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 [e-mail] and
[e-mail].
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