It’s The Law
By Tara K. Gorman
To Survive in Today’s Market,
Take a Lesson From History
FROM THE LOOKS OF IT, DOOM AND GLOOM
surround us at every turn. We hear and read constantly about the economic downturn. Clearly, there is
much to discuss—oil prices are skyrocketing, home
prices are plummeting, unemployment is rising, the
financial markets are in turmoil and consumer confidence is shaky at best. Yet it’s important to keep all of
this in perspective.
The first rule: do not panic. Take a lesson from history.
We have seen this before, and chances are we will see this
again. Remember when the dollar was weak to the point
where international travel was prohibitive? Remember the
global stagflation of the ’70s brought on by a huge rise in
oil prices and exacerbated as central banks implemented
simulative policies in an attempt to avoid recession and
Building owners and asset managers
should take a long hard look at how to
preserve and protect their properties.
stagnation? Remember when opening the statement from
your stockbroker was painful as you watched your investments whittle away?
Yes, most of us do. But those days have been
blocked out of our memories by more than 20 years of
incredible economic growth and prosperity, notwithstanding a few minor recessions in the early ’90s and
again in 2001. So take a lesson from history, tighten your
belts and keep your wits about you.
Further, building owners and asset managers
should take a long, hard look at how to preserve and
protect their properties. Review and analyze the tenant mix, leases and obligations on the books. Is the
building fully occupied? What sort of renewal and
expansion options are included in the leases? Are your
tenants satisfied with the level of service provided at
the building? What can you do to increase tenant satisfaction without greatly decreasing the bottom line? In
this market, it is easier to keep current tenants happy
than to find occupants for empty space. Savvy landlords will go the extra mile to ensure that tenants
whose lease terms roll in the next year or so exercise
their renewal options. On the flip side, tenants are
motivated to stay put rather than having to deal with
the costs of moving, tenant improvements, leasing
commissions and attorneys’ fees. So keep your tenants happy and in place—it’s a win-win.
Once you have done a thorough analysis of your
assets, use sound judgment when negotiating letters of
intent to fill vacant space. Tenants are being offered
unheard-of concessions these days—free rent for the first
year or two or “rent claw backs,” payment of 50% of the
first year’s rent during the first year of the lease and the
remaining 50% over the course of the term. Prior to offering these sort of concessions in the hopes of filling vacant
space, run the numbers to make sure that the economics
warrant such extreme measures. This is the time to protect
and preserve what you are holding today.
Also, if you haven’t pulled out your loan documents
in a while, it’s time to dust them off and dig in.
Examine all the covenants and obligations set forth in
the loan documents to ensure that you are in full compliance. Then take the next step to ensure that there
are no oversights that would result in a default under
the loan documents.
Look for opportunities on the horizon. Assess how
to capitalize on distressed real estate without spending a lot of resources and time. If an opportunity fits
into your overall business plan, make sure that the
deals are made with prudent business judgment
rather than a knee-jerk reaction to the uncertainty surrounding us.
While it may be difficult to see beyond the dismal climate in the aftermath of a long credit-driven boom, there
is a light at the end of the tunnel. So in the midst of this
turmoil and slow growth, have faith, don’t panic and take
this time to do your homework and protect and preserve
your current assets, while capitalizing on opportunities
that require limited due diligence and time.
The views expressed in this article are those of the
author and not Real Estate Media or its publications.
Tara K. Gorman is a shareholder with the law firm of
Greenberg Traurig in Washington, DC. She may be contacted
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