1 Welcome to the International Right of Way Association’s Course 701 Property Management Leasing 701-PT – Revision 8 – INT

2 Introductions Who we are… What we do… Where we do it… How long we’ve been doing it… Our goals for the course...

3 Objectives At the conclusion of the course, you will be able to… Express an understanding of leasing fundamentals and concepts Use team building and decisionmaking techniques in the leasing process Recognize and appreciate the leasing roles played by the asset manager, landlord and tenant

4 Housekeeping

5 Schedule (1) 8:00 - 8:30 Introductions, Etc. 8:30 - 9:30 Overview 9:30 - 9:45 Transition 10: :00 Lease Fundamentals 1:00 - 2:30 Building the Team 2:45 - 4:45 Decisionmaking 4:45 - 5:00 Recap

6 Schedule (2) 8:00 - 8:15 Recap Day One/Introduce Day Two 8: :30 Negotiation and Documentation 1:30 - 3:00 Leasehold Administration 3:15 - 3:45 Summary and Review 3:45 - 5:00 Exam

7 Long Ago

8 Principles Supply and Demand Competition Highest and Best Use

9 Asset Management Asset Management is “… the art of combining the management of the physical property and the asset to achieve the owner’s financial goals. If there is a higher use for a property or a way in which the property can produce a better return, the asset manager’s job is to find it and develop the property to its full potential.”

10 Asset Rationalization Asset Rationalization is the process of determining the need for a given asset and the role that asset will play in an organization.

11 Five Sessions

12 Lease Fundamentals

13 Lease A lease is both a contract and conveyance by which a property owner (lessor) conveys possession, control, use or enjoyment of the property to another (lessee) for a specified rent and a specified term. When the term ends, the property reverts to the owner.

14 Contract Essentials Competent Parties Mutual Assent (Offer and Acceptance) Consideration Legal Purpose Definite and Certain Terms Freedom to Contract

15 Contract Concepts Principle of Substitution Economic Balance Unconscionability Adhesion Contract Rules of Construction

16 Lease Types (1) Acquisition lease (lease-in) Revenue lease (lease-out)

17 Lease Types (2) Acquisition lease (lease-in): the organization is the tenant or lessee. The organization needs space. The organization pays rent. Revenue lease (lease-out)

18 Lease Types (3) Acquisition lease (lease-in): the organization is the tenant or lessee. The organization needs space. The organization pays rent. Revenue lease (lease-out) the organization is the landlord or lessor. The organization has space. The organization collects rent.

19 Lease Rentals Lease Categories Gross lease Net lease Absolute net lease Flat rental lease Variable rental lease Step-up or step-down lease Revaluation lease Percentage lease Pass-through lease In-kind lease

20 Rent (1) Contract rent is the actual rental income specified in a lease. Contract rent may be less than, equal to or higher than market rent. Effective rent is rental income net of financial concessions (e.g., no or reduced rental payments at certain times over the lease term).

21 Rent (2) Percentage rent is the rental income received in accordance with the terms of a lease’s percentage clause. Additional or overage rent is the rental income paid in addition to a base rent payment.

22 Offer/Option An offer to lease is an expression of interest, presenting the main elements of a lease prior to negotiation of the full and formal lease agreement. An option to lease is an agreement, usually at a fixed price, granting the optionee the privilege to acquire a lease within a specified time period and on meeting specific requirements.

23 Lease Components (1) Parties Description Term Purpose Leasehold Improvements Rental

24 Lease Components (2) Other Payments Repairs Assignment Damage, Risk and Insurance Holdover Lessor Covenants Lessee Covenants

25 Building the Team

26 Acquisition Lease Team Client or user group Project manager/coordinator Property/asset manager (internal) Real estate agent (external) Facilities manager Private sector partner (external) Lawyer/solicitor (internal) Lawyer/solicitor (external?) Risk manager Financial advisor

27 Revenue Lease Team Client Property/asset manager (internal) Real estate agent (external) Facilities manager Private sector partner (external) Lawyer/solicitor (internal) Lawyer/solicitor (external?) Risk manager Financial advisor

28 Decisionmaking

29 Classifications Operating property (present use) Agency property needed for future use Transitional properties Property surplus to agency needs

30 Gap Analysis (1) Gap analysis compares the organization’s actual performance to its potential, or desired, performance.

31 Gap Analysis (2) Step No. 1: Where is the organization currently? Step No. 2: Where does the organization want to be? Step No. 3: How does the organization get from Step No. 1 to Step No. 2? Step No. 4: Review the options against the objective.

32 Business Case Study Step No. 5: Prepare a business case study (BCS) for the remaining options. Step No. 6: Perform a financial analysis.

33 Recap Day One

34 Recap Day One Introduce Day Two

35 Negotiation and Documentation

36 Lease A lease is both a contract and conveyance by which a property owner (lessor) conveys possession, control, use or enjoyment of the property to another (lessee) for a specified rent and a specified term. When the term ends, the property reverts to the owner.

37 Basic Lease Elements (1) Lease parties Agreement dates (Term) Lease premises description Consideration Terms and conditions

38 Rent Types (1) Gross rent is the total amount payable by the tenant. In a gross rent lease, the landlord pays all operating expenses. Net rent is the total amount payable by the tenant. In a net rent lease, the landlord pays a portion of the operating expenses and the tenant pays a portion of the operating expenses.

39 Rent Types (2) Absolute net rent is the total amount payable by the tenant. The tenant pays all operating expenses (usually with the exception of management). Effective rent is rent net of financial concessions.

40 Rent Types (3) Minimum or base rent is the base or fixed amount payable by the tenant. Additional or overage rent is the rent paid in addition to the minimum or base rent. Usually, it is based on a variable figure (e.g., percentage of sales or an index).

41 Rent A lease offering reads as follows: “The rental rate as $5.00 per square foot with $0.50 per square foot for leasehold improvements and $3.00 per square foot for operating cost.” The net rent is $5.50 per square foot. The effective net rent is $5.00 per square foot. The additional or overage rent is $3.00 per square foot The gross rent is $8.50 per square foot.

42 Basic Lease Elements (2) Lease parties Agreement dates (Term) Lease premises description Consideration Terms and conditions

43 Terms and Conditions (1) Options Operating expenses Administration Janitorial and maintenance Real estate taxes Replacement allowances

44 Terms and Conditions (2) Security Utilities Trade fixtures Leasehold improvements Landlord and tenant repairs and alterations Insurance

45 Terms and Conditions (3) Environment: landlord Environment: Tenant Use of the leased premises Hours of operation Damage and destruction Defaults

46 Terms and Conditions (4) Subletting Assignment Indemnifications: landlord and tenant Subordination and hypothecation Inspection and right of entry Surrender of the leased premises

47 Terms and Conditions (5) Right to show Parking and access Signage Arbitration “Boilerplate” clauses Rules and regulations

48 Terms and Conditions (6) Overholding Notices Nuisance Quiet enjoyment Condemnation/expropriation Force majeure

49 Leasehold Administration

50 Objectives Now, you are able to… Express an understanding of leasing fundamentals and concepts Use team building and decisionmaking techniques in the leasing process Recognize and appreciate the leasing roles played by the asset manager, landlord and tenant

51 Thank you! 701-PT – Revision 8 – INT