Livingston is moderating a panel at the winter conference of Corporate Facility Advisors International. The topic revolves on the effects of high-tech companies' technological and space needs in the commercial real estate industry. The five-day sessions opened Wednesday at the Wyndham Palace Resort and Spa at Walt Disney World in Lake Buena Vista, FL. Realvest Partners is hosting the event.

"In the absence of traditional measures, an owner should focus on other ways to judge the merits of tenants," Livingston tells GlobeSt.com. "These include the company's management, experience and quality; the sources of past and current funding; the likelihood of later rounds of funding; estimated profitability date; and the burn rate of existing and expected capital."

To offset questionable creditworthiness of a tenant, credit enhancements "are almost always necessary to close a deal," Livingston says. These usually take the form of some mix of cash deposits, letters of credit, insurance, guarantees or other inducements.

"Property owners are most concerned with covering their up-front out-of-pocket costs, including tenant improvements and brokerage commissions, and will want six to 12 months of rent payments guaranteed to provide time to re-lease the facility in the event of a default," the developer suggests.

An insurance policy to cover the cost of some improvements, pro-rated as part of the rent payment, is a credit enhancement that "will likely become much more standard in the future," Livingston believes.

Another enhancement: stock options. "The sophisticated property owner and the sophisticated lender as well, may ask for stock options, which can make the terms of the lease and financing much more tenant friendly," he says.

Tenants, too, need to know how to negotiate future space needs with building owners, the developer says. As high-tech companies grow, expansion rights are highly desirable though often difficult to receive. "First right to lease adjacent space can be negotiated, if it is available, and if expansion is an immediate need, adjacent space can be set aside with a later hard rent commencement date," Livingston says.

Another factor high-tech tenants need to consider is the right to sublet space if their firms do not grow at their projected pace. "Tenants should seek to secure the rights to assign a lease in the event a merger is a possible outcome of their business plan," the developer advises. All current rights, such as signage, satellite and antenna rights should run with the lease to help subleasing efforts at a later date.

"The issues that are important to high-tech users and to building owners when high-tech companies lease space are changing almost as quickly as the technology itself," Livingston says. "That trend is likely to persist."

Instant Insights /

Creditworthiness is Paramount in Managing Risk Today in Tech-Tenant Leases, Developer Says

Related Stories

Recommended For You