The Sinreich Group

Attorneys at Law

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The Sinreich Group is a New York City based real estate law firm that represents public and private sector clients in connection with the acquisition, development, leasing, financing, repositioning and disposition of real estate throughout the country.

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As the real estate industry braces for what is likely to be a challenging point in the boom/bust cycle, getting each commercial lease over the finish line  takes on greater importance and requires greater finesse. As each lease we work on presents unique challenges shaped by the current real estate climate, we’ve found that our Black Box strategies for minimizing the time, cost and risk of the legal leasing process are more important than ever.        

We originally published our Black Box series in late 2014 and early 2015, and think this is a good time to revisit it.

Here is our introduction to the Black Box.

 The legal lease negotiation process

The legal lease negotiation process

For most real estate professionals, the legal leasing process is a black box. Once the brokers and principals agree to a few salient business terms, the lease disappears into that black box and there is little understanding of exactly what the process is, let alone how to successfully manage it.

Opening the Black Box

The legal process of commercial leasing can, at its most basic level, be summed up by imagining two intersecting axes of conflict that the attorneys need to traverse as they move toward the finish line (see illustration above).

The first axis represents the conflict between precision and urgency. The need for precision can be likened to the need for adequate insurance. The hope is that you’ll never need to depend on it, but boy if you do, having it is essential.  

The conflicting tension at the other end of this axis is the urgency to get the lease signed. This stems from the reality that time kills deals and the longer your lease lingers in the black box, the more likely it is that the other party will be distracted by a cute new puppy or the shiny penny over there that will trump the lease in the box.

The second axis represents the conflict between the desire to get it all, or go for the jugular, and the need to accommodate the other side and pursue win-win solutions.  

At a certain point in every transaction, urgency trumps precision, and the need to accommodate trumps the desire to get it all. But there is an infinite number of paths to that all-important point, and figuring out the most direct one is often tricky. In addition, knowing you’ve arrived at that point can be elusive and requires an intuitive sixth sense even the most experienced attorneys don’t always have. The result is often a process that takes too long, costs too much and jeopardizes the outcome. 

A Fresh Perspective

Spring is (finally) in the air and it's a great time to evaluate what your company stands to gain by taking advantage of the fresh perspective new leasing counsel can provide.

Here are three ways that working with a new attorney can save you time and money and reduce the risk of not getting your commercial leases over the finish line.   

Is Your Form Lease a Dinosaur?

Do you know if your form lease is one of those dinosaurs that slows down every lease negotiation?  One of our clients used its time-worn form for years until we made them aware that not only was it ridiculously one-sided, it was also outdated and internally inconsistent. Cleaning it up required overcoming strenuous internal resistance, but resulted in quicker, easier lease negotiations. 

Are Negotiations Getting Bogged Down?

How long has it been since you've reviewed your standard negotiating positions? If your company's stance on issues such as casualty restoration and insurance coverage trigger long, drawn-out deliberations, that's a wake-up call for a thorough re-evaluation. When we took over the legal leasing work for a suburban office building in New Jersey, we worked closely with the leasing team to update and standardize the landlord's bottom line on non-deal-specific issues. Within 36 months, the property reached full occupancy. 

How Capable Is Your Team?

When is the last time you took a hard look at the real capabilities of your leasing team? Do you know if your leasing reps are skilled deal-makers? Are your construction, property management, and accounting departments responsive and accurate when providing support to the leasing team? In one recent case, a client brought us in to negotiate a retail anchor lease, replacing its long-standing retail attorney. During the negotiation, we helped this client recognize that its broker was jeopardizing the deal before there was a fatal blow. With the help of a new broker, the lease was signed and the tenant is about to open for business.

The Devil You Know

As we move further into the new year, change is palpably in the air. The inclination to cling to what's comfortable and familiar is being challenged locally, nationally and globally. From our vantage point on the front lines of the legal leasing process, challenging what's comfortable and familiar is a great way to get rid of what's not working, and improve everything else.

The Benefits of Shaking Things Up

In opening the Black Box of the legal leasing process we’ve brought transparency to many time-worn, counter-productive habits, including use of the dinosaur form lease, negotiating outside the sphere of reasonableness, and the tendency to ignore the urgency mandate that time kills deals.
 
Underlying the seemingly irrational adherence to these and other practices is the addictive draw of comfortable old shoes and the devil you know, i.e., the insistence of most commercial landlords and tenants on using the same leasing counsel they've always used, whether it be in-house counsel, outside counsel, or a combination of the two.  
 
Blind to the hazards of not trying someone new every so often to shake things up and see first hand what they may be missing out on, most companies continue to plod along and instead, vent their frustration over the time, cost and risk of getting leases over the finish line.

You’ve Got To Measure Performance

In addition to using the same counsel year after year, for better or worse, most commercial landlords and tenants have not developed metrics by which the performance of counsel can be measured, managed, and continuously improved.
 
