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Objectives and Strategies Rico Cheung
UNCOVERING OUR CLIENT’S NEEDSObjectives
•Client Centered OrientationFocus on identifying issues and providing innovative solutions consistent with Client’s strategic plan. Build in term flexibility, save valuable resources and protect schedule priorities. Your goals are our goals. Focus on Client’s success.
•Clear CommunicationCommitted to identifying and understanding roadblocks and issues early in the process through open and honest communication and make recommendations for Client’s long term success.
•Push the EnvelopeSet a new standard for quality of service, structure of the transaction, the financial aspects and expectations. Challenge the “traditional way of putting a deal together.” Perform all business at the highest possible level of integrity and level of excellence.
•Bring the Market to the RequirementRather than fitting Client into a specific facility and deal structure, make the structure and buildings fit into Client’s plans.
CLIENTObjectives
Client wants to determine the
• Right amount of Real Estate
• Right property types
• Right location
• Right time frame to support its business operations
“Strategic Planning does not deal with future decisions, but rather the future of present decisions”
GVA KIDDER MATHEWSOverview
In business for over 30 years, GVA Kidder Mathews has one of the largest independent brokerage groups on the West Coast
• 135 brokers performing • Over 1,000 leases and 350 sales transactions worth over $2.3 billion annually
Since they see more transactions, their clients benefit from superior market knowledge.
The firm also has more brokers with the prestigious SIOR and CCIM designations than any other firm in the Northwest. The brokerage group focuses their expertise in the following specialty groups: Industrial, Office, Retail, Investment, Multi-family, Technology, Life Sciences, and Corporate Services.
AtlantaBaltimore Bellevue Boston BurbankCaracasCarlsbad Charlotte Chattanooga Chicago ConnecticutDallasDetroit Inland Empire Jacksonville Los Angeles
Panama City Beach PhiladelphiaPhoenix Pittsburgh Portland Raleigh/Durham Richmond San Diego San Francisco San Gabriel Valley Santa Clarita Valley
Santa Barbara Sao PauloSeattle South Bay Tacoma Tallahassee Tampa TorontoVancouverVentura County Virginia NorthernWashington DCWilmington
AthensBelfastBergamoBerlinBirminghamBratislavaBristolBrusselsBucharestBudapestCardiffCopenhagenDublin
LeedsLisbonLiverpoolLondonManchesterMelbourneMilanMoscowMunichNew CastlePragueSofiaSydneyTurinViennaWarsaw
EdinburghFrankfurtGenevaGenoaGlasgowHelsinki
Maryland MexicoMinneapolis-St. Paul MontréalNew JerseyNew YorkNewport NewsNorfolk Orange CountyOrlando Ottawa
GVA WORLDWIDEOffices and Regions of Expertise
STRATEGIC REAL ESTATE PLANNING
GVA Kidder Mathews
• Positions your company for success
• Protects your investment
• Minimizes out-of-pocket costs
• Increases leverage during negotiations
STRATEGIC REAL ESTATE PLANNING
What Can Clients Expect?
• Access to Life Science friendly capital sources
• A structured commitment aligned with Strategic Business Plan
• Data from GVA Kidder Mathews’ “Radar Screen”
• Less “hands on” time by Executive Team
• Expertise with project implementation
STRATEGIC REAL ESTATE PLANNING
GVA Kidder Mathews Delivers:
• A structured commitment aligned with the Client’s milestones and growth projections
• Best possible project and tenant improvement financing available
• An efficient, seamless definition, acquisition, and implementation process
• Opportunities only available to GVA Kidder Mathews’ Clients
STRATEGIC REAL ESTATE PLANNING
Review Corporate Goals
and Objective
s
Develop Real
Estate Strategy
Programming &
Conceptual Design
Identify & Evaluate Alternati
ve Locations
Select Optimal Location
& Financial Structure
Prepare Real
Estate Acquisitio
n Strategy
Design/Construction
of Improvement
s
Validation of New Facility
STRATEGIC REAL ESTATE PLANNING
Project Phase vs. Space Type
Phase of Product Development
Research Development Manufacturing
Pre-Clinical Clinical Phase 1
Clinical Phase 2 Clinical Phase 3
Commercial
Type of Facility
Research Laboratory Process Laboratory Manufacturing
GLP GMP (Some Validation)
GMP (Incr. Validation)
Validated GMP
STRATEGIC REAL ESTATE PLANNING
Company Development Life Cycle
Research Pre-Clinical Clinical FDA Approval Commercialization
Time
Frame
Costs
Sq. Ft.
