TMC Achieves Lower Rates For Our Clients

Dear Client:

We try to benchmark every lease deal after the fact to get a flavor of where our transaction stands with what other real estate people think. We don't trade deal info with the market, like most brokers do. We feel that our client's achieved rate is proprietary. So for instance your "comp" as it's called, never gets out to the brokerage community. But I do have 3 or 4 confidants in each market that we go to and trade info on a very confidential basis. They use us the same way. We call it our Deal Appraisal Process.

In this case I went to the top broker at Local Market Broker and a 15-year broker at Global Market Broker. I gave them the circumstances of our transaction (73 months, $55K or so in TI's) and asked them what they would see as a Fair Market Value, if they were to appraise a renegotiation and renewal at your location. They considered the fact that we had a low TI need when they gave us their appraisals. Ironically they both came in at roughly the same estimate. One said $10.75NNN/rsf/yr. the other $10.80NNN as a start rate. They figured with that term and those TI's you would get a 3%/year increase in that rent. One said you would get 6 free months, the other 5-7 months.

I could congratulate you, or TMC, or both of us. But in reality I think the reason our deal beats these market appraisals by so much is because we convinced the LL that they would get some period of vacancy and ultimately a higher TI cost if you left. Plus we came up with alternative spaces that created good leverage. And I do think we achieved some "credit" for not needing lots of TI's. I also think we just did a good job. In any case here's the numbers:

Average of 2 Appraisals:

• Given: Renewal, 73 Month Term, $4.00/rsf in TI Refurbishment
• Start Rate $10.80/rsf/yr NNN, 3% increases, 6 months free
• Total NNN Rent over Term: $894,925
• Average Monthly Rent: $12,259
• Average per rsf/yr: $10.77/rsf/yr

Actual Transaction:

• Given: Renewal, 73 Month Term, $4.00/rsf in TI Refurbishment
• Start Rate: $9.00/rsf/yr NNN, increased by 6.6% every 24 months, 1 month free
• Total NNN Rent over Term: $786,585
• Average Monthly Rent: $10,775
• Average per rsf/yr: $9.46/rsf/yr

There are other subtractions or economic benefits we achieved:

• Recovery of the $5,777 for HVAC costs
• A $2 rent allowance of $27,312 if you don't get a carpet.
• $29,016 in lower rent between May 1-October 16, 2011 as part of our rent renegotiation of the current lease
• $786,585 - $62,105 (additional economic benefits) = $724,480

So the bottom line is that while the market might appraise your renewal at $894,925, I think we can actually say we achieved a $724,480 deal. How scientific is this? Frankly I tell the 2 brokers to tell me what they think the best deal they could achieve would be. I ask them to be honest with that assessment. In this case personally I would have appraised it less than their $894K. But the main point is after the fact, I have a good confidence that we did a lease that others would say was well under market. Sorry about the excess "post-selling". But I did think it was relevant.

Thanks.
Denis