Tenant Finances the Topic for Commercial Real Estate Experts at UCI Breakfast Conference

NEWPORT BEACH, CA-Letters of credit, tenant expansion, rights of first refusal, and the treatment of special tenant improvements were the topics of discussion Thursday for a panel of local experts assembled by the University of California Irvine Graduate School of Management’s Program in Real Estate Management, for the first in a three-part breakfast series on important issues in commercial real estate.

“We try to get into specific issues that are meaty enough and have enough depth that the people attending go away with having learned something. We are dealing with worst case scenarios, and how developers and owners and their investors must deal with those issues. Not just them, but also the team of professionals, such as attorneys, who have to weigh in on these issues,” says G. Christopher Davis, an economist and principal of the Davis Group in Newport Beach, who is also director of the UCI program.

Focusing on the financial side this time, Marla Johnson, senior vice president and senior relationship manager with Silicon Valley Bank’s Irvine office, says her bank has rigorous underwriting standards for clients and has had very few letters of credit overdrawn. The bank likes the Orange County market, she adds, because it is diversified among many industries. “We enjoy the role of being a risk mitigant. We’re committed to the early stage technology companies.”

Russ Parker, principal of Parker Properties in Aliso Viejo, says he does not require letters of credit from prospective tenants who have sustained net worth. But, he has three institutional partners to satisfy, so he prefers letters of credit over lease bonds, which are usually rejected out of hand by everyone else. As for rights of first refusal, as an owner and builder neither he nor his partners favor them.

“Those really work against everybody, especially the owner,” he says. “But there are some good things going on, too. It’s a good time right now. A lot of traditional companies are looking for space. The trend for us in the past three months has been booming activity from traditional tenants.”

As a tenant, Tom Anderson, CFO for QLogic, says his company gravitates towards corporate guarantees more than letters of credit or other more formal security instruments.

“Establishing an effective line of communication is important between the owner and the tenant,” Anderson says. “Orange County has progressed quite a bit. We have a much more mature base than we had five years ago. There’s a lot of strength to attract top flight people here.”

Titled “How to Accommodate the Real Estate Needs of Companies Experiencing Explosive Growth–Part II,” the program was presented by the UCI Program in Real Estate Management, along with Bank of America, Birtcher Real Estate Group, KPMG LLP and the Irvine Co. Moderator Brandon Birtcher is co-chairman and chief development officer for the Birtcher Real Estate Group.