STRATEGIC REAL ESTATE PLANNING
• Assessment of current situation
• What are the corporate goals and objectives?
• Growth projections
• Evaluate/develop space standards
• Municipal/hazardous materials requirements
• Financing tenant improvements
STRATEGIC REAL ESTATE PLANNING
Issues Which Impact Facilities
• Business plan/headcount projections
• Current standards/space utilization
• Product development milestones/critical time periods
• Production capacity planning/modeling
• Corporate philosophy, employee demographics, image, amenities
• Control/financing strategies
CORPORATE GOALS & OBJECTIVES
• Review overall business strategy
• Evaluate financial objectives
• Address product development programs
• Define growth/headcount projections
PRODUCT DEVELOPMENT
• Staffing growth due to development progress
• Staffing of different development programs
• Support staff/facilities: shared or dedicated
• Master plan the project
• Will Validation be required?
Programs & Progress
REAL ESTATE STRATEGY
Results of Your Planning Efforts
• Documented Real Estate strategy
• How much space & when it is needed
• How to pay for new space
• How to acquire new space
• Control strategies
Development
REAL ESTATE STRATEGY
Traditional Sources
• Asset-based lenders
• Venture leasing/equity financing
• Credit-based lenders
Traditional Sources
• Real Estate investment trusts (REIT)
• Off-balance sheet programs
• Biotech developers/investors
Facilities Finance Alternatives
REAL ESTATE STRATEGY
Financing Tenant Improvements
• Asset-based lenders
• Venture leasing/equity financing
• Credit-based lenders
• Real Estate investment trusts
• Off-balance sheet program
• Government incentives
Development
REAL ESTATE GROWTH ANALYSIS
10,000 NSF Lab/Lab Support
10,000 NSF Office
10,000 NSF Manufacturing
10,000 NSF Warehouse
REAL ESTATE GROWTH ANALYSIS
0
50
100
150
200
250
300
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Square Feet in Thousands
157,500
51,300
92,900
Research & Pre-Clinical
Manufacturing
Clinical
DEVELOPING THE STRATEGY
10,000 NSF R&D
10,000 NSF Office
10,000 NSF Production
10,000 NSF Storage/Warehouse
REAL ESTATE STRATEGY
Increasing Your Leverage in Negotiations
• Select optimal occupancy plan
• Select optimal capitalization plan
• Pre-negotiations
• Use your Real Estate strategy to your advantage
• Qualify/team approach with landlords/developers
Acquisition
REAL ESTATE STRATEGY
Protecting Your Investment
• Analyze financial impact of scenarios
• Key lease provisions
• Landlord waivers
• Non-disturbance agreements
• Sublease clauses
Acquisition
SITE SELECTION
Identify alternative locations
• Assessment of site potential
• Match buildings/project to grow plans
• Review of existing tenants
• Financial analysis of alternatives
• Quantify occupancy costs
• Initial build-out costs
• Cashflow comparisons
SITE SELECTION
Analyze Site Potential
0
50
100
150
200
250
300
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Square Feet in Thousands
157,500
51,300
92,900First Expansion
Initial Building
Second Expansion
SITE SELECTION
Site Services & Amenities
• Corporate image and quality of life issues
• Utility capacity and water quality
• Ingress/egress issues
SITE SELECTION
City Permitting Process/Use Restrictions
• Schedule – serious vs. parallel
• Hazardous materials restrictions – quantities & types
• Use permitting and restrictions
• Public hearings
FINANCIAL ANALYSIS
Existing Building
Existing Building
Tenant Sq. Ft. Shell Building with Standard with Wet Labs
Improvements Cost/Sq.Ft. TI's Cost/Sq.Ft. Cost/Sq.Ft.
