A contraction option is a fixed right in your lease to reduce the…
blog (page 6)
Australia uses the Stick to enforce Sustainable Office Space Requirements
As one of the vanguards in environmental sustainability of commercial properties, Australia…
Your termination option, how good is it?
An office lease is a long term commitment, but the real estate…
How Reliable are Lease Comps?
In office lease negotiations, like most other negotiations, there’s the “sticker price” and the final deal terms. As to the latter, landlords and office brokers frequently talk about comparable lease transactions, a/k/a, “Lease Comps”. Many tenants confuse the reliability of Lease Comps with those of property sales. While Lease Comps have some validity, they need to be taken with a grain of salt.
Update on Proposed Lease Accounting Changes – Heeding Industry Comments
Responding to the comments from the corporate real estate industry, several weeks…
Florida Tenants – Beware of Double Tax on Tenant Electric Charges
As you’ll soon be receiving Operating Expense reconciliation statements, we wanted to…
How Does Your Office Measure Up?
How we measure office space is changing. The most widely accepted measurement standard by the Building Owners and Management Association (BOMA) recently released a new measurement standard for office space utilizing two different methods. The biggest change is the method of creating a single-load factor for all floors in an office building; in general terms, a “load factor” is the ratio of common areas added to a space’s useable area (i.e., the actual measurement) to arrive at its rentable area (i.e., basis of rent and other economic lease terms). The other option under the new standard is a slight variation on the 1996 standard maintaining differing load factors on each floor. While the measurement of individual floors will vary under either method under the new standard, the total rentable area of the building will be the same. Below is a brief discussion of the drivers behind the change, the nature of the change, and what tenants (including those considering renewal) should be thinking of to safeguard their interests. Keep in mind that this is a voluntary standard and it will be up to the commercial real estate industry to see how it is received and adopted.
A watch-list, a special servicing event, and maximizing NPV recovery all have this in common.
Question: “What is a landlord with a troubled CMBS loan?”
Back in the day, a landlord may have had a loan with a life insurance company in Iowa or a pension fund in California that retained the loan through maturity.
Then smart money came along and structured a secondary market for the trading of commercial mortgage backed securities (CMBS).
Now, mortgage bankers could transfer loans to a tax-advantaged trust. The trustee, with promissory notes in hand and an expectation of receiving regular interest payments on the pool of loans, could issue a series of bonds varying in yield and risk. Rating agencies could come in and assign ratings to the various bond classes: from the most secure AAA down through the below-investment grade and unrated bonds. Bankers could underwrite and sell the securities to investors. Bond investors could select from the tranche matching their credit risk, yield, and term preferences. Meanwhile, down in the boiler-room, a master servicer, engaged by the trustee to service the loans, would collect mortgage payments, release disbursements from escrow, and handle other routine loan matters, all so long as a loan performs as expected.
However, a wheel or two came off the truck during the last few years and some loans have not performed as expected.
And rating agencies expect more troubled CMBS loans to surface, despite the gradual improvement in the economy.
Plugging the Lender Loophole: Tenants need Nondisturbance Agreements
Taking advantage of the depressed office market, as a savvy tenant you just renegotiated your office lease reducing your rent and locking in a low rent structure for the next several years. But did you close a big loop hole that could negate this great deal? If your lease is like most leases, it contains a subordination clause making your lease inferior in position to any existing or future lenders. In many states where a lease is subordinate to a mortgage and the lender forecloses on the property, the tenant is at the lender’s mercy as the lender can elect to terminate or recognize the lease. In such an event, the subordinate tenant is in a very vulnerable position as the lender has leverage to force the tenant to renegotiate the lease on the lender’s terms. To plug this loophole, a tenant should have a Nondisturbance provision in its lease and have a Nondisturbance Agreement with the existing and future lender(s). In today’s market, tenants are well advised to preserve some negotiating capital for this important issue.
Downtowns Drawing Tenants Over Suburbs: Secular Shift or Aberration?
The December 13, 2010 Wall Street Journal has an interesting article entitled “Downtowns Get a Fresh Lease: Suburbs Lose Office Workers to Business Districts, Reversing a Post-War Trend” by Anton Troianovski. The article summarizes a trend that we have seen across the country in office markets over the past few years where downtown markets have drawn more tenants than the suburban markets. This is largely due to a difference in tenant demographics between suburban and downtown markets in today’s economy. Specifically, many suburban office tenants are directly or indirectly involved with the housing industry where we have seen the largest job losses. Whereas downtown tenants are government entities, banks, financial services companies, law firms and professional service companies. This trend is also being driven by the redevelopment of many downtown areas around the country.