Penny Lane: Leasing Mixed Use Projects for Fun and Profit

Transcription

1 Penny Lane: Leasing Mixed Use Projects for Fun and Profit MICHAEL K. KUHN Jackson Walker L.L.P McKinney, Suite 1900 Houston, TX / State Bar of Texas 29th Annual Advanced Real Estate Law Course July 12-14, 2007 San Antonio, TX

2 In Penny Lane there is a barber showing photographs Of every head he's had the pleasure to have known And all the people that come and go Stop and say hello On the corner is a banker with a motorcar The little children laugh at him behind his back And the banker never wears a mack In the pouring rain, very strange Penny Lane is in my ears and in my eyes There beneath the blue suburban skies

3 I. Introduction The same but different -- All customary commercial lease issues are at play, but some take on greater significance -- Parking Operating expense definitions, exclusions and allocations Project rules and regulations Signage Exclusive clauses

4 II. Unique Issues Unique Project Elements Requires Unique Approach Specialized/unique aspects of particular project No standardized mixed use project lease form Need to address conflicts between various users

5 II. Unique Issues Unique Project Elements Requires Unique Approach (cont d.) Design goals may inhibit landlord s customary flexibility Public/private partnerships Planning for future flexibility

6 III. Getting Started Read project formation documents. Focus on: Permitted, restricted and prohibited uses Operating expense allocations among users or project components Provisions dealing with modification and amendment to the formation documents Understand project s development and operational structure

7 Getting Started (cont d.) Understand pedestrian and vehicular traffic flow and parking design Understand the project design vision

8 IV. Drafting/Negotiating Issues Parking Conflicting parking objectives of various users Understand exactly what the owner is able to offer Parking rules and regulations must address: timing security access of diverse users

9 Parking (cont d.) Nested parking facilities Parking charges/voucher system for retail Valet parking Effect of municipal bond financing

10 Operating expense allocation Allocation on simple square footage basis rarely works More common approach: Complex expense allocation based upon actual or estimated usage of services among various project users Result: separate percentage allocations for each cost category

11 Park Avenue Allocation of Expenses Master CAM Expenses Retail = 27,428 sq ft (27,428 sq ft / 91,860 sq ft =.29858) Office = 64,432 sq ft (64,432 sq ft / 91,860 sq ft =.70142) Parking Expenses 485 Parking Spaces Outside Users = (.17938) 87 spaces / 485 spaces Master CAM Expenses = ( ) 398 spaces / 485 spaces Business Condos = ( ) 13 spaces / 87 spaces PA COA = ( ) 74 spaces / 87 spaces Retail (.29858) Office (.70142)

12 Park Avenue Allocation of Expenses Insurance Expenses Master CAM Expenses (.8156) Parking Expenses (.1844) Retail (.29858) Office (.70142) Outside Users (.17938) Master CAM Expenses ( ) Business Condos ( ) Retail (.29858) PA COA ( ) Office (.70142)

13 Park Avenue Allocation of Expenses Property Tax Expenses (Value Based) Parking Expenses (.3521) Master CAM Expenses (.6479) Outside Users = (.17938) Master CAM Expenses =( ) Retail = (.29858) Office = (.70142) Business Condos = ( ) Retail (.29858) PA COA = ( ) Office = (70142)

14 Operating expense allocation (cont d.) Task: Identify both the cost categories and the relative proportion of operating expense items to be charged to the particular tenant based on use

15 Operating expense allocation (cont d.) How to treat Condominium Assessment Expenses for large shared facilities (central plant or parking garage) How to treat parking garage revenues

16 Rules and regulations Odors Noise Lighting (especially spillover) Late night hours of operation

17 Rules and regulations (cont d.) Truck deliveries, trash dumpsters Use of common areas Construction or renovation

18 Signage/identity/naming rights Retail tenants -- smaller, less visible signage Important to office tenants -- recognizable street address Hotel needs strong visibility, prominent signage

19 Access (pedestrian and vehicular) Challenge for big-box retailer -- one solution: two separate entrances Clarify in lease: project access points

20 Retail exclusives No exclusives landlord policy OR: Limit exclusives to major retailers and primary use only OR: Give major retailers geographic zone of influence

21 Phasing Effect on operating expense allocation Effect on scope of retail exclusives

22 Kiosk and Seasonal Vendors Reasonable parameters for kiosk activity Exemptions from retail exclusives Limit interference with pedestrian traffic

23 Issues of leasing in a mixed use condominium Tenant counsel is in effect negotiating lease with two parties: Landlord/owner & Condominium association Treat it like negotiating a sublease

24 Issues of leasing in a mixed use condominium (cont d.) Direct recognition of the lease by the condominium association s Board Direct right of action Specific performance or injunctive relief No amendments to condominium declaration No changing applicable rules or regulations

25 Issues of leasing in a mixed use condominium (cont d.) Non-disturbance agreement from Board Self-help right within lease with rent offset Analyze Condominium Assessment Audit right

26 Issues of leasing in a mixed use condominium (cont d.) Board approval for contemplated leasehold improvements Lease survives any termination of the condominium regime Declaration and condominium statutes -- tenant counsel should analyze