Average Cost/Sq.Ft.
52,000 $115.58 $100.34 $76.78
Proj. Total TI Cost
$6,010,000.00
$5,217,500.00
$3,992,500.00
Less: Landlord Share
$990,000.00 $412,500.00
$275,000.00
Proj. Tenant' Share
$5,020,000.00
$4,805,000.00
$3,717,500.00
Estimated Monthly $1.15 $0.75 $1.65
Lease Rate
Net Present Value
$8,907,405.11
$6,971,499.87
$9,201,819.71
(10 years, 10%)
TENANT IMPROVEMENT ANALYSIS
Tenant ShellExisting Building
Existing Building
Improvements Building with Standard with Wet Labs
Sq.Ft. Cost/Sq.Ft. TI's Cost/Sq.Ft. Cost/Sq.Ft.
Office (30% private)
10,000 $25.00 $10.00 $10.00
Wet Labs
20,000 $110.00 $90.00 $30.00
Animal Facility
3,000 $120.00 $120.00 $75.00
Lab Support
9,000 $65.00 $45.00 $10.00
GMP Pilot Plant
5,000 $150.00 $150.00 $100.00
Warehouse
5,000 $5.00 $2.50 $2.50
Total
52,000
Average Cost/Sq.Ft. $80.19 $65.91 $29.37
CONTROL STRATEGIES
• Straight lease
• Lease with equity
• Joint Venture
• Sole ownership
• Sale leaseback
• Off-balance sheet lease financing
PLANNING & OPERATING MODELS
Business Objectives
Business Issues
Core Competencies
Business Planning Model
Operating Model
R&D Test
Customer Service
Manufacturing
Assembly
Distribution
Human Resources MIS Finance Real Estate
PROCESS
1 2 3 4 5 6 7 8
Understand current business status & corporate environment
Assess current portfolio & facilities
Interview business units & Real Estate department
Evaluate Real Estate site programming
Assess Real Estate market conditions
Develop financial strategy
Develop Real Estate occupancy strategy
Implement Real Estate plan
PEOPLE AND PROCESS COORDINATION
RESULTS:
• Effectiveness
• Saves Money
• Maximizes Value
• Efficiency
• Saves Time
Building Owner/ Property Mgr.
General Contractor
Validation Consultant
Legal
Equipment Vendors
Architect/Process Engineer
Owner’s Leasing Agent
City/ Government
Moving Company
3rd Party TI Financing
Develop & Analyze Alternatives
Analyze Needs & Develop Strategy
Evaluate the
Market
Engagethe
Market
Weighthe
Options
Negotiate the
Terms
Negotiate the
Terms
Documentthe
Agreement
Implementthe
Decision
Support ClientPost
Occupancy
Negotiate & Implement the Decision
ENGAGEMENT PROCESS
PROCESS, DOCUMENTATION & ANALYSIS
Analyze Needs & Develop Strategy
Evaluate the Market
Engage the Market
Weigh the Options
Negotiate the Terms
Document the Agreement
Implement theDecision
Support Client Post Occupancy
•Define client’s goals
•Understand client’s vision of real estate – how it supports business
•Develop project team
•Complete review of present facility and lease document
•Develop understanding of space needs
•Identify decision- making process
•Develop critical path for decisions
•Develop preliminary project timeline
•Develop strategy
•Prepare comprehensive market survey addressing trends, asking rates, lease comparables, etc.
