WeWork plans to break a bunch of leases in bankruptcy

The company hopes to restructure its balance sheet and get out of numerous, expensive commercial leases while some locations stay open and operational.

Not since Alexander Payne’s 2017 movie have we seen downsizing upset so many people. Yesterday in bankruptcy court, WeWork asked landlords representing nearly $3 billion of the failed company’s debt to please, please, pleeease be open to renegotiating and canceling its leases.

The SoftBank-backed, short-term office space rental company that heavily overused the word “community” and plunged from a $47 billion valuation in 2019 to ~$44.5 million now filed for Chapter 11 bankruptcy on Monday evening. The company hopes to restructure its balance sheet and get out of numerous expensive commercial leases while keeping some locations open and operational.

WeWork’s shrinking floor plan is everyone’s problem....


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RSK: It will be everyone in the office world`s problem for sometime.
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A New York City Law May Punish Commercial Landlords Who Behave Badly
In any commercial lease, one major issue relates to the work that needs to be done to prepare a space for the tenant’s occupancy. Usually, the landlord will deliver the space pretty much as is, or with certain limited work completed. Then it’s up to the tenant to build out the space so it meets their needs.

In that process, the tenant wants to make sure it can change its plans if necessary as it rethinks how it will use the space. At the same time, the landlord wants to make sure the tenant doesn’t do anything crazy...
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RSK: Seems to me there is more going on here and without all the facts it might be one-sided. I`m sure there is a mutual medium here. Wonder how Wisconsin courts would handle this and what laws are on the books.
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How Tenants Can Curb Effects of Inflation in Commercial Leases
Inflation hit 9.1 percent in June, the fastest pace of price escalation in more than 40 years as measured by the Consumer Price Index (CPI), and it hasn’t retreated much since then. And while businesses are factoring soaring prices into many decisions, they should make sure to keep a close eye on their leases.

Most leases contain additional rent provisions designed to protect landlords from inflationary increases in operating costs over time. Accordingly, increases in operating costs will generally be passed on to tenants over the course of their lease terms.
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RSK: A good analysis on capping rate increases for controllable expenses....for both landlord and tenant.
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Retailers renewed confidence in brick-and-mortar fuelling surge in commercial leases
TORONTO — When the COVID-19 pandemic struck and many abandoned in-person shopping and dining out, brick-and-mortar retail became one of the most undesirable assets in Canada.

But now, as many Canadians no longer fear congregating and vaccine passports have been dropped, real estate firms say retail and restaurant chains are scrambling to pick up space again.

"There`s been a fairly ugly period brought on by COVID, where there was a lot of uncertainty surrounding where physical retail fits within the consumer landscape, and even before COVID ... because of e-commerce," said Jonathan Gitlin, chief executive of RioCan Real Estate Investment Trust...
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RSK: Our neighbors to the North are on a good brick and mortar track.
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Force Majeure in 2022: What to Know for Commercial Leases
Consider the following two Midtown commercial leases affected by the COVID-19 pandemic: one an upscale clothing retailer at Columbus Circle and the other a delicatessen near Rockefeller Center. When the pandemic hit, both tenants withheld rent, claiming business hardships, leading to litigation. Decisions were issued in both cases in May 2021, five days apart, with polar opposite results: the clothing retailer was ordered to pay millions in past-due rent, while the deli was excused.

Why?...
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RSK: This just makes the responsibility on the landlord and the tenant to mitigate the risks in a lease the best they can I wonder what the middle ground would be...
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3 Types of Commercial Real Estate Leases

A commercial leases can seem daunting, especially since they’re a long-term commitment that can cost a lot of money.

But, they’re not as complicated as many think. There are three categories of leases when it comes to commercial real estate: Gross Lease (also known as Full Service Lease), Net Lease, and Modified Gross Lease. The main similarity among these leases is that they all provide a base rent with variations around who pays for which operational expense.

