Assigning Your Lease? Selling? Know your Lease…

Due to our active real estate market, we have come across an increasing amount of commercial tenants who are successful in selling their business to a new prospect, however, they fail to review the underlying requirements for “assignment” or “subletting” under their lease agreements. For the Landlord, this clause represents the battle for control of its property. For the Tenant, it has become important in creating asset value for the sale of their business. The Assignment and Subletting clause is contained in virtually all leases, and should be crucial to any buy/sell agreement and negotiation. Legally, there is a difference between assignment and subletting. An “assignment” constitutes a transfer of all of the existing Tenant’s (assignor’s) interest, rights and obligations, and a “sublet” constitutes a transfer of less than all of the interest, rights and obligations of the Tenant (assignor). Suffice it to say that the complete understanding of the legal differences between these two should be discussed with your attorney, as should any transfer of a business that involves an underlying lease agreement. For the purposes of this discussion I am going to treat both situations simply as a ‘transfer’ of interest and assume there is an existing lease agreement/Landlord to contend with. The Landlord’s objective is to maintain control of its property. The Landlord will look at entering into a specific lease transaction with a particular Tenant that has met certain requirements through the negotiation process. A new lease evidences that the prospective Tenant that has satisfied the Landlord as to that specific Tenant’s financial strength, credit worthiness, use of the space, ability of the Tenant to pay rent and maintain the property. Most Tenant’s during their negotiation process with a Landlord will insist on reserving the right to ‘transfer’ their lease obligations to someone else in the event the Tenant runs into financial difficulty, desires to sell his ‘business’ or ‘company’ for a profit, or in some cases, finds a need to move to larger space or determines the space is unsuitable for their use. Transfer of the majority interest in corporations or partnerships, acquisition of a company, mergers, etc. typically also require Landlord’s consent. In short, the Tenant’s objective is to preserve a way to dispose of their lease obligation in the event a ‘change’ occurs, as outlined above. The Landlord will closely scrutinize any ‘change of control’ of the rent obligation agreed to being transferred to another who is not financially qualified and capable of fulfilling the terms of the underlying lease already in place. Historically, most leases state the Tenant has ‘no’ right to transfer its lease interest without the ‘prior consent of the Landlord’. We have continued to see certain leases contain language that provides for unilateral consent on the part of the Landlord, and even the right to withhold that consent. Since the late 70’s most courts would rule such unilateral consent as a potential act of bad faith. Most jurisdictions will rule that the Landlord has the right to prior consent, but that such consent cannot be unreasonably withheld and further that the Landlord has the right to request certain protections and standards exist prior to any such transfer. The lease should spell the required need for prior Landlord approval, the need for the current Tenant to be in full compliance of the lease and not in default, and should set forth guidelines for the right to transfer. These would include financial creditworthiness by any new assignee, experience and reputation, no change in use, no change in use of common facilities that would interfere or inconvenience other Tenants in the complex, i.e. heavy parking. Further protections could involve the transfer of option periods previously negotiated, rent changes to fair market value, increases in annual or percentage rent, etc. Of course, all of these should be outlined in the specific section of the lease regarding the event of transfer. The more detailed the language of this section, the less likely disputes or law suites will arise. An attorney can review your lease agreements to determine if such modifications would be beneficial to you as an owner/Landlord. What has become a recent occurrence is the Tenant, who is selling their business, assets, etc. ‘prior to obtaining Landlord consent’. That can become a difficult position to be in for the new Assignee/Tenant, who thinks they can just step into place of the original Tenant, call the Landlord or property management company and just make a written or verbal representation as to ‘the change of interest’. A violation of the “Assignment” provisions of a lease may allow the Landlord the option to terminate the original lease. When the issues of assignment arise, it is most often initiated by the Tenant for the Tenant’s benefits. This puts Landlords on the defensive to protect their investment. Markets change, companies change their business plans, a buyer makes an attractive offer to purchase a business and it’s hard to refuse. For these and many more reasons, it is imperative for any new prospect to obtain a copy of the underlying lease agreement and review the document with your broker and attorney to determine the requirements necessary to have a smooth transfer of interest.