•Survey multiple databases for all direct, sublease and options
•Survey ActiveUsers database for potential “shadow” matches
•Identify potential options – rank options against client
•Analyze each jurisdiction (labor, requirements, incentives, etc.) if search is between jurisdictions (i.e. multi-state)
•Identify economic issues among cities
•Prepare initial tour book
•Review and revisit the stay-put alternative
•Conduct building site tours
•Prepare evaluation matrix
•Select initial options to pursue
•Prepare RFP’s or proposals
•Solicit and gather RFP responses
•Complete quantitative and qualitative analyzes of the RFP responses
•Determine operational compatibility and preliminary fit plea
•Layout efficiencies for each option
•Select final alternatives with client
•Review & finalize strategy for parallel negotiation
•Prepare & submit counter proposals
•Negotiate alternative proposals in parallel
•Continue ongoing evaluation of all economic and operational factors
•Conduct final business negotiations with key short- listed) alternatives
•Select finalist
•Focus on:−Financial−Non-financial−Flexibility provisions−Incentives
•Negotiate and execute:−Letter of intent−Construction exhibit
•Finalize leasedocumentation
•Coordinate lease execution
•Prepare lease/contract abstract
•Coordinate outside services
•Final space plan
•Supervise completion of punch list
•Finalize renovation and/or building layout and design
•Prepare architectural drawings and construction documents
•Develop project budgets and project timelines
•Assist in selection of contractors and project/construction manager
•Support value engineering and analysis of required technology infrastructure
•Help negotiate contract documents
•Assist in the selection of the move coordinator
•Develop and present excessspace disposition strategy
•Present a financial recap of the transaction
•Create LeaseSummary / Memorandum for client
•Monitor costs and options
•Periodically review real estate strategy
BuildingImageQuality of ownershipBuilding amenities/servicesEmployee securityParkingEnergy efficiencySignage Air quality
LocationProximity to AirportAccessibility by employeesAccessibility by clientsArea amenitiesPublic transportationSkilled labor force
OperationalOccupancy dateProcess limitations
– Growth/scalabilityStructural considerations
– Column spacing– Floor load capacity
Space efficienciesAdjacenciesExpansion/contraction needsRenewal optionsData center (power/technical requirements)Haz.Mats./Code complianceElectrical/Emergency Back-Up PowerTechnology/communicationsHVAC requirementsCeiling heightOnsite storage needsLoading docks/overhead doors
FinancialCash flowTax positionP&L implicationsBase rent/sfOther occupancy costs/sfTimingFunding of capital improvementsSecurityTenant improvement allowance
Control StrategiesStandard leaseLease with equity sharingLease/PurchaseJoint VentureSole Ownership
ISSUES FOR CONSIDERATION: TYPICAL
Utilities/Services
Interruption of Services
Building Security
ADA ComplianceDamage & Destruction
Base Building
Work Letter
Alterations
HVAC
Non-Disturbance
Maintenance
Restoration Clause
Options: - Expansion - First offer - Termination - Renewal
Sublease Rights
Operating Exclusions
Base Rent(Rent per SF & Operating expenses)
Square footage
Lease Issues
FOCUS: THOROUGH EXAMINATION
• Strong advocacy & satisfied clients
• Superior market intelligence
• A team approach to address the increasing complexity and
handle the details for Technology and Emerging Company
projects.
• Superior negotiating results
WE DELIVER RESULTS
BENEFITS
CASE STUDIESStrategic Initiative
.
AMGEN, INC.34551 ArdenwoodFremont, CA
Tenant: Amgen, Inc.
Landlord: Digital Realty Trust
Total Square Footage: ±131,386 RSF
Total Consideration: $ 16,523,073
Transaction Date: May 2007
Sub-Market: Ardenwood, Fremont
Lease term: 8 years
Comments:
• Amgen had 4 years remaining on its lease and was about to commence a major capital project.
• Existing rental rate was 68% over market with a renewal option at the “greater” of existing rate or market.
•Restoration obligation required tenant to return Premises to original condition.
• After establishing long term business unit requirements, lease was extended to be co-terminus with adjacent facilities. Rental rate was reduced and renewal option language was revised to be 95% of market. Restoration obligation was removed.
•Total savings / cost avoidance totaled approx. $37,000,000.
CASE STUDIESStrategic Initiative
.
ABAXIS, INC.3240 Whipple RoadUnion City, CA
Tenant: Abaxis, Inc.
