Eric Eaton – The Risk of Everyone Waiting for Everyone Else!

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Andrew Zezas interviews Eric R. Eaton on CFO Studio
Eric R. Eaton, global finance and operations executive, discusses the Risk of Everyone Waiting for Everyone Else! In Mr. Eaton’s interview, he provides his insight on whether business is improving or not and what steps CFOs should take to ready their companies for a vibrant economy.

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32 Reasons Why Landlords Sometimes Say “No!” To Lease Renegotiations – Part One

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Lease renegotiation transactions are not absolute.  They can prove profitable for both tenant and landlord when orchestrated properly.  They can also fail miserably when inappropriately executed.  Neither landlord or tenant are obligated to enter into a renegotiated lease, and would only do so if such a transaction made sense.

Lease renegotiation transactions don’t always work, and in fact, sometimes can be seriously detrimental to landlord and /or tenant.  Accordingly, landlords sometimes say “No!” when approached about renegotiating a tenant’s lease.

The reasons why a lease renegotiation might not come to fruition could be many.  Here are just some of them, in no particular order of importance:

  1. When the tenant’s broker is not qualified to properly effect such a transaction
  2. When the landlord’s broker is either not qualified or does not grasp how to manage such a transaction to the landlord’s true benefit
  3. Tenants or brokers who take an overly aggressive approach to renegotiating the lease
  4. Landlords or tenants who conduct incomplete due diligence on their transactional opponent
  5. Poor communications on the part of landlords, tenants, or their brokers
  6. Over zealous or misinformed landlords, tenants, or brokers
  7. Emotional landlords, tenants, or brokers (It’s just business fellas!)
  8. Tenants who attempt to engage their landlords without the requisite knowledge, information, and / or transactional expertise
  9. Landlords, tenants, or brokers who don’t understand how current market conditions and possible future market trends may impact their transactional opponent or how it might impact the landlord / tenant relationship, if a lease is renegotiated or if it is not
  10. Tenants and brokers who don’t understand how landlords do business, their challenges, risks, and opportunities
  11. Landlords who incorrectly assume that they have such strong relationships with their tenants that for some magical reason those tenants will never vacate their building, or that the tenant is captive and has no viable alternatives available to it
  12. Landlords who don’t expect to retain ownership of their buildings over the long term, either because they plan to sell them or fear they may lose the buildings through foreclosure or some other legal or government action. Therefore, despite the possibility of improving the value of a property as a result of a renegotiated and extended lease, such a landlord would likely see no value in this type of transaction. This is especially likely given the requisite capital and the often cash flow reduction associated with a lease renegotiation
  13. Landlords whose buildings are so close to the edge that any renegotiation that produces lower cash flow in the short term, irrespective of the potential long term benefits, would push them over that edge and into the abyss
  14. Landlords who are too distracted by their focus on refinancing their properties and being forced to replace high loan-to-value debt with lower loan-to-value debt, and searching for ways to make-up those financial shortfalls
  15. Landlords who, in the current economic environment, are focused on their own survivability and risk fear of failure in that effort

Check back next week for the other half of this list…it’s just too long to include in a single post, at least that’s what my publisher says!

Read Part Two of this post.

 

About CFO Studio
CFO Studio spotlights New Jersey based senior finance executives, providing them with the opportunity to share their knowledge and communicate their perspectives on current economic, financial, operational, and business issues.  By invitation only, CFO Studio promotes select finance executives, their ideas, experience, and insights, in a professional, tasteful, and low-key interview setting.  Topics include current and future trends in accounting, banking, business, corporate strategy, employment, finance, IT, operations, real estate, risk management, the economy, and more.  Watch interviews with noted area finance executives and learn how your peers are creating sustainable value for their companies!  Join the conversation or just watch, listen, and succeed!  We welcome your ideas for future interviews.  If you would like to appear on CFO Studio, please email or call our CEO, Andrew Zezas, at 732 868 0000 x111. Visit www.CFOstudio.com

About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to finance and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America.  By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com. Follow CFO Studio at http://www.Twitter.com/CFOstudio.

www.CFOstudio.com
www.RealStrat.com
www.TheCFOsGuide.com

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

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Lease Renegotiations: Striking a Balance to Win

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Lease renegotiations, restructures, recasts, blend and extends… these and others are the terms in use today by brokers, tenants, and landlords for what amounts to the same type of transaction… changing the terms of existing leases.  Today, with the market for new real estate transactions being quiet, most active commercial brokers are pitching lease renegotiations.  And, for good reason.