Do you know if your leasing counsel is providing ‘best-in-class’ legal services?  What metrics do you use to measure this? What procedures do you have in place for selecting new counsel?  
 
If you can’t answer these questions, you probably don't really know if your form lease is hurting or helping you, or if your lease negotiations are consistently efficient and effective, or whether (or not) your leasing teams remain vigilant as the lease nears the finish line. 

A Brave New World

Healthcare is on everyone’s mind these days, as the Trump administration promises (or threatens, depending on your perspective) to repeal and replace the Affordable Care Act. With or without the Act, the healthcare landscape will continue to evolve, and it's altogether likely that today’s urgent care center, which did not exist yesterday, will be unrecognizable tomorrow. 

Healthcare Leases: A Moving Target

For those of us tasked with leasing commercial properties for healthcare uses, planning for these changes is comparable to the future-proofing challenges we face as a result of the rapid changes the retail, office, industrial, residential and hospitality property sectors are undergoing.
 
In addition to striking the right balance between flexibility and certainty so landlords and tenants can respond to the ever-changing healthcare landscape, here are some basic safeguards that are particular to healthcare leases every real estate professional should keep in mind.

Safeguard Your Leases

First, beware of the stark reality that healthcare properties are subject to federal and state laws (some of which are often referred to as Stark Laws). These may impose strict liability and criminal penalties for, among other things, financial arrangements that would otherwise be benign, including below market rents and percentage rent.

Second, healthcare properties give rise to operational risks and responsibilities that must be allocated ahead of time between landlord and tenant so the wrong party doesn't end up on the right side of liability. Heavy water use, as can be expected in ambulatory surgical centers, can give lead to mold, which goes hand in hand with challenging remediation and disclosure requirements.  Unsuspecting landlords entering a healthcare property to perform repairs could find themselves inadvertently guilty of violating patient privacy rights if those rights haven't been appropriately safeguarded by the tenant.

Beware of Certain Uses

Third, specific healthcare uses pose specific risks. Leasing space to a medical marijuana dispensary is a violation of Federal drug laws irrespective of state laws that sanction them.  Women’s health centers may become targets of protests and violence, putting other tenants and occupants at risk.
 
Finally, because healthcare uses don’t fit neatly into typical retail, office, or residential land use categories, a landlord may not have the right to enter into a healthcare lease. Zoning rules and private contractual restrictions can get in the way.

 

The Giant Petri Dish

As the leaves turn from green to red this month, I'll be joining thousands of colleagues at the Urban Land Institute (ULI) Fall Meeting in Dallas, and the International Council of Shopping Centers (ICSC) Law Conference in Fort Lauderdale.  

Attending these conferences is like being in a giant petri dish where I (and my colleagues) can focus on improving the fundamental underpinnings of the legal leasing process in ways that are not possible when we are back at our desks. 

Understand Reality and Seek Vision 

As we've discussed in our last two blog posts, The Blind Men & The Elephant and Digging Deeper, in order to improve the fundamental underpinnings of the legal leasing process, it is essential to approach each lease holistically, so no one is fooled by the rug or the snake, and to work effectively with the underlying structures governing lease negotiations, so opportunities to minimize the time, cost, and risk of getting each lease over the finish line can be leveraged.   
 
In order to develop and consistently apply these skills it's essential to have both a clear understanding of current reality that goes beyond your own experiences, and a vision for how it can be improved.  
 
Attending real estate conferences of the caliber sponsored by ULI and ICSC, with colleagues whose geographic reach, experiences and perspectives are diverse, is the perfect opportunity for both a solid reality check and a renewed and refreshed perspective about what is possible.

Timely Solutions

In Dallas, we'll be tackling the impact of recent trends that are affecting commercial landlords and tenants, such as co-working spaces, omni-channel retailing and same-day delivery warehousing.
 
In Fort Lauderdale, we'll be looking for ways to get closer to a leasing process characterized by landlord and tenant teams that consistently exceed expectations.
 
Your leasing transactions demand the attention of experienced attorneys who are continuously improving the legal leasing process. The Sinreich Group attorneys fit that bill.

Looking forward to seeing many of you in Dallas and Fort Lauderdale!

Digging Deeper

Now that fall is upon us and the pace has quickened, we are enjoying the immediacy of meeting our clients’ third quarter leasing goals. Our success in meeting these goals, quarter after quarter, is fueled by a holistic approach to the legal leasing process, to which we referred last month as systemic thinking.

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This month, and for the next few months, we’ll delve into the different “systemic thinking” principles and tools we use to move the legal leasing needle closer and closer to peak performance.  