Landlord: Principal Financial Group
Total Square Footage: ±91,124 RSF
Total Consideration: $ 9,800,000
Transaction Date: January 2001
Sub-Market: West Union City
Lease term: 10 years
Comments:
Company needed at least 60,000 SF for manufacturing due to pending product approval plus additional office space
Helped narrow relocation search to East Bay where many current employee reside and because of the deep labor pool of technicians
Selected a building in a new 90,000 SF building in a 322,000 SF project giving the client expansion options to accommodate future growth up to 170,000 SF
Negotiated a lease with 2 year phase-in and a starting rent 35% below market rents in the project.
CASE STUDIESDelivering Results
.
GENOMIC HEALTH, INC.301 Penobscot DriveRedwood City, CA
Tenant: Genomic Health, Inc.
Landlord: Metropolitan Life
Total Square Footage: ±47,900 RSF
Total Consideration: $ 4,360,206
Transaction Date: September 2005
Sub-Market: Redwood City
Lease term: 6 Years
Comments:
Genomic Health had two years remaining on its sublease. It needed to expand its production operations, marketing, and customer service operation.
We negotiated an expansion and direct lease well below current market rates, including a $17/SF in TI allowance for both the existing space and the new space to be used at client’s discretion.
We also negotiated to have existing HVAC systems replaced at the landlord’s cost ($400,000)
Genomic Health saved over 37% on their occupancy costs over the new lease term.
CASE STUDIESDelivering Results
.
ASCENDENT SYSTEMS2000 Bridge PkwyRedwood Shores, CA
Tenant: Ascendent Systems
Landlord: Prudential & Harvest
Total Square Footage: ±18,130 RSF
Total Consideration: $ 1,566,432
Transaction Date: July 2006
Sub-Market: Redwood Shores
Lease term: 60 Months
Comments:
Growing software company recently acquired by Research In Motion, Inc.
Selected a building to accommodate their large lab requirement which required significant power and HVAC.
Negotiated $17.50/SF TI allowance to be used at client’s discretion.
Locked in a low rate for the first year to align with company’s revenue projections.
CASE STUDIESDelivering Results
.
LUCID ERA1510 Fashion Island BlvdSan Mateo, CA
Tenant: LucidEra
Landlord: ING Clarion
Total Square Footage: ±4,517 RSF
Total Consideration: $ 174,806
Transaction Date: October 2005
Sub-Market: San Mateo
Lease term: 24 Months
Comments:
Start-up software company looking for approximately 2,500 sq. ft. After examining their headcount projections, we recommended taking more space to allow for future growth.
Successfully negotiated a phase-in with 6 moths free rent on ±1,936 sq. ft.
WE ARE YOUR EYES AND EARS
Approvals
Invoice ReviewPayment
s
Commitmen
tChange Orders
Scope
Changes
Manpower
Contract
Rates
B E N E F I T S
• Tight control of invoice approval and payment process
• Early warning of cost, scope or schedule changes
• Innovative contracting procedures that reduce risk
• Minimize contractor and vendor disputes: control change order procedure
• Identification of value engineering opportunities
• Accurate financial and contract compliance auditing
• Concise and useful management reports (PTD & budget comparisons)
• Increased tax benefits from cost segregation
• Minimize Operating Committee involvement in construction process
Design Changes
Change Orders
Overruns
Delays
Dispute Claims
PMO
Fortune 500Stable Revenues/Earnings
Emerging, Growth CompaniesRapidly Increasing Revenues
Pre-Revenue CompaniesSales Imminent
BiotechnologyPre-Revenue
CapitalAvailability
ProductAvailability
BAY AREA REAL ESTATE: OLD PARADIGM
Fortune 500Stable Revenues/Earnings
Emerging, Growth CompaniesRapidly Increasing Revenues
Pre-Revenue CompaniesSales Imminent
BiotechnologyPre-Revenue
CapitalAvailability
ProductAvailability
BAY AREA REAL ESTATE: CURRENT PARADIGM