Market conditions aren’t the only justifications for renegotiating leases.  Opportunities exist that often have little to do with market conditions for both tenants and landlords to improve their respective positions.  As a result, tenants have secured millions of dollars, reduced risk, and created other value by renegotiating leases.  Interestingly, when tenants renegotiate their leases, the corresponding result is that those transactions directly or indirectly create equal or greater value for their landlords, too.  That’s actually how lease renegotiations really work… in order to be successful, a lease renegotiation must benefit both sides!

I recently watched a video of a commercial real estate broker who said tenants that seek to renegotiate their leases are dishonest, because they’re not keeping their word and are looking to break their leases.  This guy couldn’t be further from reality!  Did he really think that a landlord and its lender would renegotiate a lease just because a tenant demanded it?  Did he believe that landlord and lender would do so on terms that would offer no advantage to them but, only benefit the tenant?  Did he think that a tenant could actually force a landlord to renegotiate?  It doesn’t work that way.  No lease can be renegotiated unless both landlord and tenant realize enhanced value.  What’s more, no landlord worth his or her salt would agree to renegotiate a lease unless doing so would create sufficient benefit for himself / herself, too!

The opportunities in lease renegotiations are many.  So are the risks!  The true impact of both opportunity and risk, and other factors, must be fully considered in order to assess the possible mutual benefit of a renegotiated lease, with the operative term being “mutual”.  In the horrible economic crisis in which we currently find ourselves, the name of the game for tenants, landlords, lenders, individual consumers, or commercial brokers, is “sustainability”.  Done right, lease renegotiations can provide commercial tenants with the ability to uncover dollars hidden in their lease obligations thereby, reducing their occupancy costs as a means of achieving sustainability.  Tenants also benefit by mitigating risk and securing additional flexibility.

For landlords, lease renegotiations can support their own sustainability objectives.  Such transactions can ensure the long term financial viability of commercial properties and minimize landlord and lender risk that would otherwise be associated with increased vacancy from pending lease expirations.  Lease renegotiations pose special challenges for landlords, such as the immediate and unplanned reductions in rental cash flow;  the need to fund, what could easily be, significant capital for allowances, improvements, commissions, and more.  Equally important is the fear on the part of landlords that after renegotiating a lease and accepting less now in exchange for more later, a tenant could default anyway, leaving the landlord worse off than if it had not renegotiated the lease!

The key to a successful lease renegotiation, like any well-built business transaction, is the ability to strike a balance, and ensure that neither tenant nor landlord goes to the poor house as a result of a lopsided negotiation.  The term “Win! Win!” for both sides is the primary focus of a successful lease renegotiation.  An awful lot of these transactions are taking place as you read this.

Send me your stories about successful lease renegotiations or those that went bad.  If they’re good, I’ll publish them here.  No commercials, please.

 

About CFO Studio

CFO Studio spotlights New Jersey based senior finance executives, providing them with the opportunity to share their knowledge and communicate their perspectives on current economic, financial, operational, and business issues.  By invitation only, CFO Studio promotes select finance executives, their ideas, experience, and insights, in a professional, tasteful, and low-key interview setting.  Topics include current and future trends in accounting, banking, business, corporate strategy, employment, finance, IT, operations, real estate, risk management, the economy, and more.  Watch interviews with noted area finance executives and learn how your peers are creating sustainable value for their companies!  Join the conversation or just watch, listen, and succeed!  We welcome your ideas for future interviews.  If you would like to appear on CFO Studio, please email or call our CEO, Andrew Zezas, at 732 868 0000 x111. Visit www.CFOstudio.com

About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to finance and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America.  By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com. Follow CFO Studio at http://www.Twitter.com/CFOstudio.

www.CFOstudio.com

www.RealStrat.com

www.TheCFOsGuide.com

 

Copyright Real Estate Strategies Corporation 2011.  All Rights Reserved.

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