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Expected ROI 4.5% to 8.5%Plus Appreciation
Stabilized Leased Properties
Management and Lease Renewals
Does Not Assume Costs of Construction
REIT’S -Capital MarketsValue Add, Hold or SellDevelop, BTS, Hold or Sell
Leveraging Investor ROI Expectations
Expected ROI 20% to 45%
Plus Appreciation
Ground Up Development
Management and Full Building Lease-up 2- 3 years
Assumes Costs of Construction and Marketing
Expected ROI 20% to 35%
Plus Appreciation
2nd Generation - Problem Facility
Management and Full BuildingLease-up 2-3 years
Assumes Costs of Construction and Marketing
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“Your Lease Payments Increase the Building’s Value”200,500 Square
Feet
Building Value – Empty: $110.00 PSF $18,300,000
New Lease – Good Credit 2% - 3% annual increases
3, 5, 7, 10, 12, 15 & 20 Lease Terms
Rent Rate: $12.50 NNN Annual Starting Rent: $2,506,250
3, 5, 7, 10, 12, 15 & 20 Income Stream
Capitalize the rent at 7.0%
New Building Value: $35,800,000
Profit Before Costs: $17,500,000
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Your Lease Payments Increase the Building’s Value 200,500 Square Feet
Profit Before Costs: $17,500,000
Closing Costs:Tenant Improvements:
Marketing, Architectural, Permits,Real Estate Fees, Etc.:
$275,000 $3,200,000
$1,400,000
Total Costs: $4,875,000
Income / Profit after Costs: Annual Income Stream: $2,506,250 $12,625,000
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Winning bidder executes Tenant’s contingent lease, deposits purchase proceeds and owns the lease and building
CoreStrategy offers the building and long-term lease to Capital Markets investors
Client dictates lease terms
CoreStrategy negotiates purchase price, places building in escrow
Capital Markets Discount Structure
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Case Study 1: Capital Markets Discount Structures
Sample 125,000 Sq. Ft. Office Building
Vacant Building (Asking Price) $125.00 PSF $15,625,000
Negotiated Purchase Price (Contract Price) $110.00 PSF $13,750,000
Open Escrow
Craft New Lease10-20 year term
(Rental Rate) $15.60 PSF $1,950,000
Capitalization Rate 7% $223.00 PSF $27,857,142
Tenant Improvement Costs $ 40.00 PSF $ 5,000,000
Sale Costs $ 8.91 PSF $ 1,114,286
Net Profit Distributed $ 63.94 PSF $ 7,992,856
Subsidies OccupancyCosts
$ 6.39 PSF$799,285
(annual savings)
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Case Study 2: Capital Markets Discount Structures
Sample 205,000 Sq. Ft. Facility
Vacant Building (Asking Price) $97.56 PSF $20,000,000
Negotiate Purchase Price (Contract Price) $89.27 PSF $18,300,000
Open Escrow
Craft New Lease (Market Rate) $12.60 PSF $ 2,583,000
15 year term (Total Rent Cost) $42,221,377
Sell lease/company credit and building based lease income
Capitalization Rate 7% $180.00 PSF $36,900,000
Tenant Improvement Costs $ 30.00 PSF $ 6,150,000
Sale Costs $ 7.20 PSF $ 1,476,000
Net Profit Distributed $ 53.53 PSF $10,974,000
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Case Study 3: Impact on EBITDA Over 15 Year Period
Lease Purchase Delta
Salary, Wage, OT & Fringe $65,841,965 $65,841,965 ---
Rent ($5,090,887) $50,750,187 ($55,841,075)
Depreciation ($44,731,274) ($35,705,713) ($9,025,561)
Maintenance $4,524,707 $4,524,707 ---
Other $4,675,526 $4,675,526 ---
Total P&L $25,220,035 $90,086,672 ($64,866,636)
Total EBITDA $69,951,310 $125,792,385 ($55,841,075)
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“ CTL / Bond structure used by Worldwide Fortune 1000 Companies“
Walmart Target Bank of America Canadian Imperial Bank
Chase Bank Accor Hotel Group Starwood Hotels Kraft Consumers
Federal Express EXXON Zurich GE Capital
Children’s Hospital St. Luke’s MD Anderson Equitable Insurance
UCLA Medical Center US Federal Government GSA Cummings Engines
HP Hartz Mountain CVS Constellation Brands
Shell Oil Wells Fargo Kroger McDonalds Corp.
As well as many other household and corporate named companies.