As varied as the types of commercial property are different classifications of property managers. It can be an individual owner, a member of a firm specializing in property management services, or a member of a large, multiservice i.e., brokerage, financing, title services and property management. A property manager may also work within the trust department of a financial institution or work as an employee of a public or governmental facility. The primary goal of the property manager is to assume the responsibility of maximizing the net income from a property and providing timely cash glow and an accurate report of activities on the Owner’s behalf. Commercial real estate requiring professional property management services consists of office buildings, retail properties and industrial properties. Office buildings can be multi-tenant Class A highrise complexes, garden office style complexes, office condominiums, or single tenant building. Almost all multi-tenant office buildings are professionally managed. Retail properties include freestanding stores and restaurants, commercial strip centers, neighborhood shopping centers, community shopping centers and large shopping malls. Industrial properties may include light and heavy manufacturing plants along with warehouse/office developments for service and storage of products. Typically, property management is involved in multi-tenant projects and business parks. In our market, due to its size, most professional property management companies will include a mix of all three commercial property types. As professionals, we perform the tasks of projecting cash flow and preparing annual budgets, reconciling CAM (common area maintenance) expenses at year end, collecting rent, supervising vendors to maintain the interior and exterior of the properties, ensure competitive pricing/bidding for vendor services, assist in obtaining competitive insurance for the owner’s property, paying taxes on the property, mortgage payments on behalf of the owner, keeping accurate records, provide detailed property inspections, responding to security issues, and in our market, hurricane related events. Responsibilities may also include lease negotiations, renewals of leases with existing tenants, tenant screening for new tenants, advertising and space merchandising. We must generate absolute confidence in everything we do. The professional property manager is a true “problem solver”, and it is always to goal of any property manager to solve problems, not merely report them. If a potential problem occurs that is not within the approved CAM budget or maintenance plan, it is carefully reviewed with the Owner along with a proposal for a solution along with an estimate of cost. Upon approval by the Owner, typically when an expense occurs that exceeds $500.00 or is an expense that would be considered an owner expense, the property manager’s job is to execute the solution. The need for professional property managers with sophisticated management skills and extensive technical training and skills increases daily, especially with the growth our market is currently experiencing. Professional property managers must also maintain the highest ethical standards. Ethics is a rule of conduct, and refers to integrity, fidelity and competency. In addition to a property manager’s fiduciary responsibilities to their owners and clients, ethical standards go beyond the legal realm. Honesty and integrity are as important to a property manger as skill, knowledge and experience. It is the vital foundation of a successful property management firm. Property managers cannot be satisfied with achieving benefits the owner could achieve without professional property management services, but rather, because of our services. The benefits we provide accruing to the Owner must be superior to those the Owner could achieve using their own efforts.

New Light Shed on “Shadow Retail” Most of us are frequent visitors to “Shadow Retail” locations, and though we may not realize the tactical strategy that brought us there, we appreciate the convenience and selection of retail stores. An anchor store is the largest, or one of the largest stores in the center. These stores “anchor” the center and draw significant retail traffic. They are generally the major demand generator to the center, and the traffic generated results in visits to the smaller (or inline) stores in the center. In addition to the inline space located within the center, a nearby shopping center could be considered as “Shadow Anchored” by the adjacent anchor stores. These anchors are in proximity, but not formally part of the same center.  Shadow Retail often benefits from the same access points into the center, traffic counts, and demographic profile. Shadow Retail further benefits at no cost from advertising dollars spent by the anchor retailers’ sales and promotions which enhance the number of visitors. Locally, Shadow Retail is rapidly escalating as national brand retailers continue expansion efforts with a key focus on “Class A” locations. Pre-leasing is occurring in all top locations in Lee County and interest from retailers is wide-reaching. Many tenants, including national, regional, and local businesses know how crucial the right location is, are willing to wait for it, and once they find it, are ready to pay for it. Shadow Retail centers are commanding rental rates between $30.00 and $40.00 per square foot (triple net). Local examples include: Colonial Blvd and I-75 (Fort Myers) To be developed as a 6,000+/- square foot local retail center shadow-anchored by The Forum at Fort Myers—a multi-tenant shopping center with Target, and Home Depot within a large master-planned development. The new center has already caught the eye of a several fast-casual restaurants and multiple national mobile phone companies. Daniels Pkwy and I-75 (Fort Myers) Proposed developed of approx. 