The Value of Real Estate Due Diligence

Sticky Situations/Complex Problems

PPA SPECIALIZES IN SOLVING COMPLEX AND NOT SO COMPLEX REAL ESTATE PROBLEMS FOR OUR PRIVATE EQUITY CLIENTS AND THEIR PORTFOLIO COMPANIES.

OFTENTIMES, HOWEVER, WE ENCOUNTER STICKY SITUATIONS OR COMPLEX PROBLEMS WHICH REQUIRE ADDITIONAL CREATIVITY.

Medical Equipment Distribution Company

Acquisition Lease Renewal

 

Vernon Hills, IL

  • Problem: Landlord demanded an extremely large security deposit (five (5) years rent prepayment of $9,150,000).
     

  • Solution: We successfully negotiated a reasonable security deposit (1/10>LC) with an unreasonable Landlord.

Improvement: $8,150,000

 

Pharmacy Support

Negotiating a Security Deposit for a Start-Up

Orlando, FL

  • Problem: The Tenant (portfolio company add-on) was a start-up with no operating history or credit.  The company required a large call center space with a substantial build-out. A parent guarantee was not available.   

  • Landlord required security to cover leasing commissions, buildout, and Tenant’s obligation to pay rent.  In these types of situations, it is common for the landlord to ask for a year of pre-paid rent, a letter of credit for the entire term of the lease, a guarantee from the parent company, or any combination of the three.

  • Solution: PPA worked with upper management of the start-up to create a compelling case for the positive financial expectations of the company.

  • PPA was able to negotiate a nominal security deposit, some pre-paid rent, no letter of credit and a cash lump sum to cover a portion of tenant improvements and other Landlord lease costs that would be credited back to the Tenant over the term of the Lease and no guarantee.   

Improvement: $270,000

Tech Services Company

Lease Renewal

 

Bala Cynwyd, PA

  • Problem: Landlord demanded an extremely large security deposit.
     

  • Solution: We successfully negotiated a reasonable security deposit with an unreasonable landlord.

Improvement: $60,000

Healthcare Advertising Agency

Improving the Capital Structure of the Company

 

Chicago, IL

  • Problem:  Large Letter of Credit obligation
     

  • Solution:  We swapped Letter of Credit obligation for certain lease rights that held no value for us.

Improvement: $300,000

Injection Molding Company

Acquisition

Port Richey, FL

  • Problem: Building area overstatement
     

  • Solution:  We determined accurate total building area and memorialized the number without rocking the boat of the overall deal

Improvement: $300,000

Healthcare Advertising Agency

Succeeding in a Hostile Environment

 

Northeast U.S.

  • Problem: The tenant (portfolio company) had occupied space for ten (10) years under a previous landlord and had paid low rents ($14/SF gross) because of the outdated features of the building ( shell industrial space built out as office space by the Tenant in a 19th century shipping terminal).​

  •  A new and well-capitalized landlord took over the property with the ambitious intent of attracting Class-A Tenants at Class-A rents ($40-$45 Gross/SF) and did not want the company as a Tenant.

  •  For various reasons, the best option for the portfolio company was to stay put, but they could not pay the exorbitant rents requested by the new landlord.

  • Solution: PPA devised a strategy to counteract the Landlord’s above market proposals in order to secure the successful renewal of their lease.

  • PPA used the Landlord’s missteps in trying to get the tenant to leave in order to gain the necessary leverage to substantially reduce the rent and increase the Landlord Tenant improvement allowance to improve the Tenant’s economics by $3,000,000. 

Improvement: $3,000,000

Six (6) Problems and solutions

Total Improvement Value: $12,080,000

Average: $2,013,300

Physical Therapy

Obtaining Landlord COnsent to Transfer

Arizona & California

  • Problem: PPA’s client purchased a number of independent healthcare providers in the Southwest United States (Twenty plus (20+) locations total).  Each third (3rd) party lease contained different change-in-control language with varying degrees of required reasonableness tied to the Landlord’s ability to consent.

  • Solution: PPA worked with client’s counsel to identify leases that required Landlord consent to transfer. PPA then worked with the client to develop a compelling case to present to the Landlord in order to obtain consent.  PPA executed this plan depending on the particular circumstances of each location.

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Software Firm

Sale of Portfolio Company

 

Arlington, VA

  • Problem:  Buyer would not accept the sublease liability. Some sub-sublessees were authorized and some were not.
     

  • Solution:  We negotiated a buyout of the sublease position.  Subtenant became a shell corporation.  We obtained consent from all parties and cancelled unauthorized sub-subleases.

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Dermatology Practice

Florida

  • Problem: Incomplete, chaotic, conflicting real estate documents in then data room

  • Solution: PPA worked closely with management and bankers to review incomplete lease information, determine the gaps and make the request for the missing documents.

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Dental Group

  • Problem: Identify problematic Change-in-Control situations

  • Solution: PPA worked for the Seller to obtain Landlord consent to transfer or assign those leases to facilitate a recapitalization.

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Improvment Value Per Problem : $1,960,000 - Priceless

Plaza Property Advisors

312-670-1500

200 East Walton Place Chicago, IL 60611

©2019 by Plaza Property Advisors.