Managing Leasing Solves Cashflow Problems

The Issues
A CPA firm’s routine audit of a trust client’s office building revealed cash flow issues around collections and renewals; the firm brought in Horgan & Associates to diagnose the underlying causes. We examined the financial statements and, in consultation with the fiduciary and the trust, we agreed upon a scope of work and a not to exceed fee. We reviewed recent deals done and leasing parameters in our market. We consulted brokers about the image and position of our client’s building in that market. We examined the lease documents in use at the project and reviewed with the management staff the current status of all tenants. We met with the tenants to gauge their perspective on the property and their plans for the future.

The Analysis
Horgan & Associates provided the CPA firm and the Trust with a report that reviewed the issues and opportunities at the property, and made specific recommendations. The issues were:

• No consistent collection program existed for delinquencies
• Renewals were not being pursued in a timely manner
• Form lease language did not sufficiently protect landlord’s interests
• Space was being offered at below market rental rates
• Leases were not structured to recover a share of operating expenses from tenants
• Lease negotiation tools were poor
• Ability to project capital costs and cash flow needs was limited
• Architect’s measurements didn’t reconcile with lease measurements
• Tracking and follow-up on issues pending were poor
• Brokerage efforts and resources were inconsistent
  

Refining the Leasing Process
As a result of the information we generated, the Trust engaged Horgan & Associates to manage all leasing at the project. We generated a new form lease that protects the owners’ interests, reduces liability, and incorporates an operating escalation recovery program. We established leasing parameters and deal analysis based on current market information. Next, we generated reporting tools that allow the owner and their fiduciary to monitor renewals and manage cash requirements for capital costs. As renewals progressed, we identified tenants who would not renew or who would be better replaced. We sought and engaged the appropriate brokerage resources on behalf of the Trust. We engaged a new architect to review the measurements of the building. As operational issues emerged, Horgan & Associates provided resources to assist in their resolution to improve the safety and appeal of the project. We meet regularly with the fiduciary and the Trust to review the progress of renewals, new tenant acquisition, and their effect on capital costs and value enhancement. We provide the fiduciary with early warning of issues in the building or in the market that may have financial or legal consequences for their client.

Successful Results
Since the inception of our relationship, Horgan & associates has reduced arrears by $18,000 or $.32 per SF; Identified an additional 8,000 rentable SF to be incorporated as leases roll; Increased rental revenues by $61,000 annually or $1.05/SF; Instituted Operating Escalation Recovery that will generate $36,000 or $.62/SF over the life of new leases. This increase in income will increase the value of the property by approximately $673,000 or $11.60 per SF. #

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