Look For The Underlying Structure

The first principle of systemic thinking is that there is a common underlying structure that influences behavior and results across similar types of transactions, notwithstanding that the specific circumstances and participants are different. We believe that access to the underlying structure is a powerful way to work smarter, rather than harder, so that desired results can be achieved predictably rather than sporadically.  

For example, it doesn’t matter whether we are representing the institutional owner of an industrial property in New Jersey or an entrepreneurial retail landlord with one power center in California, over the spectrum of thousands of leases, we are always balancing two separate axes of conflict: precision vs. urgency, and accommodation vs. getting it all.

We know that if we let negotiations drift outside the sphere of reasonableness for a complicated entertainment lease in a mixed use building in midtown Manhattan, the transaction will get bogged down the same way it will for a straightforward suburban office lease in Philadelphia. 

The moments of truth that come up in small leases with “mom and pop” tenants also come up when we negotiate anchor leases with Fortune 500 tenants. Our ability to recognize them and respond in the moment enables us to increase the odds of success time after time.    

Partnering With Our Clients 

We use this core concept as a tool to partner with our clients. We help them uncover internal operational structures that get in the way of their leasing goals, such as multiple, overlapping layers of consent, inconsistent or inadequate construction, legal and operational back-up, or those pesky dinosaur form leases.

The Blind Men & The Elephant

The importance of systemic thinking is graphically illustrated by the parable of the blind men and the elephant. Depending on what part of the elephant the blind men feel, it could be a column, a snake or a rug. The same thing goes for the legal process of commercial leasing.

Unless you approach the legal leasing process with an understanding of all the parts and parties, and how they fit together over the long and short term, there’s a good chance you'll get it wrong, with costly ramifications.

The Holistic Imperative

This imperative provides the underpinning for our Black Box strategies that minimize the time, cost and risk of getting leases that withstand the test of time over the finish line. And these strategies apply before, and during, the negotiation process.
 
For example, before we get inside the Black Box, we work with our clients to ensure that the raw ingredients that go into the Black Box, such as the letter of intent and form lease, will facilitate an efficient negotiation, rather than slow it down. Using a form lease that is one-sided and doesn't meaningfully consider the other party’s perspective is not a smart way to expedite negotiations.   
 
When we’re in the Black Box, the first order of business is to develop a more particular understanding of the needs, goals and challenges of everyone involved: our client, the other party, the other attorney and the brokers, construction and operations professionals, all of whom we will be working with at different points in the process.  
 
During the leasing process, we think a lot about what will happen after the lease is signed. We strive to create a lease that will facilitate a positive, long-term landlord/tenant relationship so that the revenue stream for both the landlord and tenant is protected for the duration of the lease term.

Don't Be Fooled By The Snake

This discipline of systemic thinking during lease negotiations means considering issues from all perspectives over the short and long term. Without it, ramifications range from a costly, slow and inefficient negotiation to a derailed lease that never gets signed. In the extreme, a lease might be signed but end up in litigation.
 
One recent example of a signed lease that was the subject of litigation went all the way to the California Supreme Court. The landlord brought suit to challenge the enforceability of a former tenant's remedies. Evidence presented at trial established that the tenant's demand for these remedies was not based on any analysis of what its future damages might be. This failure by the tenant to engage in systemic thinking during the legal leasing process was the basis for the Court’s finding that one of the remedies was an unenforceable penalty.  

The Whole Elephant

In future posts, we’ll continue to illustrate how systemic thinking during lease negotiations creates value for both landlords and tenants.  
 
Your leasing transactions demand the attention of attorneys who won't mistake the elephant for a snake, column or rug.

Treacherous Terrain

These hazy days of summer are anything but quiet in our corner of the real estate market. As we work on retail, office and industrial leases across the country, we’ve recently navigated treacherous terrain in the Red Zone (that point when the leases are just about, but not quite, ready for signature) that I’d like to share with you.

Red Zone Zingers

Our Black Box strategies to prevent these potential deal killers from killing the deal (hyper vigilance, communication and teamwork) have saved the day time after time. Although it’s impossible to prepare in advance for any particular Red Zone zinger, you can be prepared.

Mobilized and On Message

In one recent Red Zone situation, we represented a real estate investment trust, owner of shopping centers throughout the eastern United States, on a lease with a publicly-owned tenant. Throughout the negotiation, the tenant insisted that the landlord take responsibility for how provisions governing the use of existing tenants might be interpreted in years to come. The landlord consistently declined, but agreed to attach the actual provisions for the other tenants as an exhibit to the lease, so there could be no confusion about the actual language.  

We made sure all open issues were resolved well before the end of the calendar quarter during which the lease had to be signed, including this one, or so we thought. The day before the quarterly deadline, the tenant’s attorney overruled the business rep who had agreed to drop this point. Everyone on the landlord team mobilized, was in communication and on message. At the 11th hour, literally, the tenant did an about-face, gave up on this final point and signed the lease. The moral of the story: sometimes you have to stand your ground and keep pushing to get the lease over the finish line.

