Change is Good!

Ah, birthdays!  GlobeSt.com is 10 this year!  And, what changes GlobeSt.com has seen across so many facets of commercial real estate in those 10 years.

In that short time, many changes have taken place in the tenant representation and corporate advisory business that will likely have a permanent impact on how transactions are done…one way or another.

Creditworthiness

For as long as I can remember, it has been a common practice for commercial landlords to demand proof of financial worthiness from prospective tenants before finalizing any transaction.  Based on available information, landlords calculated risk and set rents, terms, and security deposit requirements, and decided if they chose to do business with tenants on the basis of the financial strength of those tenants. Landlords were clearly in the driver seat.  Oh, how times have changed!

Now, tenants demand and most often receive proof of landlords’ financial worth.  And, with such prominent fear by tenants that in the current economy, landlords could lose their buildings, in turn causing tenants’ rights to be diminished or lost, more and more tenants now assess landlords’ financial condition prior to engaging in lease transactions with them.

Will the Landlord Be Around in the Future?

It used to be assumed that, despite lengthy contracts, a certain element of professional relationship was always part of any lease transaction.  In many cases, tenants could rely on their landlords for certain elements of their occupancy experiences that were not written into any lease.  But, now the potential for buildings being foreclosed upon is highly increased, and in prior years when markets were hot, buildings were sold and then sold again, often in relatively short time periods.  Even today, in some markets, with prices as low as they’ve been, many buildings are trading hands.

Accordingly, tenants can no longer assume that the landlord with whom they negotiate their lease will be the same one with whom they might negotiate again if, at the expiration of that lease, they seek to renew it. Tenants must negotiate leases with the expectation that another landlord will be in-place, and that little likelihood of a relationship on which they can count, will exist.

Prices Are Low, But…

In the current market cycle, some tenants find themselves faced with an unusual combination of lower rents, but little available landlord funds, and the necessity for tenants to fund their own improvements and transaction costs. With companies seeking to preserve cash, this makes transactions challenging.

No Takers

At the present time, when companies have sought to reduce and contain costs by disposing of surplus assets and by paring down liabilities, commercial tenants see almost no market for sublease space.  In some markets, there exists no price at which such space can be subleased, because there simply exists no demand.

Lease Renegotiations

Lease renegotiation transactions have been around for a long time.  However, they came into vogue in the last three years and became the transaction of choice, as a means of generating opportunity for both landlord (usually by extended lease terms in years) and for tenants (most often including lower occupancy costs, surplus space relinquishment, and improved terms).  It may be true that in the U.S. more leases have been renegotiated and restructured in the last three years than new leases have been completed.  Many in the industry expect lease renegotiations to remain a standard transaction opportunity for both landlords and tenants, even after market conditions come back into balance.

Times, they have changed.  They’ve been both exciting and interesting. Here’s to even more exciting and changes times!

 

 

About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America.  By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com. Follow RealStrat at http://www.Twitter.com/RealStrat.

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THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED AND REPRESENTS THE OPINION OF THE AUTHOR. HOWEVER, IT IS PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR IS NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR SPECIFICALLY AND EXPRESSLY DISCLAIMS ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.

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