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February 2009 |
Miller, Rubenstein,
Hoffman & Hawkinson
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Market insight results in tenant-favorable lease terms
 Today's economic conditions are putting pressure on
commercial landlords in unprecedented ways. With the help of an experienced tenant representative, tenants can be placed in prime position to translate that mounting turmoil into very favorable lease terms.
Similar to the mess in the residential market, many of today's commercial landlords are on a sinking raft in a rising tide of debt needing to be re-financed. Seriously complicating matters is the unwillingness of lenders on either shore to
toss them a line. Landlords are being left to ride out the flood by scrambling to secure enough rental income to service their current or future debt obligations.
Additionally, the economic storms have caused commercial property values to drop steadily over the last 12 months. This firmly cements financially healthy tenants that need new space as the most credible road to safety for a landlord with
available space. This, in turn, puts those tenants in a position to have substantial negotiating leverage. With good judgment and experience, your tenant representative should be able to provide a solid analysis of a property's financial
picture and use the building's need for stability as way to craft a fair but tenant-favorable lease.
Your tenant rep can also provide information about the current building owner's term of ownership, specifically determining when the building was purchased or most recently re-financed. Most buildings carrying debt that originated in the
last few years--during a period of record sales prices and aggressive mortgage underwriting--will most likely be causing their owners the most financial difficulty. If one of the buildings you are considering has been acquired or
refinanced in the last few years, it may be worth giving it a second look.
A property being prepared for sale can also provide potential tenants with a chance to secure a very advantageous lease. Commercial property investors are simply buying an income stream driven by their tenants' monthly rent. When marketing
a building for sale, landlords tout the building's income against its operating costs. If your need for space will represent a significant portion of the building income, a landlord preparing for a sale will have little choice other than
to do as much as possible to secure your tenancy.
Tenant representatives who have practiced in a particular market for a number of years can provide outstanding insight into the leases of other companies. He or she should be able to leverage information about expiration dates, rates and
other critical terms of tenants already in place. Knowing that a particular tenant is planning to relocate or downsize can mean the landlord will be additionally motivated to sign a new tenant as soon as possible, especially in such a soft
market.
The verdict has been delivered: it's a tenant's market. And even though the economy has stacked the jury on behalf of tenants nationwide, the importance of proven, un-conflicted tenant representation should never be overlooked.
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SNDA Agreements can offer tenants protection in event of foreclosure
 In the midst of such a turbulent real estate market, where
looming economic troubles will be severely challenging commercial landlords throughout 2009, companies seeking new space or renewals would be wise to fight hard for the inclusion of "non-disturbance" clauses to accompany subordination and
attornment language in their lease. These lease components often accompany each other and are commonly referred to as the "SNDA" clause.
In essence, SNDA language safeguards a tenant's right to remain in its leased space should a lender foreclose on a property and take over as landlord. The "subordination" clause, common to almost all commercial leases, means that the
lender's lien on leased space is the first lien, or highest priority lien. The majority of lenders require landlords' leases to include subordination clauses that give the lender's lien priority not only over leases, but all other
agreements between the landlord and tenants, regardless of when any of them were signed.
After a lender takes over as landlord, it is "attornment" language that requires all tenants to formally recognize the lender as their new landlord. This is critical to the lender because it prevents a tenant from being released from its
lease obligation when a new landlord assumes control. It provides the lender with the assurance that the building's revenues will remain intact during and after the transition, according to the previously agreed-to lease terms.
While the attornment language prevents the tenant from terminating a lease, a lender can still terminate a lease at its discretion if the tenant does not have the right protection language in its lease. This poses a particularly hazardous
proposition for tenants that are paying below market rent at the time of the foreclosure or would otherwise be undesirable to the new landlord due to their usage of the space, business type or location within the building. It is for this
reason why the third component of the SNDA language, the right to "Non-Disturbance," is so critical for tenants. It is this language that protects the tenant's right to remain in its space after a lender forecloses.
