibility and minimize the

number of budget surprises focus on a fixed rate renewal. If you have to go with “market rate” think about adding some

language to include market rate concessions (i.e. tenant improvement packages, free rent concessions, brokerage fees).

Audit Rights 6.

Some leases specifically grant tenants the right to review the books and records of the landlord to ensure that the charges

billed are correct. Many hours are expended negotiating and drafting operating expense, tax, utility and other similar

clauses. Yet, despite all of the “points” that a tenant may win in this negotiation, it frequently gives it all up by agreeing to

restrictions on its ability to enforce these provisions.

Errors are commonplace. Statistics show that close to 90% of invoices have mistakes, mostly because landlords’

administrative personnel do not tailor the bills to each individually negotiated lease. Any restriction that effectively

prevents the review from taking place should be removed from the lease.

As you approach your negotiations of this clause focus on the following:

Extending Time Limits:Many landlords ask the tenant to provide a detailed written objection to the landlord’s bills within a very short time

period (in most cases 30-90 days) failing which the bill is “conclusive and binding” on the tenant, who is “deemed”

to have agreed to the bill as rendered.

The problem with accepting this limitation is that it is virtually impossible for most tenants to determine whether

there is anything wrong with the bill within 90 or even 180 days because making such a determination often

requires lots of steps: hiring a lease audit firm to review the lease and the bills; gathering needed internal

information; coordinating schedules for an audit; conducting an on-site review of the building’s books and records;

completing the analysis; preparing a report; presenting the findings to the landlord. Each step can take weeks or

months.

What is ironic about these clauses is that without a time limitation in the lease, the tenant’s right to audit is governed

by the statute of limitations. This is the time a party to a contract has to enforce its rights. In most states, should a

landlord bill a tenant incorrectly (i.e., breach its lease agreement), the tenant would have 4 to 10 years in which to

bring an action against the landlord. At a bare minimum, the tenant should have a year or two to review the charges.


A. Have the smallest business units sign the lease. *

B. Submit your company’s financials.

C. Call / meeting for your CFO / banker & landlord.

D. Pay a security deposit OR offer to pay a double security deposit.

E. Letter of Credit (LOC) with a declining

balance. **

F. Personal / Corporate Guarantees ***

A few additional notes:*A. Inc. vs. Corp.:Explore different business units that could sign the lease. Most companies have several related companies: INC, LLC, etc. Explore using the lowest or least credit worthy entity first. If that is your first position your next position might be to have a parent company sign the lease.**E. Letter of Credit (LOC) Generally, there is a small fee (similar to a loan origination fee) and annual renewal charges to arranging a LOC but because the money stays with the company you can continue to accrue interest. For businesses that require a high level of working capital this can be difficult. If you go this route it is reasonable to request a LOC with a declining balance. Meaning at the beginning of the lease the LOC might be for 100% of the transaction costs but 25% of the way into the lease it might be for only 75% of the transaction costs, 50% into the lease it might be for 50% and so on. Sometimes the landlord might require the balance to decline using an amortization schedule versus straight-line, like we have used here, which is fairly common as well.***F. Personal Guarantees. No one likes to give a personal guarantee but sometimes they are the only option if the owner cannot afford to have capital on the sidelines for a LOC. Like the LOC seek a declining balance.

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Eliminating Restrictions on Who Can Do the Audit:

Another common restriction is to require the tenant to use a “Big-4” accounting firm, or a firm that is not

compensated on a contingency fee basis. The important point here is that a landlord has no legitimate interest

in telling a tenant who can work on its behalf. Would it ever tell a tenant not to use a certain attorney or broker?

Would the tenant ever think it appropriate to tell the landlord which HVAC contractor to use or how to compensate

it? Contingency audit firms exist because tenants don’t have the time to focus on these issues and can’t budget the

expense needed to audit leases on an hourly or fixed-fee basis. Thus, the result of this restriction is that although the

tenant has permission to verify the charges, in reality it most likely won’t be able to do so.

Financial Guarantees 7.

Guarantees, in their many forms, essentially help provide the landlord with an additional level of comfort that the contract

will be fulfilled in the event that tenant is not able make timely payments per its contractual obligation. Remember

that you are entering into a financial transaction that may not make the landlord whole until well over half way through

your term. So if you feel like there is some hesitation on the part of the owner that is why. Do your part to make them

comfortable with their investment. Start by knowing this: the minute you begin talking about Security Deposit you should

also be having a conversation

about the Letter of Credit, the

Personal Guarantee and the

concessions. All of these are part

of the conversation about financial

guarantees.

Here are a few ideas of things you can

offer, remembering that the only way to

minimize the Financial Guarantees is to

give the landlord a comfort level about your

company’s financial health. Start with the things

that don’t cost your organization anything and

proceed with some of the others if necessary.