• $125 Billion of CTL have been funded with less than 0.05% foreclosure rate since 1987
• A CTL is supported by your company’s good credit rather than the intrinsic value of the real estate
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Bondable - Credit Tenant Lease (CTL) – Rated “BBB” or Higher
Overview
• Single Tenant Lease.• Rental rate can be flat for term of the lease.• Lease provides renewal options for up to 40 years at favorable rates. • Property financed with debt based primarily on underlying credit of tenant. • Tenant responsible for all costs associated with property.
Term • 15 to 25 years with up to 40 years of renewal options at favorable rates.
Advantages
• Financing secure on company’s credit, Less dependence on the real estate• Rates significantly lower than a Life Insurance or Commercial Mortgage Back Security• Long term control and flexibility through purchase options, assignment, sublease and
substitution rights, and property modifications and improvements.• Landlord holds title and bears residual and environmental risks. • Little to no constraints on how the mortgage proceeds are spent by the borrower
Pro/Con • Landlord assumes risk and benefits of the real estate’s increase or decrease in value.
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Typical Lease2/3 Debt – Traditional Bank Financing
1/3 Equity – Expected Developer ROI
5.5% to 6.5%
15.0% - 25.0%
Capital MarketsDiscount Structures
Capitalize NOI – REIT expected return 5.0% - 8.0%
Bondable Leases Bond – expected return 3.50% - 5.0%
Real Estate Cost Structure Comparison
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Capturing Increased Building Value in a Lease Renegotiation
Real Estate Brokers Negotiate To: We Negotiate Base On:
“MARKET”
• Landlord Economic Loss Factor• Increased Building Value Created By Your Lease• Credit / Financial Strength Of Your Company• Future Capital Expenditures
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Prior to every lease negotiation: Building Condition and Systems Analytics
• HVAC / Building Systems repair and life expectancy• Roof repair and life expectancy• Parking lot repair and life expectancy• ADA – Compliance
• 10 year lease:• HVAC, roof and parking lot life expectancy 4 years
Economic Savings: $250,000 - $3,500,000
14M O N T H
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
$0.40
$0.35
$0.30
$0.25
Assume Space Size Assume Lease Term Contract and/or Option Rate
485,000 120 $0.40/PSF per mo.
15 Mo. Lost Rent = $2,910,000
$6.50 PSF HVAC, Roof, Pkg Lot & TI Allowance =
$3,152,500
Total Reduction in Cash Flow = $6,062,500 - WCS
= $0.10 PSF/Mo. Reduction over the term
Market Rate = $0.40 PSF/Month
Landlord Effective Rate = $ 0.30 PSF/Month
EF
FE
CT
IVE
C
AS
H
FL
OW
TENANT CONTRACT RATE = $0.40
LANDLORD EFFECTIVE RATE = $ 0.30
Early Lease Renegotiation – Landlord Cost Model
15M O N T H
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
$0.40
$0.35
$0.30
$0.25
Assume Space Size Assume Lease Term Contract and/or Option Rate
485,000 120 $0.40/PSF per mo.
$0.06 Rent Reduction = $2,328,000
$3.50 PSF Systems & TI Allowance =
$1,940,000
Total Reduction in Cash Flow = $4,268,000 70% of WCS
= $0.075 PSF/Mo. Reduction over the term
Market Rate = $0.40 PSF/Month
Landlord Effective Rate = $ 0.325 PSF/Month
EF
FE
CT
IVE
C
AS
H
FL
OW
TENANT CONTRACT RATE = $0.325 80% of MKT
LANDLORD EFFECTIVE RATE = $ 0.325
Early Lease Renegotiation – Landlord Cost Model
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Case Study 4: Toshiba 117,000 Sq. Ft. - Industrial Warehouse $8.6 Million – Cash, Credits, Rent Abatement, T.I.’s
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Case Study 5: LabCorp 138,000 Sq. Ft. – Office Facility$15.6 Million – Cash, Incentives, Rent Abatement, T.I.’s
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Case Study 6: Actual CTL Transaction Options Available to Client
Same Rent / Prepay Loan @ 15 yr Term
$29.05 million Net Cash: $1.5 Million
End Value 15 years:
$27.9 minus estimated
$7.2 Prepayment
Net: $20.7 million
Option #3Option Price$26.5 Million
CTL Loan Amount Net Cash Today 2% Annual Appreciation Estimated Net Profit
Option #2Option Price$26.5 Million
CTL Loan Amount Net Cash Today 2% Annual Appreciation Estimated Net Profit
Same Rent / Increase Term – 5 Years – 20 Yr.
$29.05 million Net Cash: $1.5 Million
End Value 20 years:
$30.8 million
Net: $30.8 million
Option #1Option Price
$26.5 Million
CTL Loan @ 4.98%
Bond Amount
(2% Annual Appreciation from Replacement Value)
“ Value Empty”
CTL @ Same Rent / Same Term 15 yr.
