Unocal, Houston, Texas
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Analysis
Unocal was in the fifth year of a ten-year lease at One Sugar Creek Place in Sugar Land, Texas outside of Houston, and occupied approximately 371,000 square feet of a 511,000 square foot building. Due to continued expansion and relocation to Houston of large segments of its business, it desired to take the remaining space in the building, including some space currently occupied by other tenants. John Amend approached the owner of the building on behalf of Unocal with a request for a proposal to allow Unocal to assume tenancy in the remaining space in the building.
The Landlord initially provided a proposal that allowed a phased expansion into the desired space with several options for Unocal to choose from relative to extension of the lease term, rental rates, operating expenses and tenant improvement allowance. All initial proposals contemplated keeping Unocal’s existing rate structure and operating expense stop at the levels in the existing lease document. Rates were scheduled to escalate up to $18.00 in the last year of the existing lease. The initial proposal to extend the lease for ten years, to create a 15-year term, had rates beginning at $16.50 per square foot in the first extension year (year 6) up to $25.00 per square foot in the tenth extension year (year 15). The proposal to extend the lease for fifteen years started at $15.50 per square foot and escalated to $28.00 per square foot in the fifteenth extension year (year 20). In addition, only $3.00 per square foot of tenant improvement allowance was offered, and it was not available for fve years.
Following months of negotiations, Unocal signed an extension and amendment to completely restructure its existing lease, expand the premises to the entire building and extend the lease an additional ten years to create a new 15-year lease. Negotiated rates were significantly lower than initially proposed. The final rate structure resulted in a rate the final five years (years 11-15 of the new lease term) of $18.00 per square foot, a full $7.00 per square foot less than initially proposed. In addition, Unocal received $4.9 million ($9.50 per square foot) in tenant improvement allowance in an immediate cash payment and a refurbishment allowance of $1.2 million ($2.80 per square foot) after the fifth year and after the tenth year of the new lease term.
Project Goals
- Expand Unocal’s lease to include the entire 511,000 square feet in the building
- Negotiate allowances to allow Unocal to construct the premises to their specifications
- Ultimately negotiate a lease that provides best value for Unocal, and allows Unocal to accommodate its expanding presence in the Houston area
Services Provided
- Strategic facility consulting
- Tenant brokerage
- Space programming
- Interior architecture
- Interior construction management
- Project management
- Negotiations
Results Summary
- Completed an extension of Unocal’s lease, adding ten years to the remaining 5-year term to create a new 15-year lease agreement.
- Negotiated the rights to an immediate cash payment of a tenant improvement allowance of $4,900,000 to be used by Unocal for offsetting any costs associated with the expansion. In addition, Unocal receives $1,300,000 at the end of the fifth year and the end of the tenth year of the new 15-year lease agreement.
- Negotiation strategy resulted in a reduction of projected rental payments to Unocal of over $12,500,000, and an increase in tenant improvement allowance provided for immediate use by Landlord of $4,900,000. This is a total benefit to Unocal of over $17,400,000.
- Provided space programming and design, plus project and construction management services for design and construction of the expanded Premises.
- Approximately 350 employees of Unocal, a leading energy resource and project.