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

• jking@rent-research.com• 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