 

Here`s a breakdown of the different types of leases, and what they mean for both tenants and landlords:

  • Gross Lease/Full Service Lease

  • Net Lease
    • Single Net Lease:
    • Double Net Lease:
    • Triple Net Lease:
    • Absolute Triple Net Lease:

  • Modified Gross Lease/Modified Net Lease


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RSK: Just a quick review of the basic CRE leases. I think in our market a modified gross is most common and absolute triple net the least.

Ken Notes: Do not forget you can search CirexNews for past articles... So a nice primer could be had by searching for commercial lease for example....
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Understanding the Operating Expenses in Your Office Lease
A few weeks ago, I wrote about the different types of commercial leases that are out there. It is important to understand them so that you know what other expenses you are on the hook for besides rent. These expenses are called Operating Expenses and a Landlord will do their best to budget for these expenses each year. For some expenses like taxes and insurance, it is not too difficult to determine the budget. However, there is another portion of Operating Expenses referred to as Common Area Maintenance (CAM) expenses. This expense can be a little more difficult to budget, as it will include repairs, maintenance and the operation of any common or shared areas in your building. This can include shared lobbies, hallways, bathrooms, elevators, parking areas and landscaping.  Since these types of expenses can vary from year to year, usually a reconciliation happens at the end of each year where a Tenant will either receive a bill for any overages in these expenses or a credit towards the next year if the expenses were less than budget...
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RSK: A more in-depth of what CAM charges can entail...even if you have a full gross lease...
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Use Of Pandemic Force Majeure Clause Spiked In 2020 Leases
Law360 (December 10, 2020, 5:11 PM EST) -- A third of U.S. commercial leases negotiated since March include mention of pandemic as a force majeure event — more than double what that mark had been for leases inked in 2019, according to Practical Guidance, although experts say landlords may be getting leverage elsewhere.

The data from Practical Guidance shows that while just 16% of leases in 2019 included mention of pandemic as a force majeure event, such language appears in one-third of leases signed since March....
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RSK: Yes, going to see more of this from both landlords and tenants. A bit of legalese, but worth looking at if you do any kind of leasing.
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COVID Dings the Conventional 10-Year Office Lease in Manhattan

But it`s far from extinct — just like when people said it was over because of coworking

Once upon a time, when coworking companies bestrode the Manhattan office market like Colossus (its most prominent firm becoming the largest occupier of space), some wise analysts divined that the days were numbered for that traditional workhorse: the 10-year lease.

“To hear investors and landlords alike, it appears that the 10-year commercial lease is done with — the latest victim of our disruptive digital age,” wrote Sonny Kalsi, now-CEO of investment house BentallGreenOak, in 2017.

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RSK: Some 10-year leases are being renewed with tenants asking for updated HVAC and other amenities. But as far as new leases, I do not see to many going out 10 years unless they are 5 years with a 5-year option.
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Pandemic clauses give retail landlords, tenants a new lease on life
Shutdowns caused by the COVID-19 pandemic have dealt a huge financial blow to the retail industry, prompting commercial landlords to include rent relief concessions in the leases of existing and prospective tenants in a bid to sustain occupancy.

The addition of so-called “pandemic clauses” in commercial leases is designed to allow tenants to defer part of their rent if the government orders another shutdown to curb the spread of COVID-19...
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RSK: This can be a can of worms in itself. Unless you spell out events it will be open to litigation in my mind.
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A Growing Area of Real Estate: Religious Organizations as Landlords

Transactions involving these groups differ dramatically from typical commercial leases. Here’s how.

Churches and other religious organizations have some of the least used real estate of any property category. Meeting rooms, classrooms, and the sanctuary are usually left vacant during most of the week. Understandably, many organizations often consider how to monetize these infrequently used spaces by leasing them.

The target tenants are primarily private schools, charter schools, childcare operators, and smaller unaffiliated religious groups. The sanctuary and large meeting rooms can be leased for special events or regularly scheduled meetings. Problems occur when the tenant and the landlord (the religious organization that owns the property) don’t approach the use process as a business transaction...