9,000+/- square feet in proximity to I-75, shadow-anchored by a concentration of fast casual restaurants. While still in the early stages, significant interest is abound from national-brand coffee retailers, fitness centers, and new-to-the-market pizza retailers. Six-Mile Cypress Pkwy and Colonial Blvd (Fort Myers) A recently completed 6,000+/- square foot center is the new home of Tijuana Flats (fast casual Mexican restaurant) and the expanding national brand Mattress One. This center is shadow-anchored by Lowes, Hobby Lobby, Kohl’s, and 24 Hr fitness. US 41 Near Bonita Beach Rd (Bonita Springs) Former restaurant space to be redeveloped into a multi-tenant shadow retail center with interest from national coffee, mobile phone and restaurant chains. This location is shadow-anchored by a national brand discount department store, and a national fitness chain and grocery store. College Pkwy and Whiskey Creek Drive (Fort Myers) Not all Shadow Retail is anchored by retailers. Shadow Retail can also be located in proximity to a destination which draws considerable traffic. The former Bank of America branch at the corner of College Parkway and Whiskey Creek Drive in Fort Myers is an example of destination-based Shadow Retail. The site is being redeveloped by Creighton Development and will become a multi-tenant retail center anchored by Wells Fargo Bank on the east, and the signalized intersection of the College Parkway entrance to Florida SouthWestern State College. Development plans call for a 7-11 gas station with an adjacent 2-unit retail center. According to a recent advertisement, Dunkin Donuts is slated for the westernmost unit the remaining unit is listed for $35.00/(triple net). Santa Barbara and Veterans Memorial (Cape Coral) This proposed redevelopment of a former car wash site will soon become a 6,000+/- square foot center shadow-anchored by Target and Publix. National interest is already brewing from multiple mobile phone companies and a host of fast casual restaurants including Moe’s Southwest Grill. As our economy continues to improve and consumer confidence presses forward on an upward path, our local market is repeatedly on the drawing board for many new retailer’s expansion plans. The ability of these Shadow Retail centers to merge convenience with destination centers is a win-win for both retailers and consumers and a certain trend to watch in Southwest Florida.

left to Right: Janet Watermeier, Gene Van Vleck, Gary Tasman, Pamela Van Vleck Commercial Property Management Services (CPMS) and Watermeier Consulting Services announce their mergers with Cushman & Wakefield | Commercial Property Southwest Florida (CPSWFL) in order to better serve the region’s expanding and more diversified client base. “Together we become Southwest Florida’s only fully integrated commercial property services company with global resources,” says Janet Watermeier, the firm’s newly-appointed President. Commercial Property Management Services, under the direction of Pamela and Gene Van Vleck, brings over 30 years of commercial property management experience and a portfolio of more than 3.5 million square feet currently under management.  Watermeier Consulting Services, under the direction of Janet Watermeier, brings more than 20 years of real estate, economic development, strategic planning and management consulting services to the firm. “With consulting, brokerage and property management services, the firm is nowstrategically positioned to deliver distinct client-centric results,” says Watermeier. Janet Watermeier will serve as the company’s President, charged with executing the firm’s 5-year strategic growth plan, adding service lines, and overseeing the firm’s consulting practice. Pam Van Vleck will serve as the company’s Director of Property Management Services overseeing the firm’s commercial property, facility and association management services, and developing an integrated property management and leasing platform. According to Van Vleck, “C&W’s philosophy of property management as a strategic differentiator to maximize each property’s value, provides a new level of service to our current and future clients.” As part of its growth strategy, the firm has developed a highly-specialized fast-track training and mentoring program for new associates. Gary Tasman, the company’s Principal, states “The joining of these three firms is the first step of a vision that will vastly enhance real estate services in Southwest Florida. With innovative research, analytics, and technology, our professionals can now better serve each phase of an asset’s real estate cycle from concept to lease-up, to eventual sale—employing property management to develop best in class client-focused solutions.” Jim Underhill, CEO of the Americas for Cushman & Wakefield said “This is a significant and impactful addition for Cushman & Wakefield’s Southwest Florida operations, but most importantly, our clients.  Whenever a Cushman & Wakefield Alliance office expands or adds quality services, everyone within the global team becomes stronger”. Cushman & Wakefield | Commercial Property Southwest Florida is a member of the Cushman & Wakefield Alliance and part of the largest privately held commercial real estate services network in the world.  Cushman & Wakefield is the world’s preeminent real estate services firm.  Founded in 1917, the firm has more than 250 offices in 60 countries around the globe, and over 15,000 talented professionals.  Cushman & Wakefield delivers integrated solutions by actively advising, implementing and managing on behalf of landlords, tenants, and investors through every stage of the real estate process.  These solutions include helping clients to buy, sell, finance, lease, and manage assets.  C&W also provides valuation advice, strategic planning, research, portfolio analysis, site selection and space location assistance, among many other advisory services. For more information, please call 239-489-3600.