Communication and Teamwork

In a current Red Zone situation, The Sinreich Group represents a prominent real estate owner on a complicated entertainment lease. As the lease moved into the Red Zone, the landlord’s key business person left the company, and the tenant suddenly insisted that a newly formed entity with no net worth, rather than the credit-worthy entity whose financials the landlord had approved, would sign the lease. A different prospective tenant made an offer to lease the premises, leaving the landlord no choice but to simultaneously pursue it.  
 
Once again, we put our Red Zone strategies to work: working closely with the landlord’s new business person, negotiations proceeded; a limited guaranty to shore up the shell tenant was agreed to; and after disclosing that there was another interested tenant, simultaneous lease negotiations are moving forward. With two active leases in the Red Zone for the same premises, may the best tenant prevail!

Breaking Bad Habits

We recently attended two real estate conferences: the Urban Land Institute Spring Meeting in Philadelphia, and the International Council of Shopping Centers annual RECON show in Las Vegas. Along with thousands of our real estate colleagues, we shared market intel about getting deals done while the getting remains good.

 ICSC RECON, Las Vegas

ICSC RECON, Las Vegas

In keeping with this urgency, we're picking up where we left off in last month's post Getting Rid of Dinosaurs about form leases that hinder negotiations. Here are some out-of-the-Black-Box pointers for how to turn form lease relics into 21st century frameworks for lasting landlord/tenant relationships. To do this, you'll need to address three key issues:

Modernize Your Form Lease

First, get rid of provisions that address every one-off landlord/tenant situation your company has ever encountered. For example, how often is a tenant going to be endangered by hazardous materials emanating from adjacent properties? Does any landlord really expect its tenant to wait an infinite amount of time for delivery of its premises? Is it really necessary to protect against a landlord putting an elevator shaft in the middle of your premises?

Second, do away with provisions so one-sided as to be virtually unenforceable. Can either party expect to enforce an indemnity against its own gross negligence? What sense does it make to insist on harsh liquidated damages provisions when actual damages are not anticipated or even considered? In a recent California Supreme Court case, the court struck down a standard penalty in a national retailer's form lease because the harm anticipated during the lease negotiation bore no relationship to the penalty.

Keep It Simple

Third, keep it simple. Although it is tempting for attorneys to elaborate, incorporating every conceivable nuance into every lease provision bogs down negotiations and often creates ambiguity rather than certainty. Is it really necessary to require a landlord to deliver a certificate of occupancy for the premises when landlord's work is complete AND there is written evidence that landlord's construction obligations have passed governmental inspections?

Break That Bad Habit

I can only imagine the money and time spent by countless landlords and tenants that have labored (and likely will continue to labor) over these and other similarly non-essential provisions in form leases used year after year.

Getting Rid of Dinosaurs

As we move with our clients into one of the busiest times of the year, we’ve noticed that the intensity with which we drive ourselves to produce extraordinary results often gets in the way of taking a step back to evaluate whether we’re working smarter, or just harder.  

So we thought this would be a good time to share one of our Moments of Truth strategies for working smarter to minimize the time, cost and risk of getting commercial leases over the finish line.

Each of the ingredients that go into the Black Box of the legal leasing process: the landlord and tenant teams, the attorneys, the letter of intent and the form lease has a profound impact on the timeliness, costliness and riskiness of the process.

Don’t Let Dinosaur Forms Derail Your Leases

While the attorneys and principals are carefully selected and letters of intent are carefully scrutinized before they get into the Black Box, what gets carelessly tossed in is the form lease, which is often a decades-old repository for every leasing issue with which the party generating it ever dealt.  
 
Both landlord and tenant suffer as a result. It doesn’t matter whether you’re the 800 pound gorilla who gets to impose its form lease on the transaction (unless the other party signs it without reading it) or the 90 pound weakling on the receiving end. Both parties will spend countless hours and dollars to craft a landlord/tenant framework that reflects the deal to which they agreed. No wonder so many leases take too long, cost too much or get derailed along the way.
 
A recent example of a thoughtlessly used form lease involved a ground lease for the development of a fast food restaurant in the parking lot of a shopping center. The landlord attempted to use a form lease created for leasing existing space to small retail tenants. The tenant responded with its equally inappropriate form lease. We were called in to resolve the battle of the forms, and did so by creating a lease both parties could embrace. 

Getting Ahead of the Black Box

In addition to solving this problem on a case by case basis inside the Black Box, we’ve been working with our clients outside the Black Box, so that the threat of a dinosaur form lease is eliminated.
 
To do this, we’ve created a methodology to update and streamline form lease relics into 21st century frameworks for lasting landlord/tenant relationships.  
 
It’s an all-hands-on-deck process. Input and buy-in from legal, leasing, operations and construction are essential. When all is said and done, it’s a great way to create value both inside and outside the Black Box.  