$22.30 million
RVI Insurance
$4,400,000 Plus Interest
$9.2 million
End Value 15 years:
$27.9 minus $9.2 RVI
Net: $18.7 million
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Strategic Planning
Shared Services
Logistics & Supply Chain Analysis
Workforce & Location Planning
Information Systems & TechnologyIntegration
Benchmarking & Efficiency Programming
Process Implementation
Mergers & Acquisitions Support
Working Capital Management
Lease/Purchase Contract Negotiations
Early Lease Contract Structures
Business Economic Incentives
Capital Markets Discount Structures
G&A Related Cost Reductions
Equipment Leasing
Captive Insurance Structures
Lease Contract Cancellation
Building Condition & Systems Analytics
Lease Audit & Expense Reimbursements
Capital Incentives, Allowances & Economic Concessions Packages
Concealed Landlord Profit Centers
Sustainability Solutions
Lease Administration & Portfolio Management
Facility Leases, Purchase Acquisitions &Build-to-Suit
Over Market Cost Analysis & Site Selection
Project Management & Construction Design
Dispositions
OPERATIONSCONTRACTSFACILITIES
Unrealized Cost Reduction and Increased Efficiency Opportunities
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Typical Lease Audit Savings
Competitively Bid Expenses $8.7 million
After-Hours HVAC $1.7 million
Tax Refunds & Management Fees $1.2 million
Duplicating Electric Cost $0.4 million
Base Year Gross Up & Equivalency $0.4 million
Utility Gross Up & Amortized Capital $0.53 million
Lighting Retrofit = T.I. Work $60,000 per annum
Parking Expenses & After Hours HVAC
$2.55 million
Capital Costs & Equity Participation $1.85 million
Garage Taxes & Insurance $1.3 million
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Potential non-rent dollars in play = $12,266,000
500,625 SQ FT FOR A 10-YEAR LEASE AT $0.50 P SQ FT/MONTH = $30 MILLION CONTRACT
$1,652,000$30/sq ft reduction in value
X 500,625 sq ft X 1.1% X 10 years
TenantImprovements
ConstructionEstimate
LandlordConstruction
Profit
Base BuildingIssues
Lease Flexibility (Termination
Options)
Lease Flexibility (Sublease)
Lease Flexibility (Market
Fluctuations )
Tax Appeal
SecurityDeposit
Annual Operating Expense Cap
First Year Lease Audit
Right Size The Space
$1,502,000$0.10/sq ft/mo X 60 months
X 50% probability
$1,081,000$0.02/sq ft/mo X 108 months
$1,500,00025,000 sq ft
X $0.50/month
$250,000ONE MONTH RENT
$50,000$0.10/sq ft/yr
$75,000$3.00/sq ft @ 5%
$451,000$0.10/sq ft/MO
X 36 months X 25% probability
$3,755,00060 months rent
X 25% probability
$500,000$1.00/sq ft
$500,000$1.00/sq ft Short
$500,000$1.00/sq ft Short
Case Study 7: Landlord Profit Centers
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Business Economic Incentives
Overview
In 2015, over $220 million in economic development incentives.
Federal, state and local governments award up to $50 billion per year in discretionary incentives.
Incentivesawarded relate to:
• Expansion projects• Mergers & Acquisitions• Consolidations & Closures• Administration of existing incentive
packages
• Facilities upgrading• Site selection & start-up• Employee recruiting, training and
retraining• Divestitures
Sales and Use TaxAnother opportunity in California, Illinois and Texas, is a 1% sales and use tax reduction.
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Cash grantsEmployee training
grantsProperty tax abatements
Sales tax exemptions
Utility rate reductions
Infrastructure grants (water, sewer, road,
telecom)
Subsidized landInventory tax
reduction
Employee tax credits
Wage subsidiesEnterprise Zones (EZ) and Foreign
Trade Zones (FTZ)
Low-cost and/or tax-exempt financing
Tax Increment Financing (TIF)
Fast-track permitting,
approvals and fee waivers
Business Economic Incentives – Available Federal, State and Local Government Awards
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Workforce and Location Planning
OverviewCompanies across the country are addressing their costs in the context of workforce and locationplanning.
Cost Points
• Labor• Power & Energy • Freight• Incentives
• Power reliability• Natural disaster risk• Education assessment• Crime research and
reporting
• Sector Saturation Analysis• Comparative Wage Analysis• Comparative Demographic
Analysis• Compensation
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Case Study 8: Workforce and Location Planning
Company Maker of household plastic storage items, based in Inland Empire, CA.
