1. LOCATION, LOCATION, LOCATION The Art of Site Acquisition -Bill Gessner, CDSCC, 612-823-4509 www.cdsconsulting.coop BillGessner@cdsconsulting.coop CCMA 2009 Friday June 12 th 1:30 – 3:00 pm

2. Bill Gessner, CDS Consulting Co-op AGENDA: When? & How? Agenda Review, Introductions, Desired Outcome (5 min.) WHEN is the site secured? (15 min.) -for start-ups -for established co-ops looking to expand/relocate How is the site secured? (45 min.) -business issues vs legal issues -opportunities for negotiation -timing issues -build-out issues Lease or Purchase? (10 min.) Existing Building or New Construction? (10 min.) Wrap-Up & Evaluation(5 min.) Questions & Discussion Throughout!

3. Bill Gessner, CDS Consulting Co-op Desired Outcome: Participants will gain a greater understanding of the process involved with securing a site for a food co-op – either a start-up or an expansion/relocation. Participants will gain a greater understanding of the concepts and approaches that can result in a successfully securing a site.

4. Bill Gessner, CDS Consulting Co-op Four Cornerstones in Three Stages FC500 Planning a Member Loan Campaign Page 5 An overview article of the Food Co-op 500 Model is available at: http://cdsfood.coop/fourcorner

5. Bill Gessner, CDS Consulting Co-op Three Stages: An Overview for Start-up Food Co-ops Stage 1: Organizing Stage 2: Feasibility/Planning 2A: Feasibility 2B: Planning ------------------------------------------------------------- Stage 3: Implementation 3A: Preconstruction____________________ 3B: Construction & Renovation 3C: Preparation for Opening 3D: Sustaining - First Year & Beyond Note: Dotted Line = Site secured w/Contingencies; Solid Line = Contingencies Removed

6. Bill Gessner, CDS Consulting Co-op Four Stages: Development Timeline for Established Food Co-ops Stage I: Feasibility (3 months to 3+ years) –Commitment & Planning –Strengthening & Positioning –Site Search & Securing ----------------------------------------------------------------------------------- Stage II: Preparing for Leasehold Improvements & Construction (2 to 12 months, typically 3-6 months) ______________________________________ Stage III: Leasehold Improvements or Construction 2 to 12 months, typically 3-6 months Stage IV: Preparing for Opening (1-2 months) Note: Dotted Line = Site secured w/Contingencies; Solid Line = Contingencies Removed

7. Bill Gessner, CDS Consulting Co-op WHEN? Most often, securing the site is not the first thing to do in a start-up co-op or in an expansion project for an established co-op. Establish the development timeline for your project and place the site search and the securing of a site within the context of the overall timeline. Start-up co-ops secure a site at the end of Stage 2. Established co-ops secure a site at the end of Stage 1.

8. Bill Gessner, CDS Consulting Co-op DECISION POINTS / CONTINGENCY Understand and utilize the concept of Decision Points in your project. Identify and understand the Key Decision Points in the Development Timeline. Understand the concept of Contingency and seek a Contingency period as you secure a site. A contingency can be viewed as an option.

9. Bill Gessner, CDS Consulting Co-op Site Search: How? (Key Concepts) Be guided by the results of a professional market analysis (grocery) Develop a team. Utilize professionals that can work effectively with your co-op and timeline. (consultants, real estate professionals, attorney). Professionals should bring experience and expertise with commercial real estate (as opposed to residential). Board members are not the best searchers. Establish site criteria. Within a defined search area, do a systematic search considering all possibilities, not just vacancies. Consider vacant land as well as existing buildings. Do research. Contact owners, as opposed to tenants. Don’t put all your eggs in one basket. Establish leverage. Plan A. Plan B Plan the negotiation process. Identify all opportunities for negotiation. Recognize that the negotiations have already started. Establish parameters and policy for confidentiality within the co-op. Foot in the Door. Build the Relationship. Sell (don’t beg). No is not the end. The site search is confidential until the site is secured. Be patient, but be ready to act and respond to opportunity.

10. Bill Gessner, CDS Consulting Co-op Plan A or Plan B? What is Plan A (your preferred option) today? What might it be tomorrow, as you gain more information? Don’t get attached. Know your walk away point. Test and develop/build commitment. What is Plan B (and Plan C)? If Plan A or Option A didn’t exist what would your new Plan A be? Having a Plan B is useful for comparison and leverage. Plan B may become Plan A. Put 80% of your site search effort into Plan A, and 15- 20% into Plan B (and C).

