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.
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.
Negotiating a Security Deposit for a Start-Up
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.
Tech Services Company
Bala Cynwyd, PA
Problem: Landlord demanded an extremely large security deposit.
Solution: We successfully negotiated a reasonable security deposit with an unreasonable landlord.
Healthcare Advertising Agency
Improving the Capital Structure of the Company
Problem: Large Letter of Credit obligation
Solution: We swapped Letter of Credit obligation for certain lease rights that held no value for us.
Injection Molding Company
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
Healthcare Advertising Agency
Succeeding in a Hostile Environment
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had occupied space for ten (10) years under a previous landlord and had paid low rents ($14/SF gross) because of the outdated features of the building ( shell industrial space built out as office space by the Tenant in a 19th century shipping terminal).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.
Six (6) Problems and solutions
Total Improvement Value: $12,080,000
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.
Sale of Portfolio Company
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.
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.
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.