Interstate Battery System of America,
Dallas, Texas
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Analysis
Interstate Battery System of America, Inc. (Interstate Batteries), has been a tenant at Park Central VII, VIII, IX in north Dallas since 1989, and has grown to over 90,000 square feet of space. Its existing Lease agreement was negotiated in the mid 1990’s. Due to the increasing softness of the office lease market in Dallas/Ft. Worth, the slowdown in the nation’s economy and the “High Five” construction project at Highway 75 and I-635, the Park Central market offered potential Lease restructuring opportunities not seen in years.
Discussions with Interstate Batteries escalated in 2001 because of the growing concern over the impact that the “High Five” construction project would have on their ability to access their location at Park Central. The Amend Group helped Interstate Batteries analyze relocation options, build-to-suit opportunities, and renewal scenarios. Of particular importance, The Amend Group assisted Interstate Batteries with gathering information on the “High Five” Project, and how the construction could potentially impact them. Following considerable market evaluation and discussions with the current Landlord, a proposal for restructuring Interstate Batteries’ Lease was requested.
The initial proposal from the current Landlord did not provide economics in line with the current market. The Amend Group’s proprietary Indifferent Lease Rate Analysis software was used to provide analytical information to convince the incumbent landlord to revise its proposal more in line with market. In addition, methodical strategic negotiations over an extended period of time allowed Interstate Batteries to develop maximum market leverage. The resulting transaction structure provided Interstate Batteries an opportunity to restructure its existing Lease, extend the term and receive a favorable tenant improvement allowance and expansion/contraction options.
Project Goals
- Evaluate the current Lease agreement relative to the current market
- Determine the feasibility of an early renewal and restructuring of the Lease agreement
- Evaluate all potential location alternatives, and leverage competition to ensure best lease economics
- Take advantage of current market conditions to reduce immediate and long-term rental obligation
- Stabilize future occupancy and provide for long-term Lease flexibility
Services Provided
- Tenant brokerage
- Space programming
- Negotiations
- Market analysis
Results Summary
- Lock in exceptional economic and space management terms for a total of 8 years from August 1, 2002 through July 31, 2010.
- Immediate reduction of rental obligation, including operating expense pass throughs, from the new commencement date through the current Lease expiration date of December 31, 2004, of $7.95 per rsf, or 37%.
- Reduction in rental obligation through December 31, 2004 of $3.45 million.
- The base rental rate never exceeds $18.00 per rsf, in the final year of the lease.
- Twelve months of free rent. If Interstate chooses to apply its new tenant improvement allowance ($7.00 per rsf or $641,837) to free rent, it could add an additional 5.6 months of free rent, for a total free rent period of 17.6 months, into January of 2004.
- Free parking for 362 non-reserved spaces and 31 reserved spaces throughout the term of the new lease (8 years).
- New Base Year for Operating Expenses and Taxes of 2002.
- Flexible renewal options at the end of the primary term of the new lease.
- Ongoing and cumulative Right of First Offer to lease in whole or part up to 2 full floors (52,000 rsf) of available space in Park Central VII, VIII or IX. This right includes the same terms and conditions of the new lease. In the first 5 years of the lease, the expansion space will be at the same rental rate being paid at that time plus $15.00 per rsf tenant improvement allowance.
- Ability to relocate existing sign to a different location on Park Central VIII.