Project National search for 500,000 sq. ft. manufacturing & distribution center with 250 new positions.
Reduce cost of energy, freight and wages, while simultaneously improving delivery times andmaintaining skilled labor.Goals
Results $62 million in total savings over a 10 year period.
Cost Point Current New Savings
Labor $54,440,298 $50,242,067 $4,198,231
Energy $21,000,004 $9,360,002 $11,640,002
Freight $125,025,555 $80,426,211 $44,599,344
Incentives $0 $1,403,000 $1,403,000
Total savings over 10 years $61,840,577
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Sustainability Solutions
Sustainability practices enhance liquidity to properties/portfolios. Financial alternative enables $0 capital investment potential.
Sustainability reduces operating costs.Sustainability is a proactive approach for offsetting escalating energy costs (water, gas, electric and waste).
Operating cost reductions increase net operating income.
Sustainability assists in preferred financing terms and conditions.
Capitalizing reduced operating costs adds asset value.
Sustainability platforms enable ownership to comply with federal, state and local energy efficiency mandates being developed.
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Property Assessed Clean Energy (PACE)
OverviewPACE is an innovative way for commercial property owners to pay for energy efficiencyupgrades, on-site renewable energy projects and water conservation measures.
Funding
PACE funding provided or arranged by a local government for 100% of project’s costs andrepaid with an assessment over a term up to 20 years. Over the past 12 months, financingactivity has more than doubled, with more than $30 million provided to improve over 160buildings.
What States are eligible?
PACE is a national initiative, but programs are locally based and tailored to meet localmarket needs. PACE can now be used in 31 states and programs are being launchedthroughout the U.S.
Benefits
• 100% financing requires no up-front cash investment• Long-term financing (up to 20 years) results in immediate positive cash flow• Assessment costs and savings can be shared with tenants• PACE may be treated as off balance sheet financing• Non-recourse, non-accelerating financing
AvailabilityVisit www.pacenow.org to see if PACE financing is available in your community or learnmore about how you can support development of a program.
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Mergers and Acquisitions Support
Overview
Potential economic impact $1 million to > $50 million.
Total facility M&A costs become a negotiable component of the final acquisition terms as wellas a preliminary cost estimate relating to implementation of a long term real estate plan.
Value enhancement
and risk mitigation
• Facility & lease contract liabilities
• Deferred facility maintenance cost
• Roof & HVAC life expectancy/associated cost projections
• Facility efficiency & functional evaluation
• Facility overlap –employee redundancy
• Facility integration – (Real Estate as part of business plan)
• Lease and/or facility valuation
• Discounted lease cost • Market-comparable analysis• Contingent liability & facility
restoration cost analysis • Environmental consulting
contractor management • Cost to revenue conversion
• Unused allowances• Termination and buy-out
clauses• Subleasing analysis –
Landlord shared profits provision
• Evaluation of lease extension with enhanced credit opportunities
• Speed of execution –ability to react quickly and on tight deadlines
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ABC
SF: 310,298
Exp: 6/30/2019
ABC
SF: 665,502
Exp: 6/30/2018
ABC
SF: 146,432
Exp: 9/30/2021
ABC
SF: 416,938
Exp: 12/01/2016
ABC
SF: 148,468
Exp: 6/1/2017
ABC
SF: 277,800
Exp: 09/30/2017
ABC
SF: 218,420
Exp: 5/31/2019
16 miles
2.6 miles
3.2 miles
11.6 miles
26.7 miles
39.4 miles
Southern California M&A Consolidation Template
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Case Study 9: Mergers and Acquisitions Support
RESULT • Reduced operating costs by 22%
Company• Privately held food brokerage company • $65 billion in sales
Goal • Reduce operating costs• Increase operating efficiency
Project• Consolidated existing corporate facilities • Renegotiated existing lease obligations
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Risk Management Solutions
• Entitlements• Design• Engineering• Construction of the core/shell• Tenant improvements
ConstructionBid AdvertisingContractor PrequalificationBid Analysis Contract Analysis Construction MgntQuality ControlSafety CompliancePayment ApplicationsProject Controls and ReportsBudget Management/Change OrderSchedule ManagementTeam ManagementSite and User Coordination
Pre-DesignSite Analysis Site SelectionMaster PlanningProject Delivery Method Design Team SelectionConceptual Design Entitlements/Permits Conceptual Estimates Conceptual Schedules Bid Strategy
DesignProgramming Review Schematic Design Review Design Development Review Construction Document ReviewIT/AV/Security/Phone/Data Review Constructability/VE ReviewReview Estimates Master Schedules Site Utility Logistics Coordination