Hitting the Curve Ball

As the 2016 presidential race picks up steam, we are moving full speed ahead to make sure our clients meet their first quarter leasing goals. We love the quickening pace and thought this would be a great time to share some of our Moments of Truth strategies for minimizing the time, cost and risk of getting commercial leases over the finish line. 

Today we explore curve balls, our term to describe situations that arise without warning in the Black Box of the legal leasing process. Depending on how they’re managed, these can accelerate, delay or kill the deal. 

Don't Let Curve Balls Derail Your Leases

Although it’s not possible to prepare ahead of time for curve balls, we’ve figured out how to be ready when they come to light, so the deal accelerates rather than slows down or dies.

Here are some examples of recent curve balls that threatened leases just as we were finalizing them: a pet store lease my client, the landlord, realized was not permitted in the shopping center pursuant to the terms of an existing anchor lease; a restaurant lease for a franchisee/tenant who had not “remembered” to provide the landlord with the franchisor’s lease requirements; a health club lease for a tenant whose water/sewer requirements could be restricted by an impending sewer moratorium in the local jurisdiction.

Hitting Them Out of the Park

Ever vigilant, we saw these curve balls materialize, and reached into our handy-dandy strategy toolkit, mobilizing a collective effort to move the lease over the finish line.

Here’s how we did it:   

Step 1. We worked very closely with our client to devise and execute a winning plan of action.

Step 2. We took full advantage of the good working relationships we developed with the attorney and principal on the other side, and made sure everyone was focused and in action.

Step 3. We kept everyone informed about the nuances and tenor of the negotiations as we made progress.

Step 4. We never lost sight of the fact that time kills deals, no matter where we are in the process.

Seize the Moment


Fall, the season when things speed up, is upon us. Our clients are focused on year-end deadlines and we’re focused on meeting those deadlines.  

Given the pressure most of us are under to wrap things up by year’s end, I thought this would be a good time to share some of my strategies for making sure that what happens in the Black Box of the legal leasing process doesn’t hold things up.

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Moments of Truth

As we make our way through the Black Box, there are pivotal points when lease negotiations can stall, fall apart or move full speed ahead, depending on how adeptly Black Box maneuvers are handled. I refer to these pivotal points as Moments of Truth and I have a variety of strategies for managing them.

Setting the Tone

The first Moment of Truth that comes up in every transaction is Setting the Tone. This happens early in the Black Box process, and, for better or worse, can color the balance of the negotiation.   

If the tone set is unproductive or intransigent, the lease in the Black Box will be at risk. If that happens it’s essential that one or both attorneys (or their clients) recognize that a re-set is necessary.

Re-Set If Necessary

For example, in a recent lease transaction between a large public REIT and a national retailer, the parties exchanged lease drafts that bore little resemblance to the deal agreed to by their leasing representatives, thus setting the tone for a tedious, unproductive negotiation. Luckily the REIT recognized the need for a re-set and brought me in to do just that. I revised the tenant’s lease draft to reflect the agreed-upon deal, which enabled the negotiation to move productively toward a final lease.
 
In another lease negotiation that required a re-set, I represented the owner of a suburban office building where a small tenant hired a large, prestigious law firm to handle its lease negotiation. Its attorney marked up the landlord’s form lease as if the small firm was an anchor tenant negotiating its headquarters lease.  
 
This time, I recognized that the tenant’s attorney was tone-deaf and enlisted my client, the building owner, to re-set the tone with her counterpart, the tenant’s president. After that, we were down to just a handful of issues rather than the exhaustive re-draft that had been looming.

Accelerate vs Stall

Over the coming months, I will share my strategies for handling other Moments of Truth so that negotiations accelerate rather than stall at pivotal points. 

Envisioning the 2020 Lease

As time marches on, the inevitability of change is a constant reality for all of us in the real estate industry. In past blog posts, including our recent July 2015 Game Changers issue, we've highlighted how the built environment is evolving in response to changing demographics, technology, sustainability and a whole host of other factors.  

For every asset type, from residential to industrial, value is inextricably linked to staying relevant. We believe that the lease — which governs how tenant-occupied, income-producing property is used, operated, maintained and renovated — significantly influences the rate at which the underlying property can evolve and stay relevant, or not. 

Envisioning the 2020 Lease

As a result, we envision that the ideal lease of 2020 is one that anticipates, encourages and facilitates changes over the lease term that will optimize the value of the subject property in ways that traditional lease structures do not.  

Getting to this ideal lease will be tricky. Most efforts to step away from traditional lease structures are met with great resistance and those traditional structures often incorporate a delicate and hard-fought balance between control and certainty on one hand, and flexibility and innovation on the other.  