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Rent Concessions8.

Concessions a landlord may offer a tenant

in order to secure their tenancy. While rental

abatement is one form of a concession, there

are many others such as: increased tenant

improvement allowance, signage, lower than

market rental rates and moving allowances. What is “fair” to ask for depends on your market. If you have hired a broker

they are the best source of information. A good broker should have “market comps” at their finger tips and be able to

send you them.

In some markets, it is fairly common to see one or more months of free rent for every year of term leased.

Another rent concession is smaller rent bumps. For years they were $0.50/year. In recent months we have seen more

$0.25/year bumps or flat rates of 2% and 3% annual increases. We anticipate rates will fall but they generally lag the bad

economic news by 12 to 18 months. We are still waiting for further rent face rate concessions.

Remember that part of “negotiations” or getting the best deal is vetting the options. In a market like we have today the

landlord profile makes a huge difference. In little time, through the RFP process and after a round or two of negotiations,

you will know who has the ability to make a deal and who does not. Depending on how many layers of approvals are

needed, how much debt is layered on the property, part of your ability to get a great deal will be simply selecting the right

landlord. Do not waste your breath explaining what the market is, make a deal with the landlord that has the ability and

appetite to make a “market” deal.

Let’s take a look at two potential buyer profiles. One is a local owner that has owned the property for the last 15 years.

The second is a out of state owner that paid a high price for their property just a few years ago and, oh, by the way, they

need to go to Germany to get final approval on the deal.

Which one do you think has more of an ability to “meet the market”? Clearly, it is the first owner. First, they read the

same daily paper and can see for themselves how bad the market is. Second, because they have owned it for a long time

they should have a lower basis in the property and more ability to provide rent concessions and still make their mortgage

payments.

Tenant Improvements 9.

Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the negotiations

will include the improvements to be made in the leased premises by the landlord. The Tenant Improvement Allowance

(TI Allowance or Tenant Finish Allowance) defines the fixed amount of money contributed by the landlord toward tenant

improvements. The tenant pays any of the costs that exceed this amount.

Tenant Improvements could be considered a concession. Generally they are far and away the largest concession. Here

are some things to consider or keep in mind when negotiating the TI package.

Do your homework, get a space plan, get your changes added and then get construction pricing documents prepared

and get pricing so you know that the allowance being provided is enough cover the costs of the construction then make

sure the allowance covers your “other” costs.


Tip #7Request market comps from your broker. This can help to benchmark your negotiations and keep your broker’s feet in the fire.

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Negotiate the ability to use a percentage of the allowance for “other” things. Generally, a Landlord is willing to give you

some money for moving, cabling and set up but often times it does not specify that it can be used for a construction

manager or project manager. Unless you have staff, make sure that you have at least negotiated the flexibility to fund an

outside staff person to coordinate the move, the drawings and the construction process and timeline.

Make sure if the construction bid does not include a line item for design fees that you add it back.

Negotiate the ability to get a credit for any unused allowance or negotiate the ability to use the total package for an

extended period of time. For instance, you might propose that up to 25% of the allowance may be used up to three years

following the lease commencement date.

Maintenance and Repairs10.

This clause is critical. Without it, neither the landlord nor the tenant has any obligation to maintain or repair the premises

during the term of the lease. In order to avoid misunderstandings and potential lawsuits make sure that the landlord’s

responsibilities are clearly spelled out.

In multi-tenant buildings the landlord is typically responsible for maintain and repairing the property, the building and

the common areas. For example, one provision may state that the landlord shall replace all bulbs and tubes in building

standard light fixtures. Another clause would address maintenance and repair of big ticket items like HVAC units and

chillers.


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V. Resource Guide

Finding Properties: There are a number of resources that commercial real estate agents use to post listings and search available properties. One way to

pull quick data about a market is by accessing one of the following sites. One draw back to these sites is that they typically only cover

major metropolitan markets and properties over a minimum size. If you are looking for properties in “out-state” areas or for a small

property you might be out of luck.

www.loopnet.com

www.xceligent.com

www.costar.com

www.cityfeet.com


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VI. Market Research

Cassidy Turley www.cassidyturley.com

Platsystems www.platresearch.com

Appraisal Data Network www.redi-net.com

Dollars & Cents of Shopping Centers / The SCORE by Urban Land Institute

Minnesota Shopping Center Association www.msca-online.com

International Council of Shopping Centers www.icsc.org

Bureau of Labor Statistics www.bls.gov

Minnesota Department of Employment and Economic Data www.deed.state.mn.us

Moody’s Economy.com www.economy.com

Real Capital Analytics www.rcanalytics.com

GVA Marquette Advisors www.gvamarquetteadvisors.com



Brian W. Woolsey Vice President200 South Sixth Street, Suite 1400 | Minneapolis, MN 55402T 612.347.9308 F [email protected] | cassidyturley.com

ExperienceBrian Woolsey works as the leader of the Minneapolis Corporate Services team. In that role he is responsible for facilitating the delivery of real estate services in the areas of tenant representation, transaction management, portfolio administration, strategic planning, and project management to multinational and multi-market clients. In the past 18 months, Woolsey has completed work for several Fortune 500 companies including: St. Jude Medical (314,000 sq ft, tenant representation), U.S. Bank (multiple site dispositions), RSM McGladrey (130,000 sq ft, tenant representation), and Lawson Software (international tenant representation).