11. Bill Gessner, CDS Consulting Co-op Securing a Site How? (Key Concepts) Establish the negotiation process; be clear on roles and authority within the organization. Be consistent with who your “front & visible” contact person is. Develop a plan for the negotiations, including desired process and timeline. Distinguish between business issues and legal issues. Identify all issues for negotiation (primarily business issues) and prioritize. Consider working towards an agreement of intent that includes agreement on the key business issues and establishes contingency. The negotiation have already started. Anything said by either party becomes part of the informal record and fair game. Do not commit to paying within a range. All issues for negotiation need to be talked through before an agreement begins to be built, due to the interdependency of issues. First 3 years: Seek most favorable terms to allow a window of opportunity for co-op to become established in new location. Win-Win. Getting To Yes. Study/read/prepare for negotiations. Know the market. The current market provides an opportunity to negotiate a good long-term deal.

12. Bill Gessner, CDS Consulting Co-op Issues for Negotiation – a partial list Square Feet to be leased, description of Base Rate/Sq Ft. (per year) Does base rate include triple net (real estate taxes, insurance and CAM (common area maintence)? Typically not. Thus it is a triple net lease rather than a gross lease.)

13. Bill Gessner, CDS Consulting Co-op Issues for Negotiations -a partial list(continued) Term of Lease Option Periods (at the co-op’s option) Rental Rate adjustments after initial period. (What is formula for the rent schedule for the full term of lease, including option periods.) Possession date Rent commencement date. Deposit (Don’t ask. Seek no or minimal deposit, given the improvements by tenant.) Off-street parking (dedicated) and other site issues Terms of Contingency (e.g. 120 days to get full financing) Percentage rent (usually in addition to base rent) Landlord contribution (tenant improvement allowance).

14. Bill Gessner, CDS Consulting Co-op Issues for Negotiation – a partial list (continued) Landlord contribution – maybe, maybe not Landlord contribution (options for) -Landlord provides some improvements -Landlord agrees to free or partial rent for a period of time -Landlord provides a cash payment to co-op to cover some improvements (tenant improvement allowance)

15. Bill Gessner, CDS Consulting Co-op Finishing points (of landlord’s work) Design and estimated cost of co-op’s improvements Landlord responsibilities for building structure (roof, structural integrity) Responsibility and warranties for HVAC system that meets tenant’s specifications Exterior Signage Right of first refusal – adjoining space Right of first refusal or option to purchase Compatibility issues with other tenants, potential exclusions No lease guarantee provided by tenant Issues for Negotiations -a partial list(continued)

16. Bill Gessner, CDS Consulting Co-op Issues for Negotiations - Examples of Legal Issues Conditions of default Fire Damage Right to sublet Notification requirements to exercise options Lease assignment (if required by bank) There can be a million more

17. Bill Gessner, CDS Consulting Co-op Anchor Tenant If the co-op has the potential to be an anchor tenant in a retail center, it is extremely important to cultivate that position. If the landlord acknowledges and views the co-op as a potential anchor tenant, the negotiating strategy should be based around that concept: favorable location and terms that recognize the anchor and the draw that the co-op will be for the adjoining retail center.

18. Bill Gessner, CDS Consulting Co-op Preliminary Store Planning & Design in relation to Lease Negotiations. It is important to do preliminary store planning and store design work prior to getting too far into lease negotiations: Preliminary store planing and design will give the co-op an idea of the scope and costs of leasehold improvements. These costs need to be factored in when negotiating the build- out responsibilities of the co-op and the lease rate.

19. Bill Gessner, CDS Consulting Co-op Approaches to Lease Negotiations Let the landlord make the first offer Is it best to let the landlord present the initial draft of a lease, or is best for the co-op to take the initiative and present the initial draft of the the lease? It depends on the situation. Is it best to use professional representation, or is it best to deal directly? Usually it is best to use professional representation. The concepts, issues and approaches listed here might be foreign to the landlord you are dealing with. Be prepared, but don’t get too fancy. Adjust to the specific situation. Be clear, be firm, be flexible, be creative, be respectful. Prioritize what is most important to you. Know your walk away point. Until the deal is done – really done/finalized, all forces can and will conspire to try to make the deal fall apart. This is a test.

20. Bill Gessner, CDS Consulting Co-op Wrap-Up Identify critical issues and key opportunities for lease negotiations. Establish leverage. The negotiations have started. Be careful of careless early commitments. Manage the timeline. Build the relationship. Thank you! Let us know if we can be of further assistance. -Bill Gessner, 612-823-4509; www.cdsconsulting.coopwww.cdsconsulting.coop BillGessner@cdsconsulting.coop