Close OutCommissioning ValidationFurniture, Fixtures, Equipment Telecom/Data/AVSecurity Coordinate Operation and MaintenanceDocuments/Guarantees/Warranties TrainingCoordinationPunch ListsRelocationFinal Lien Releases/Payments/Close Out
General Scope of Services
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Project Management & Construction Design
Implementation methods
Landlord PM No Advocacy
15% to 35% of budget at risk
Tenant PM AdvocacyCompetitive Bid
10% to 20% of budget at risk
Tenant PM AdvocacyLicensee Developer – Contractor
Collapsed SchedulePreferred Approach
Responsibilities of the Project Manager
• Assembly of professionals • Competitive procurement of professional
services• Negotiation of service agreements
• Proactive budget/cost management/reporting
• Documentation of project activities• Coordination of all related and
scheduled activities
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Hyundai Motor America USA Corporate Headquarters - Project Value $345 million - Size 600,000 SF
The Hyundai Motor America is their USA Corporate Headquarters, designed byGensler & Associates. The project is LEED Gold Certified with a SustainableDesign implementation that consists of a six-story office building ofapproximately 600,000 SF, including an open/private office, conference, A/V,presentation rooms, marketing, retail, sales, computer, data, research lab, techcenter, fitness/health facility, a full cafeteria with a four-story multiple stairopen atrium, and a six-story structured parking to accommodate 2,100 parkingspaces.
The project was completed on an accelerated schedule to accommodateHMA’s request, which required our aggressive negotiations on pricing andscheduling with all consultants, vendors, engineers, and generalcontractor/subs to maintain the project schedule without compromisingquality and increasing costs. The other challenges included the inability of thecity of Fountain Valley to provide proper resources and time commitments toimplement a time sensitive EIR, CEQA, Permit/Plan check review process andapproval. To overcome this, we worked directly with Fountain Valley and theappropriate agencies to implement a program that would provide an out ofsequence process and overlap the entitlements with the permitting of theunderground infrastructure/structure and phase the permitting process toallow us to begin construction ahead of all the necessary approvals. We werealso able to utilize a process to occupy the building under a temporarycertificate of occupancy prior to the completion of all work, due to theschedule delays of the General Contractor, AMCO.
The other challenge we encountered was Hyundai Motor America had committed to use their own General Construction Company, AMCO, to build the project. TheAMCO team had virtually no experience on a project of this size or complexity, and had not completed a project in California. We provided a major leadership role notonly to manage the development, design, and construction of the project, but also overall expertise, knowledge, and insight to AMCO in order to complete the projectwithin a GMAX budget and schedule.
Case Study 10: Savings $82 million
Fountain Valley, CA
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Teva Pharmaceuticals Manufacturing & Warehouse Facilities - 305,000 Sq. Ft.
“CoreStrategy presented and implemented astrategies plan encompassing multiple initiativesinvolving operations and corporate facilities thatincumbent service providers never considered and I'mconvinced could not have pulled off. The net resultsubstantially reduced facility related costs whileeliminating considerable risk to Teva Pharmaceuticals.Ken is a superior strategist, and top tier negotiatorwho produced results that other seasoned real estatebrokers could not. I highly recommend Ken Ward andhis team at CoreStrategy Corporation.”
Jeffrey Herzfeld, Senior Vice President & GeneralManager –TEVA PHARMACEUTICALS
Case Study 11: Savings and Cost Avoidance: $120 million
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Savings of $15.6 millionSingle facility lease renegotiation
Savings of $8.6 millionSingle facility lease renegotiation
Savings of $9.7 million
Savings of $4.7 millionProfit of $13.9 million
$120 million in savings & cost avoidance (3 Operations / 9 Facilities)
Savings of 27% of total annual facility spend
Savings of $61 million over prior annual portfolio expense
$55 million increase in EBITDA over 15 yearsSingle Facility Result
Results Attained by Speaker
Savings of 22% of total annual facility spend
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Jim LesleyCapital Markets –Ascendant
Tim MyllykangasWorkforce & Location Planning
Chuck SmithSustainability
Ken WardPresident | Managing PrincipalCorporate Facilities
Natalie Hedman Senior Director Credit / Finance Analytics
Joe Faulkner Strategic Planning & Implementation
Robert JesenskiSenior Director Portfolio Management
Roger O’NealExecutive VP | DevelopmentProject Management
Bill LazorStrategic Planning/Analytics
Dan FiskExecutive Vice PresidentGeneral Counsel
18201 Von Karman Suite #440 | Irvine, CA 92612949.484.7800 | www.corestrategy-corp.com