Areas of SpecializationCorporate Services, Tenant Representation

Clients Served

Industry PresentationsDirectors Reveal All: IFMA World Workplace Conference; Atlanta, Georgia; October 28, 2010 Broker Reveals All: IFMA Minneapolis/St. Paul Chapter; Minneapolis, Minnesota, March 3, 2010 (140 attendees)Broker Reveals All: IFMA Tri-Chapter Symposium; Madison, Wisconsin; May 12, 2010 (50 attendees) Broker Reveals All: IFMA World Workplace; Orlando, Florida; October 27, 2009 (160 attendees)Trumpeting the Good News: BOMA Greater Minneapolis Area Chapter, Minneapolis, Minnesota; February 2009 (125 attendees)

Published Articles“Broker Reveals All”, Facility Management Journal, March/April 2010 “Getting a Grip on Downtown Commuting Expenses”, Minnesota Real Estate Journal, November 2006“Don’t Let Poor Planning Cost You a Smooth Office Move”, Minnesota Real Estate Journal, December 2005

Corporate Services

CorporateAmeriPride•Home Services of America•

Lawson Software•Nystrom & Associates•Old Republic Title•

St. Jude Medical•U.S. Bank•

TenantAgriBank•Audio Ruckus Recording•Amica•Barrington Capital Management•BlueZones•Charles Schwab•Children’s Home Society and •Home ServicesCummins•Dahlen Berg •

Executive Suites of Minnesota•FICO•FVB Energy•Hallmark•High Bridge Audio•Honeywell•Inscape Publishing•Mattel•Marketing Lab•Minnesota Business Partnership •

Minnesota Technology•Minnesota Vision Therapy•Minute Clinic/CVS•Mount & Borresen•N’Compass•Procter & Gamble•ReEntry House•RSM McGladrey/H&R Block•


Industry Awards2010 IFMA International Emerging Leader of the Year Award2009 One Man Minneapolis, Semi Finalist2008 Special Achievement Award, Minneapolis Downtown Council2007 Rookie of the Year, IFMA Minneapolis/St. Paul Chapter2007 Dorsey Circle of Excellence, Cassidy Turley

Community LeadershipInternational Facility Management Association (IFMA), Minneapolis-St. Paul Chapter President 2009-2010, World Workplace Conference Programs Committee 2010, Featured Speaker 2009, 2010U.S. Bank Skyway Open, Founder and Chairman, Board Member 2007-2009AEON, CONNECT Founding Member, Cornerstone Society Member, Building Dreams Committee National Multiple Sclerosis Society, Minnesota Chapter, Scholarship Committee 2009, MS 150 Cassidy Turley Team Captain 2008, 2009IVEY Awards, Sponsor 2008-2010, Featured Presenter 2009United Way, Emerging Leader, 2008-2010Minneapolis Club, Swim & Fitness Committee, Young Members CommitteeMedtronic Twin Cities Marathon, Course Marshall, 2007-2009

EducationUniversity of Minnesota, B.B.A. in Finance - Carlson School of Management

Professional AffiliationsMinnesota Commercial Association of Realtors (MNCAR)NAIOP Commercial Real Estate Development Association (NAIOP)Certified Commercial Investment Member (CCIM), Candidate



Brian WoolseyCassidy Turley200 South 6th StreetMinneapolis, MN 55402Tel: 612/347.9308

Fax: 612/347.9389

Contact Information

About Cassidy Turley

Cassidy Turley is one of the nation’s largest commercial real estate service firms in the U.S., with 420 million square

feet of managed space in 57 locations and $15 billion in completed transactions for 2008. Cassidy Turley is a privately

held firm owned by its 360 shareholders created from the August 2008 merger of Colliers Turley Martin Tucker in

the Midwest, Cassidy & Pinkard Colliers in Washington, DC, Colliers ABR in New York City and Colliers Pinkard in

Baltimore, Charlotte and Raleigh, along with the addition of BT Commercial in Northern California (formerly affiliated

with NAI), BRE Commercial in Southern California and Phoenix (both formerly affiliated with Grubb & Ellis) and Colliers

Houston & Co. of New Jersey.

Documents

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