Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Andrea Carruthers
Faegre & Benson:
612.766.7000
ac*********@****re.com;
www.faegre.com
YOUR COMPANY is outgrowing its current space and needs to move. Like any other major investment, relocation requires due diligence and an informed decision-making process in order to be successful. Considering certain factors before you buy or lease space will help ensure your relocation is a move in the right direction.
This question is more complicated than it sounds. You have a general sense of how much space you need, but do you know how much space you will actually use every day? If you have employees who travel or work from home, consider creating flex-space in your office layout. By moving to an environment with no assigned work spaces, you may reduce your requirements and facilities costs.
Even without going this route, you may need less space than you think. By going into an efficiently laid out building (think square or rectangular floor plates) or thoughtfully planning your space, you can minimize the amount of rentable area needed.
The operative word here is “need,” not “want.” Consider whether your business requires you be in a particular neighborhood or near certain facilities. In some cases the answers are obvious: if you have a lot of tractor-trailer traffic, you will want easy freeway access. But in many other instances, the tradeoffs are less apparent.
You might want to move downtown from the suburbs to have access to a larger pool of potential employees, only to find many of your existing employees live and like working in the suburbs. Or you might move from an area of town where parking is free to another where everyone has to pay for parking. In order to appease your employees, you subsidize their parking, incurring an unexpected new expense.
By thinking through all aspects of the “where” question thoughtfully and objectively, you may be able to avoid some costly mistakes.
It may be tempting to try get by without hiring an outside real estate consultant. In many cases that could be a regrettable decision: few companies have the necessary expertise in-house to represent themselves on a major relocation.
The right real estate broker can add value to a deal, but the key is to select the best broker for the job at hand. Engage someone who is an expert in the particular submarket you are interested in (both in terms of geography and asset class).
If you intend to lease, you may want to hire a tenant representative, which is a real estate broker who specializes in representing tenants in lease deals.
Brokers are usually paid on a commission-often a fixed rate per square foot on lease deals; a percentage of the purchase price on sales. Rates and responsibility for payment vary by market.
Real estate decisions are inherently complex, expensive and illiquid-which makes flexibility extremely valuable.
If you are leasing, try to get as many expansion, contraction,renewal and termination rights as your landlord can tolerate. Armedwith these rights, you adjust the size of your space and the length ofyour lease term in order to conform your real estate obligations toyour needs.
If your lease is not expiring at the time you plan to move, and you are unable to negotiate an early termination deal with your landlord, then you may need to look at assigning your lease or subleasing your space.
If your lease does not have enough unexpired term to make itworthwhile to a new tenant (probably three to five years, minimum), youmay be stuck with the space for the remainder of your term.
Developing a disposal strategy is simpler for owned sites: in mostcases you will sell. In this case, you have less control over timing.You own the property (and have to bear all of its carrying costs) untilyou can find someone who will take if off your hands.
Once you have the business terms ironed out, you will need to document your new deal.
If you are buying, you will enter into a purchase agreement withyour seller. After signing the purchase agreement you will probablyhave a period of time for due diligence where you can inspect theproperty, and make an election as to whether or not to move forward.There may be some warranties and indemnity obligations that surviveclosing-but usually only for a year or less. The relationship of buyerand seller, then, is fairly short-term.
Leases are different. Leases will usually have a minimum initialterm of five years, but 10- and 15-year deals are common, depending onthe market and type of asset. Unless you are the only tenant of a site,the landlord will have a variety of ongoing obligations throughout theentire lease term with respect to the project, common areas and eventhe space you lease. (In single-tenant situations, the tenant willoften assume responsibility for many of these obligations itself.)
Because the landlord-tenant relationship is both long term andinterdependent, it is important to negotiate your lease with care. Payparticular attention to the provisions that relate to obligationsbefore occupancy and upon surrender of the lease term.
But there are many others that are important and deserve carefulattention: tenant’s obligation to contribute to operating expenses;assignment and subleasing rights; use restrictions; landlord’s andtenant’s respective maintenance obligations; default events andremedies, to name a few.
Don’t underestimate how long this process will take. Although each case is different, each of the major steps along the way can easily take several months.
Market conditions can easily lengthen any of these steps. In mostcases it is safe to assume that start-to-finish a relocation will takeat least a full year, but very possibly even longer.