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RSK: Some good ideas to consider here. I keep hearing the one Gospel quote "Give to Caesar what is Caesar`s and to God what is God`s" It fits, no matter how you construe it...
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6 Important Steps for Due Diligence for Commercial Leases

Whether you`re opting for a long-term or short-term lease, you want to make sure that you know exactly what you`re getting into before you sign. Without proper due diligence, you can`t be certain that you`re getting a fair deal from the landlord and the right property for your business needs.

While a lot goes into due diligence, there are some simple things that many companies overlook that can make a huge difference. To avoid making mistakes, make sure that you do the following:

1.  Get Out Your Measuring Tape...
2.  Meet the Neighbors...
3.  Check Out the Insurance Policy...
4.  Know the Market...
5.  Scrutinize the Lease...
6.  Consult the Right Experts...

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RSK: This just touches the surface.
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The Walkthrough Will Not Be Replaced, Just Augmented

Anyone who has ever bought a property knows how important the walkthrough process is. Pictures do a horrible job of conveying space. Blueprints show layouts from a top down angle that is not relatable to most. What buyers really want is to understand what it’s like to be standing in the space. For prospective purchasers from out of town, virtual reality is becoming a way to digitize the walkthrough process. This trend has been underway for a while with ultra-luxury homes due to their bulky broker commissions and high likelihood of out-of-town or busy buyers.

Many I talk to say that while VR is a great tool, it will not take the place of traditional walkthroughs for the majority of residential purchases and commercial leases, at least for a while....   ...Full Story


RSK: I so totally agree.....augmentation not replacement. That is the right way to think of all the changes coming in CRE!
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Achieve Million Dollar Savings on Your Next Commercial Lease

It`s easy to spend millions of dollars on a commercial lease. Whether you`re looking at a five-year commitment on a 300,000 square foot warehouse or a ten-year deal on 10,000 square feet of office space, it`s easy to find yourself on the hook for millions of dollars even in lower cost markets. In major markets like New York and San Francisco, eight digit leases aren`t that uncommon. With that in mind, finding at least a million dollars in savings isn`t hard to do. Read on.

  • Get Some Help...

 Going into a commercial lease negotiation

  • Become an Expert

Top Reasons Why You`ll Benefit From a Tenant Rep Broker

  • No "Renewal" Is Simple
  • Take Your Time
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RSK: Always helps to have a negotiator that is knowledgeable at no cost in your corner.
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The Top 5 Commercial Lease Obligations to Remember

When you sign a lease, you do a great deal more than just agree to pay rent. While each document varies, it's likely that you have some or all of these lease obligations in yours. Furthermore, many landlords treat them like rent. If you pay them and act on them in a timely manner, you'll be fine, but if you don't, you could end up in default. Here are the top five items to always keep in the back of your mind:

1. Annual CAM Reconciliations
2. Maintaining Operating Hours
3. Financial Reporting Lease Obligations
4. Building Rules and Covenants
5. Option and Move Out Notifications

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RSK: #1 is very important. As a tenant you will want to make sure that the compilations are correct and you are paying the correct amount. Same if it has been a mild and snow-less winter. You want to have the CAM adjusted to reflect this.
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Demystifying the Commercial Lease: Part Two
A typical commercial lease is a comprehensive document that may be anywhere from 20 to 60 pages long. (Often with exhibits these things can be huge! So, reviewing new leases can be a real headache for an agent trying to sell or property manager taking on the management of a new multi-tenant property or shopping center.) When paging through a lease many provisions can seem irrelevant, extraneous, unimportant or rarely used. The fact is that every lease provision is drafted to address a specific event, need or situation that a landlord or tenant may face. Today, I was asked to address some of the more ‘legalistic’ provisions in the commercial lease in an attempt to try to ‘demystify’ them for you.   ...Full Story


RSK: This is part 2  of 2 and delves deeper into the legalities of leasing commercial real estate.
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