Energy Aligned Green Lease

However, there is a precedent for advancing into new leasehold territory in order to facilitate innovation and value creation that I believe holds the key to developing the ideal 2020 lease. It is often referred to as an Energy Aligned Green Lease.
 
The Energy Aligned Green Lease emerged from the realization that traditional lease structures disincentivize landlords from making energy efficiency improvements to their properties. To correct this, a New York City task force of real estate professionals was convened by Mayor Bloomberg as part of New York City’s PlaNYC. The fruit of their efforts, a provision that requires the tenant to contribute to the costs of future qualifying energy efficiency improvements at a rate that makes it financially palatable for the landlord to make these improvements, is the crux of an Energy Aligned Green Lease.  
 
The details governing this requirement on the tenant's part coalesce into a significant departure from a traditional lease, whether it be a triple net, gross or modified gross lease; and in the details, lie the differences that make the difference between inaction on the landlord's part and taking action to improve the property and thus add value. 

Future-Proof Your Leases Now

For sure, challenges still abound, including the challenge of getting landlords, tenants and their attorneys to incorporate this and other "new" structures into their leases.  

As the pace of change accelerates, the need for building greater flexibility into leases will increase. I believe the Energy Aligned Green Lease is a potent example of a 2020 approach to leasing that incorporates the flexibility necessary to facilitate asset value optimization.

Now we just have to use it.

The Conference Round-Up

Exuberant is the word I would use to capture the mood on the recent real estate conference circuit that took me from New York to Houston for the Urban Land Institute Spring Meeting and then to Las Vegas for the International Council of Shopping Centers’ annual RECon convention. The reasons for this optimism are straightforward: increased transactional activity, occupancy levels, rental rates and asset valuations.

 The legal lease negotiation process

The legal lease negotiation process

Keeping the inner workings of the black box — the little understood and often dreaded legal process of commercial leasing — top of mind (see our recent Black Box series of blog posts), here are some interesting takeaways from my conversations with some of the thousands of global real estate leaders that attended each conference.

Precision vs Urgency

Harkening back to our conviction that in negotiating a commercial lease, the urgency mandate must ultimately trump the desire for precision insurance, almost everyone I spoke to at each of the conferences complained about the time it takes to get a lease over the finish line and the painful opportunity costs of long, drawn out legal lease negotiations.
 
The CEO of a publicly traded landlord shared two strategies that his company is resorting to in order to reduce the time it takes to complete lease negotiations. First, they are negotiating multiple leases (with the same tenant) at one time whenever they can. Second, they are short-circuiting the entire lease negotiation by agreeing, almost sight unseen, to accept the last lease a prospective tenant negotiated with a different landlord.

Getting It All vs Accommodating the Other Side

The willingness to be flexible (a buzzword for accommodating the other side) on the part of both landlords and tenants came up often in conversations with office, industrial and retail professionals. This reflects two trends that were evident at both conferences.
 
The first is the eagerness to make hay while the sun shines. While practically everyone in the real estate industry is enjoying the uptick in transactional activity, none of us has forgotten the dark days of the recent great recession.
 
The second is that flexibility is being demanded of the actual real estate product itself. To stave off obsolescence, office, retail and industrial properties are evolving to meet the changing needs of tenants/occupants. Examples include former Kmarts that are now urgent care centers and office buildings that are being designed to accommodate coworking spaces, such as those operated by We Work, said to be the fastest growing office tenant in the US.

Managing the Red Zone

Remembrance of things past, including the busted deals and lost opportunities that result from carelessness in the Red Zone (that point in time when the lease is just about ready to be finalized), has not yielded any improvements in red zone management that were evident at either conference.
 
In fact, I spoke with a national tenant who expressed significant frustration because a key lease transaction was held up in the red zone as a result of the landlord’s inability to locate their ground lease site on the shopping center site plan. I kid you not!

The Sinreich Group can help your company get its leasing transactions over the finish line quickly and cost-effectively. Call us today, you can’t afford not to.

 

The 360 Lease Review

In our recent Black Box Series of posts, we exposed what the legal process of commercial leasing is: a balancing act along two intersecting axes of conflict that ultimately results in a finalized lease. Understanding what goes on in the black box is just the beginning when it comes to creating a world-class process for getting leasing transactions done as quickly and cost-effectively as possible, a goal all of our clients share.   
 
Unfortunately most real estate professionals don’t have a methodology for measuring the legal leasing process. Although they all want it done with greater speed and less cost, given the reality that “if you don’t measure it, you can't manage it,” most commercial landlords and tenants find it frustratingly difficult to improve.  

360 Lease Review

Going beyond our role as leasing attorneys, we saw an opportunity to partner with our clients by tackling this issue. The result is our 360 Lease Review, an out-of-the-box methodology for quantitatively (and qualitatively) evaluating the legal process of commercial leasing before and after every leasing transaction, so the process can be meaningfully and continuously improved.

