Commercial Investment Real Estate September/October 2013 - Page 19

Renovating exteriors is an especially attractive remodeling option for landlords. For example, a new facade to part of a build- ing’s exterior entices previous customers to return and revisit the store on a regu- lar basis. Refreshing the inside of the store completes the new shopping experience and helps maintain the higher revenue stream. T is applies to both stores and restaurants. Additionally, anytime a nearby competitor constructs a new building or renovates an existing one, the tenant must be motivated to follow suit or risk losing some local traf c. As building owner, the landlord directly benefits from a renovation of its physi- cal asset. If the landlord is trying to sell the building, remodeling can increase the value of the building. If the owner needs to ref nance debt, property renovation will improve the lender’s loan-to-value ratio, increasing underwriting support. When a space turns over from one tenant to the next, an improved exterior condition lowers the landlord’s tenant improvements costs. Framing negotiations in ways that demonstrate how both parties can benefi t is an effective strategy. Renegotiating Leases In addition to remodeling properties, rene- gotiating tenant leases can also increase the value of a landlord’s assets. Negotiating lower rent for a longer f xed term can greatly help landlords in both selling and ref nanc- ing a property. For example, if there are only four years lef on a lease, the tenant can exercise early and extend the lease to 10 years in exchange for a rent reduction. Having a 10-year rather than a four-year lease will make selling or ref nancing signif cantly more attractive to a buyer or a lender. Providing this type of f nancial certainty for a signif cant length of time helps to preserve the buyer’s cash f ow and equity as well as support a lender’s debt service requirements. Another important factor to consider in lease restructuring is the impact of the 2008 f nancial crisis on current rental rates. T e f nancial crisis lef many tenants in leases that are far above market rates, which pres- ents a great opportunity to renegotiate lease rates closer to today’s market. In renegotiating a lease or proposing a remodeling package to a landlord, tenants without experience in this area may want to work with a qualif ed lease restructuring advisory f rm. Professionals that specialize in lease restructuring can clearly and ef ectively present the current conditions and future possibilities, which help both landlord and tenant achieve the highest level of success. Bridget Grams and Mark Richardson are prin- cipals at Huntley, Mullaney, Spargo & Sullivan. Contact them at bgrams@hmsinc.net and mrichardson@hmsinc.net. Log on for the latest CCIM member benefit National Virtual Deal Making Session CCIM Designees present property listings to CCIM members and prospective buyers in a free webinar. TUEOCTOBER 1ST TUEDECEMBER 3RD ONLY TWO LEFT FOR THE YEAR! Don’t let this exclusive opportunity pass you by. Register for the OCTOBER 1ST session today. Visit ccimdealmaking.com for more information. Registration will close the day prior to the session at 12 p.m. Central. CCIM.com September | October | 2013 17