September Corporate Real Estate Advisor Update

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Theft By Lease

Many tenants pay more than they should (sometimes 20-30% more) costing them large sums of money. CresaPartners’ Potential Cost Savings Analysis demonstrates the many ways a landlord can profit from a lease. These key areas need to be scrutinized and carefully negotiated to maximize savings for a tenant. Please see the attached “Savings Wheel.” The costliest line item components in a “killer commercial lease” are often the operating escalation and real estate taxes. These are by far the most expensive and least understood hidden costs of a lease. With a killer lease the landlord can take the traditional incremental increases in operating expenses, real estate taxes and utility charges, and cause them to double the fixed rent in four to six years rather than in the traditional 12 to 15 years, even in or especially in a down market.

As a result of the difficult economic environment, landlords are seeking ways to increase their buildings profitability through these “hidden costs.” It is critical, therefore, for tenants to hire an advocate that will protect their interests. Many brokers have existing relationships with landlords and are conflicted. Since they represent the landlord as well as the tenant they are not in a position to negotiate fairly and aggressively on the tenant’s behalf. For example, a broker may be handling the leasing assignment for a landlord on a large portfolio of properties. This broker may now seek to handle a tenant in its renegotiation for an existing lease in a building the landlord owns.

Is it possible for a commercial broker loyal to the landlord and seeking his interest to represent the tenant fairly? The answer is no. The broker representing the landlord is conflicted. Therefore, when choosing a commercial broker to work with it is in the tenant’s interest to work with a “tenant-only” advisor. CresaPartners is the largest international “tenant-only” commercial broker. Please feel to contact me for details on how we can save you money on your commercial and/or retail space.

CresaPartners Ranked Number Seven Commercial Real Estate Brand

CresaPartners was recently ranked the number seven brand in commercial real estate according to a survey done by Lipsey. Since the top six brands derive their income mostly from landlords, CresaPartners is ranked the number one “tenant only” commercial real estate broker internationally.

http://www.lipseyco.com/pdf/2010.pdf

Lease Accounting Rules Continue to Gain Momentum for Adoption

As the Financial Accounting Standards Board (FASB) changes in lease accounting rules continues to gain momentum for adoption within the next few years, corporations should now begin setting strategy for future occupancy expenses. These new rules requiring all lease obligations to be capitalized and shown on the balance sheet of the tenant (eliminating FAS 13 calculations for determining operating lease treatment) may change the attitude companies have towards owning versus leasing. The critical component will become the underlying cost of capital for the landlord/owner as compared to the cost of capital for the tenant. This may require developers and landlords to become more sophisticated in the underlying financing to provide capital to their buildings. While this change may seem overwhelming to many, it is similar to the international accounting rules that have been in effect for years. American CFOs may want to look to their colleagues in those markets to get some baseline knowledge on how deals are structured and gain some initial thoughts on efficient structures for their own balance sheets and operations.

http://www.cresapartners.com/blog/

Leasing Activity and Rents See a Reversal of Fortune The beginning of this year was marked by an increase volume in commercial leasing activity. Brokers were buoyed by the large volume of deals in Manhattan as well as large headline deals. Reports by a leading broker show there was 1.5 million square feet of new Manhattan space leased in August 2010, down 45% from the prior month and down 15% from August of 2009. But asking rent were up, although just barely. In August, landlords were asking an average of $47.73 per square foot in Manhattan, up from July when they were asking $47.57.

http://therealdeal.com/newyork/articles/leasing-activity-and-rents-see-a-reversal-of-fortune

While rents have appeared to have bottomed and the market appears to be emerging, there are many who believe that the commercial leasing market is heading for a train wreck as a result of the number of commercial leases that are maturing in 2013.

http://www.observer.com/2010/real-estate/commercial-leasing-collapsing-maybe

September was a good month for my team and I. We have recently won large assignments for one of the largest private investment firms, a top fashion design company, a leading e commerce company and a hedge fund. We also recently closed a renewal for Group Health Dental, the largest dental practice in Manhattan, as well as a sublet assignment for Silicon Graphics. Please feel free to contact me for more information.

All my best,

Joseph

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