Here’s a look at how we developed the 360 Lease Review.   

A Tool For Continuous Improvement

Essentially the 360 Lease Review is a business improvement tool designed to be consistently applied to the business of commercial leasing in order to continuously improve it.  
 
In developing the 360 Lease Review, the first step was untangling the legal leasing process. We broke the process open into a series of conflicting and interlocking factors that we described in our recent Black Box Series.

Next we identified the raw materials that go into the black box, including such things as the letter of intent, the form lease, and ongoing client support, and we developed a methodology for scoring each ingredient and how it impacts each performance factor.  

For example, a letter of intent that accurately covers 90% of the issues that are important to the transaction will positively impact black box performance in three very important ways: first, it will improve performance on the desire to get it all vs need to accommodate axis; second, it will accelerate the process, contributing to a high urgency mandate score; and third, it will facilitate a greater level of accuracy in the final document, contributing to a high precision insurance score.  

The resulting 360 Lease Review for each lease is a series of these and other scores that are weighted in terms of importance, as well as a narrative evaluation, that roll up into a final score that corresponds to how quick and cost-effective the legal leasing process was for that lease.  

The scores from each lease review are also quantitative data points that can be compared from lease to lease to identify positive and negative trends, thus enabling real estate professionals to diagnose what parts of the transformation process need to be fixed and which raw materials need to be enhanced in order to consistently improve their legal leasing process until it is second to none.    

Stay tuned for a deeper dive into each of these steps.

Managing in the Red Zone

Our black box series on the legal leasing process concludes this month with part three of our secret sauce for managing what goes on during that often-dreaded and little-understood process.

Close But Yet So Far

This month we bring our focus to the red zone: that point in the negotiations where just about all the issues have been resolved and the lease is almost in final form. Close to the goal line, but not quite there yet.  

Just as a questionable call in the red zone had disastrous consequences for the Seattle Seahawks in this year's Super Bowl, poor management of the legal leasing process when the lease is just about finalized can also have radical implications.

When lease negotiations reach the red zone, I rely on a heightened level of vigilance to make sure the lease makes it to the goal line and gets signed. I know that if I let down my guard or take my eye off the ball, what looks like a win can easily turn into a loss.

Pivot, Turn and Stay Flexible

Here are some examples of what can and has happened in the red zone: the tenant is a franchisee and “remembers” that the landlord needs to enter into an agreement giving the franchisor rights under the lease that could derail the deal; the bank issuing the letter of credit that will serve as a security deposit finally produces a draft that the landlord won't accept; the local jurisdiction issues restrictions that could have serious implications for the tenant’s permitted use. Time for everyone to mobilize to bring the lease into the end zone.

Strategies to Get Across the Goal Line

Here are the strategies that we rely on to get there. The first strategy is teamwork: we take full advantage of the good working relationship we’ve developed with the attorney and principal on the other side and make sure everyone is focused and in action. The second strategy is coaching: we work very closely with our client to devise and execute a winning plan of action. The third strategy is communication: we make sure everyone is informed about the nuances and tenor of the negotiations as we make our way forward. The fourth strategy is speed: we never lose sight of the fact that time kills deals, especially when they’re in the red zone.    

 

Maneuvering in the Box

As leasing traction continues to accelerate, our black box series on the legal process of commercial leasing continues with part two of our secret sauce for managing what goes on during that often-dreaded and little-understood process.

Last month we focused on the precision vs urgency axis and how we balance the need for precision insurance against the reality that time kills deals.

 The legal lease negotiation process

The legal lease negotiation process

This month our focus shifts to managing the simultaneous conflict on the other axis between each party’s desire to get it all and the need to accommodate the other side so that a meeting of the minds can be achieved.

The Zone of Reasonableness

In order to successfully traverse this axis, we start by scoping out the boundaries within which meaningful negotiations can take place, a zone of reasonableness, so to speak.  
 
Negotiating outside the zone is largely a waste of time and money. For example, it would not make sense for a 2,000 square foot tenant to try to modify the condemnation clause in a New York City Class A office building lease, but it could make sense in the case of a 300,000 square foot tenant.   

The size of the zone of reasonableness, which can range from a pinhole (one or both parties insist on getting it all) to an ocean (both parties are willing to accommodate), will be based on the relative bargaining power of the parties and influenced by a variety of other factors including timing, personalities and relationships.

Forging the Win-Win Deal 

Once I understand the boundaries of the zone, no matter how lopsided the parties’ relative bargaining power is or which party I represent, I can operate from a position of strength to guide the negotiation to a point on this axis that represents a meeting of the minds.  
 
In my opinion, and it doesn’t matter whether I represent the 900 pound gorilla or the 90 pound weakling, that point should represent a ‘win-win’ for both parties. After all, the success of the legal leasing process is not just getting to the finish line, it’s also about forging a viable long-term relationship between landlord and tenant.

