commercial real estate · Malls · Retail leases · Shopping Center · Uncategorized

How do YOU determine the value of a negotiated exception to a lease?

Any change made to a lease has a value to one of the parties. Some have very straightforward calculable values – reducing minimum rent from $25/sf to $24/sf or changing the percentage rent rate from 6% to 5%. Others have an absolute calculable value, but take a little effort to determine that value – changing the definition of an excluded major from 25,000 sf to 50,000 sf reduces taxes from $x.xx/sf to $y.yy/sf. However, others can have a material impact on the cash flow and value of a lease or a property, but the values are difficult to determine – giving up an exclusive, cotenancy or termination right.

ICSC is applying a “flipped classroom” concept to the upcoming John T. Riordan School for Professional Development in Minneapolis. The flipped classroom is where you do exercises in advance of the class to make the classroom experience even more valuable. As part of the Economics of the Deal class, students will look at five changes made to the lease for the most recent deal they have completed and attempt to assign a value to those changes. When we discussed this in my office last week, I couldn’t get my co-workers to stop talking about it.

So – just some food for thought for you –

When a tenant requests a change to the lease, what steps do you go through to determine the value impact of that change?

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