NOEW: Real Estate and Leasing Tips for Emerging Companies

transcript

Real Estate and Leasing Tips for Emerging Companies

Chip LeyensShareholder

Baker Donelson

504.566.8628

jleyens@bakerdonelson.com

Some Basics

• Why buy when you can rent

• Permits (recommended) & Zoning (check it)

• IT issues – don’t get stuck with a fax-modem

• Take it for a test drive – try a sublease or shared space arrangement

Sublease: Kind of like a starter home

• Good way to get your foot in the door and not pay a lot

• Sublease rates generally are less than direct lease rates

• Do not put any of your $ into sublease space because if your sub-landlord defaults, you are out

• Have to figure out space and service allocation, as well as access

• In a soft market, sublease space is available and subleases can lead to direct leases with landlord

Not just location, location, location

• Negotiate ability to take on additional space and get out early if you need to

• Short initial term with good expansion,renewal and termination options

• Flexibility, flexibility, flexibility

Expansion options: Lots of ways to structure

• “Hard” expansion option identifies specific space at a specific rate• “Floating” expansion option identifies a certain amount of space in

various potential locations within a building• Right of first offer• Right of first refusal• Notice of availability of space• Be a good tenant

Renewal options:

• Setting renewal rent up-front vs. determining it at a later time (kind of like fixed v. variable interest rate)

• Don’t get hung up by landlord renewal language re: no defaults

Termination options:

• Try to limit payment to reimbursement of landlord’s unamortized up-front costs (commissions and tenant improvement allowance) over initial term of the lease

Pricing

• Try to get a cap on variable costs in the lease or a gross lease (gross v. net lease)

Build-out work:

• If you are getting work done in the space, try to get the landlord to do it (unless you’re a contractor)

Tenant allowances = landlord financing of improvements

• It usually gets paid back by tenant over time as part of base rent

• Depending on market, no free lunch

Get a broker who knows the market:

• Don’t rely on the landlord’s broker (or on your lawyer to work the numbers)

• Start early with a good local broker who knows the market

• Make sure broker has experience for applicable type of space: e.g., office, retail, warehouse, medical and/or flex space

Legal issues:

• Clearly drafted lease that identifies each party’s respective maintenance, payment and other obligations

• No gotcha clauses that will give landlord undue leverage (e.g. rent acceleration)

• Insurance and indemnity issues in leases are usually the most difficult

Want LEED certified space? Tell your broker!

• Different types and levels of LEED certification

• LEED building does not necessarily mean cost savings on rent (but there could be other benefits)

Assignment:

• Make sure it’s broad enough to permit change in control, sale/merger, etc., without landlord’s prior consent

Guaranty:

• If you have to give one, try to include a burn-down provision in it

Flexibility

• Should include parking and operating hours - don’t get jammed on after-hours HVAC

Questions

NOEW: Real Estate and Leasing Tips for Emerging Companies

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