The Need to Accommodate

As I noted in December, at a certain point in every transaction, the need to accommodate the other side trumps the desire to get it all. Managing this tension with the parties’ long- and short-term goals in mind is another part of our strategy for creating value as we toil away in the black box.   
 
Stay tuned next month as we pull the axes together, and call us today to negotiate your leases. You can’t afford not to.

A Deeper Dive

Last month we opened up the black box that constitutes the legal process of commercial leasing and received an overwhelmingly positive response from many of the landlords, tenants, brokers and lenders whose real estate fortunes are tied to the commercial leasing process.  

This month, we continue the black box series with part one of an exposé on our secret sauce for managing what goes on in there.

 The legal lease negotiation process

The legal lease negotiation process

Precision vs Urgency

Our focus today is on the precision vs urgency axis: the conflict between the need to get everything right and the reality that time kills deals. To effectively traverse this axis, the starting point for me with every new client is to earn the right to move fast. By demonstrating command over the details and nuances of the transaction at hand in a way that transcends that particular transaction, I make sure that my client gains a strong level of comfort that they made the right choice of attorneys.  
 
Simultaneously I find out where my client’s focal point is on the urgency/precision continuum generally and specifically for the lease we are working on.   
 
Some of my clients read every word of every document they sign and for them, precision down to crossing every “t” and dotting every “i” is crucial. I have other clients who take more of a big picture approach. In fact one said to me just yesterday: “We are not interested in crossing the ten “t’s” in every sentence, eight out of ten will do. We are much more interested in getting the deal DONE. But of course,” he added, “we need to protect ourselves and make sure the document accurately reflects the deal.”

Achieving Precision

As this client articulated, no matter where a client stands on the precision vs urgency axis, every client needs to know they have an acceptable amount of precision insurance. And no lawyer worth their salt would ever finalize a document they knew to be sloppy, wrong or ambiguous.
 
During lease negotiations, I actively manage two aspects of the precision goal. The first is expressing each concept in the lease with clarity so someone else can understand it, both today and ten years from now. The second is coherence: making sure all the provisions work together. For example, if the landlord's work can’t be performed until the tenant’s plans are complete, other provisions of the lease that need to come together to trigger the all-important obligation to commence rent payments have to be coordinated accordingly.

Respecting The Urgency Mandate

As I noted last month, at a certain point in every transaction, urgency trumps precision. Managing this tension with the endgame in sight is one way we make sure the process doesn’t jeopardize the outcome. And that’s part of our strategy for creating value as we toil away in the black box.  
 
Next month we’ll take a deeper dive into the second axis of conflict: the desire to get it all vs the need to accommodate the other side.

 

Opening the Black Box

Last week I spent two amazing days with over nine thousand commercial landlords, tenants, brokers and lenders at the International Council of Shopping Centers (ICSC) New York Deal Making Conference here in New York City. There are not many other gatherings of this size (or any size really) where practically everyone's financial well-being is inextricably linked to the occasionally welcomed, but most often dreaded, legal process of negotiating a commercial lease.  

 The legal lease negotiation process

The legal lease negotiation process

At the conference, elements of this process were discussed repeatedly and those conversations confirmed my suspicion that for many professionals in the real estate industry, the legal leasing process is a black box. Once the brokers and principals agree to a few salient business terms, the lease disappears into that black box and there is little understanding of exactly what the process is, let alone how to successfully manage it.
 
So in this post I am going to open up that black box — the legal process of commercial leasing — and in the next two posts I am going to share my secret sauce for managing it.  

Opening the Black Box

The legal process of commercial leasing can, at its most basic level, be summed up by imagining two intersecting axes of conflict that the attorneys need to traverse as they move toward the finish line (see illustration above).

The first axis represents the conflict between precision and urgency. The need for precision can be likened to the need for adequate insurance. The hope is that you'll never need to depend on it, but boy if you do, having it is essential.  

The conflicting tension at the other end of this axis is the urgency to get the lease signed. This stems from the reality that time kills deals and the longer your lease lingers in the black box, the more likely it is that the other party will be distracted by a cute new puppy or the shiny penny over there that will trump the lease in the box.

The second axis represents the conflict between the desire to get it all, or go for the jugular, and the need to accommodate the other side and pursue win-win solutions.  

At a certain point in every transaction, urgency trumps precision and the need to accommodate trumps the desire to get it all. But there are an infinite number of paths to that all-important point and figuring out the most direct one is often tricky. In addition, knowing you've arrived at that point can be elusive and requires an intuitive sixth sense that even the most experienced attorneys don't always have. The result is often a process that takes too long, costs too much and jeopardizes the outcome.  

Stay tuned as I dig deeper into the black box and share how we traverse those axes of conflict to create value for our clients.   
 

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