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Real Estate Leasing: Lessons Learned

Real Estate Leasing: Lessons Learned. Greg Ewig Director of Real Estate Services Office of the Chancellor. Overview. New Items Authority to lease Where are our leases? Typical lease costs – Metro and Outstate Approvals Leases and the Allocation Framework Lessons Final Thoughts.

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Real Estate Leasing: Lessons Learned

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  1. Real Estate Leasing: Lessons Learned Greg Ewig Director of Real Estate Services Office of the Chancellor

  2. Overview • New Items • Authority to lease • Where are our leases? • Typical lease costs – Metro and Outstate • Approvals • Leases and the Allocation Framework • Lessons • Final Thoughts

  3. New items • 2009 Legislative Session – • requesting explicit statutory leasing authority • Ease private – public partnerships • Leasing Procedures • Updated to reflect the new statutory scheme • Accounting / ISRS Lease Screen • Scheduled to roll out April 1 • Forms • New Facilities Use agreement (off campus)

  4. Authority to Lease Current: • Minn. Stat. §136F.06, under general powers of the Board • Have used Minn. Stat. §16B.24 for guidance Proposed: • §136F.60, Subd. 6 and 7 (new)

  5. Where are our leased locations?

  6. Current Snapshot • 50 campuses lease off-campus  • About 100 active off-campus leases • Range in size from 25 sf to 101,000 sq. ft.  • Large land leases in outstate campuses • International leases in England (castle) and Germany

  7. Typical Lease Costs Periodic Costs • Rent ($10-$13 psf/net for office) • Operating Expenses (real estate taxes, insurance, utilities) ($5 - $10 psf+ office) One Time Costs • Tenant improvements (including telecommunications) • Furniture, fixture, equipment

  8. Leasing in Current Environment • Vacancy is up • Landlords are nervous • BUT: asking rents and operating costs aren’t going down (yet) • Outstate market is generally down – Fargo/Moorhead is unusual (energy price spike in late 2008 helped North Dakota economy)

  9. Approvals Board of Trustees Facilities Agreements that exceed $2,000,000 (including options to renew) Vice Chancellor – Chief Financial Officer All Facilities Agreements with terms that: a) exceed five (5) years or b) the total value exceeds $100,000. Maximum: 20-year total term off campus

  10. Leases and the Allocation Framework Off campus leases are recognized in the allocation framework if they meet the following 3 criteria: 1. $100,000 or greater 2. Instructional focus 3. With a party other than ourselves or one of our foundations However -- • Moratorium effective FY2008 on recognizing any new leases. • The lease recognition in the framework will end in FY2011.

  11. General Lessons Generally • Involve the OOC early and often for larger leases • 5 years or longer or over $100,000 require OOC approval • Leases over $2 million requires Board approval Off Campus • Give yourself enough time (1 year is optimal for leases of space greater than 5,000 sq. ft.) • Goal should be a self-sustaining lease – revenue should cover the costs of the space and labor • Should be deals out there

  12. Final Thoughts • If a lease is onerous, open up negotiations • Market has not bottomed out yet • Termination right – it’s a very powerful thing • We are still considered a good credit tenant

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