As part of the non-disturbance language, tenants should consider negotiating for terms that state the lender specifically agrees to assume all responsibilities of the landlord, which include the building's ongoing operation. This is
especially important if the building was under renovation or the landlord was responsible for outstanding repairs to the building prior to foreclosure.
Most lenders are going to insist your landlord include subordination and attornment clauses in your next lease. They are considered reasonable terms of any lease for commercial real estate. However, make sure your tenant representative
properly represents your interests and negotiates for adequate non-disturbance language as well, especially as the nationwide rate of commercial foreclosures continues to rise.
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Tenants should be wary of false LEED certification claims
 Climate change conscious commercial property has become one
of the most sought after requirements for today's tenants. Unfortunately, despite the green construction trend's relative immaturity, it has already become a target for hyperbolic marketing and misinformation. Specifically, the number of
building owners making false claims about LEED certification is quickly rising.
Not all claims of green certification are necessarily egregious acts of false advertising. Typically, incorrect claims are the result of builders' and other construction professionals' misunderstanding the certification process and the
timelines involved with obtaining it. In many cases, developers tout LEED registration on a building while it is still in the qualification process. The US Green Building Council (USGBC) commonly awards pre-certification during
construction but only a completed building can achieve full-fledged LEED certification.
Many developers break ground with the best of green intentions, marketing the eventual delivery of a Platinum (the highest level of certification) certified property. Since the process involves a multitude of professionals, including
architects, engineers and subcontractors, the road to actual certification is strewn with obstacles. Thus, the end result could be the opening of a Silver LEED certified property or a property that is unable to obtain any level of
certification.
It seems that the race to sustainability has created a sense that anything green is good. Furthering the falsehoods is a sweeping generalization that even the most remotely beneficial eco-friendly construction trait makes a building
"green." This is dangerous because such pervasiveness of exaggerated energy efficiency claims will eventually lead to an exponentially greater ignorance of what really makes-up LEED certification and to a greater extent, how the real
estate industry can really make a difference.
As a result of the LEED process's justifiably high standards, USGBC professionals are often at odds with developers seeking to promote their LEED affiliation. No promises are ever made to builders, and it is advised that certification not
be openly promoted until several of the qualifying standards are already in place.
A good reason for the early promotion of certification is that studies have shown properties that are recognized as environmentally sound attract more tenants and have greater re-sale value. For developers and tenants who seek tax credits
for green construction and equipment, the verification of actual certification should be a priority, as incorrect tax filings or relied-upon financial benefits that never reach fruition can create a wide range of additional business
complications.
While achieving any level of LEED certification is a very admirable construction goal, a property's environmental benefits should never mislead interested tenants, especially in such a critical stage of the global green movement's
adoption. Overstated marketing initiatives and the perpetuation of misinformation will only de-rail sustainable construction efforts and quickly erode their justification.
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The Miller Richmond Company Represents The City of Sandy Springs
 The Miller Richmond Company is pleased to announce that it
has successfully represented The City of Sandy Springs in its acquisition of a retail building and associated parking formally owned and occupied by the popular retailer Target. The acquisition included a 96,213 square foot "big box"
retail building located on 7.758 acres. The site is located at 235 Johnson Ferry Road in Sandy Springs (a recently incorporated suburb of Atlanta). The purchase price was $8,000,000.00 ($1,031,194/acre).
According to David Rubenstein, the Miller Richmond broker who handled the transaction, "we knew The City was interested in securing a centrally located site for a future City Hall complex. When Target decided to relocate its Sandy Springs
store to the redeveloped Prado Shopping Center, we felt that their former site could be the right option for the City. Fortunately, because of today's soft retail and commercial real estate markets, we were able to negotiate an attractive
purchase price for the City that would have been unimaginable a year or two ago. This was clearly an opportunistic buy."
Sandy Springs has no current construction plans or timetable for the former Target site. Civic leaders have expressed their hope that a new City Hall complex at this location would be a catalyst for the overall redevelopment of the heart
of the Sandy Springs. The current City Hall is located in a leased facility at 7840 Roswell Road. It is anticipated that the City will stay at this location until a new City Hall complex is complete.
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