Success Stories

Anchor 2

Converting Adversaries into Allies:

Asset:

Grocery-Anchored Neighborhood Shopping Center

Challenge:

A missed construction delivery window for a new tenant giving rise to a liquidated damages dispute.
Poorly configured vacant space leading to a co-tenancy violation with termination option.

Solution:

Taking a more diplomatic approach; understanding the tenant's unique needs, and getting their buy-in to our solution.
The renewed relationship resulted in a constructive path going forward and a direct communication channel (i.e., no more lawyers).

Financial Impact:

$2.9mm 10-year lease revenue from a strategic new cotenant
$3.1mm restoration of contract rent for
remaining term from the first tenant
Avoided total loss of equity and likely bank foreclosure.

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Study the Market, then Meet It:

Asset:

Large Laboratory Campus

Challenge:

A large multi-building campus with a full-building leasing strategy - and zero leasing one year after acquisition.
Annual operating costs for the campus (including a co-generation utility plant) “burning a hole in our pocket.”.

Solution:

Assessing the market need for partial-floor leases, and getting the message out on our willingness to break the vacant space.
Developing a novel fixed expense reimbursement structure to provide tenants certainty in projecting total occupancy costs
Ultimately increasing the effective rental rate by 30% over 2 years.

Financial Impact:

$4.8mm annual lease revenue; achieved positive cash flow for the property and a $39mm impact on property value.

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Getting it Done, One Way or the Other:

Asset:

High-Rise CBD Office Building

Challenge:

The second floor had sat vacant for years prior to my tenure as asset manager.
The low floor required a tenant who could pay class A rents - but wasn’t image conscious.

Solution:

Demolition of antiquated interior walls to maximize the appeal of the space.
Use of the garage asset—unique in this market—to drive functional appeal and rental rate during the RFP process.
Structuring lease payments to fully amortize the landlord investment in the first 5 years.
We won the RFP for a federal government tenant, executed the lease, and timely delivered the space.

Financial Impact:

$7mm in total revenue over the 10-year term, weighted 60% during the first 5 years; achieved revenue from previously unleasable space.

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Anchor 1

Grocery-Anchored Neighborhood Shopping Center

Challenge:

The development team had missed a construction delivery window for a new National Discounter tenant, giving rise to a liquidated damages dispute. In addition, a vacant 16,000-sf junior-anchor space in the center was a co-tenancy violation for the tenant, allowing them to pay percentage rent instead of contract rent and giving them a termination option if it was not cured in time. But the vacant space was an odd size, non-rectangular, and poorly configured in an elbow of the center. It even had a bend in the façade! Two previous prospects had signed LOIs but had reneged during lease drafting. Senior management was convinced the National Discounter would terminate as a negotiating tool since the relationship had deteriorated and both sides were “lawyered up.” This would result in a total loss of invested equity.

Solution:

After pursuing a prospective National Petstore to fill the space for over a year, I was able to convince them to enter into a lease whose economics allowed them to get the store size they wanted and take the extra space at a reduced cost, saving me substantial demising costs. Yet even with a signed deal, there wouldn’t be sufficient time to construct the store and get it open in time prior to National Discounter’s termination date. But I became convinced that what they really wanted was a fully leased center and a successful store, not an opportunity to destroy the landlord’s investment.

I took a different approach with their SVP of Real Estate, finding out what was unique about this store for them, understanding their needs, and getting their buy-in to my solution. The renewed relationship resulted in a constructive path going forward and a direct communication channel (i.e., no more lawyers). I was even invited to the National Discounter’s private party at the next national ICSC shopping center convention.

At ICSC I negotiated final points directly with the National Petstore's chairman emeritus and the regional real estate director, including showing them how they could incorporate the bend in the façade into their signage plan and avoiding costly landlord façade work they had previously demanded. Under close scrutiny, my development team got the new store open on time, and the National Discounter returned to contract rents.

Financial Impact:

$2.9mm National Petstore 10-year lease revenue; $3.1mm restoration of the National Discounter's contract rent for remaining term; avoided total loss of equity and likely bank foreclosure.

Lesson:

Understand the motivations of the parties; honestly pursuing a mutually beneficial outcome can convert adversaries into allies.

Large Laboratory Campus

Challenge:

The acquisition was underwritten with a strategy that contemplated leasing this large multi-building campus to full-building tenants. A year after acquisition, no leasing had been done, and the annual operating costs for the campus (including a co-generation utility plant) were “burning a hole in the owner's pocket.”

Solution:

I worked closely with the leasing brokerage team to determine there was demand in the region from small and mid-sized biotech and pharmaceutical companies needing quality lab space with concomitant office space.

We began a campaign of re-educating the market that we were willing to break 4 of the formerly single-tenant vacant buildings totaling 230,000 rentable sf. There were a lot of details to work out, like floor security and life safety egress, rooftop access and equipment locations, demising, liability and handling for hazardous materials, creating common areas, and reimbursements for expenses that could not be directly attributed tenant by tenant.

We developed a novel fixed expense reimbursement structure over a stipulated base year that provided these tenants the certainty they needed in projecting total occupancy costs over the lease term. It took several months of getting the message out before I negotiated the first partial-floor lease for 4,600 sf, but that first deal opened the floodgates to lease 136,000 sf to 10 different partial floor or full-floor users in the 4 buildings and achieve positive cash flow for the property. Over that 2-year period I was also able to incrementally push the effective rental rate by 30%.

Financial Impact:

$4.8mm annual lease revenue; achieved positive cash flow for the property and a $39mm impact on property value.

Lesson:

Study the market, then meet it; challenge legacy thinking and expectations to determine what isn’t working.

High-Rise CBD Office Building

Challenge:

The second floor of this high-rise CBD office building had sat vacant for years.

Solution:

Since it is often hard for prospective tenants to see past existing conditions and envision the possibilities, I proceeded with the demolition of antiquated interior walls to maximize sunlight and demonstrate the appeal of the space for an open-office format. But this low floor was still perceived as inferior by most class A office prospects who would only consider higher floors at this building and competing buildings.

I needed a tenant who could pay class A rents but wasn’t image conscious, so we focused on federal government space requirements being handled by the General Services Administration (GSA). We entered the multi-phase RFP process for a 10-year agency requirement. We used our garage asset—unique in this market—to drive our functional appeal and rental rate during the RFP process, as this agency needed to transport sensitive materials and unload/store them in a non-public, secure area.

While the landlord investment was substantial and the GSA required a year 6 termination option, we structured the lease payments to fully amortize the landlord investment in the first 5 years. Since I had done federal government leases before, I knew it was prudent to bring in a specialist to navigate the vagaries of the GSA forms and processes. We won the RFP, executed the lease, and timely delivered the space.

Financial Impact:

$7mm in total revenue over the 10-year term, weighted 60% during the first 5 years; achieved revenue from previously unleasable space.

Lesson:

Get it done, one way or the other.