Avoid Tenant Improvement Cap Ex Spending - Lance-LLC
Avoid Tenant Improvement Cap Ex Spending Tenant Improvements Funding Solution (“TIFS”) KEY OBJECTIVES FOR MAJOR CORPORATE TENANTS Secure all funding for TI capital expenditures from the landlord, whether in new installations or for renewals / retrofits Ensure cost of funds is at or lower than after-tax WACC Avoid book depreciation Maintain cash for investment; increase profits / earnings and shareholder value Basic Structure TIFS is the funding of ‘above-market’ Tenant Improvements (“TI”) Landlord provides all TI funding at the inception or renewal of a lease, including both the usual TI contribution and all additional hard, soft, and moving costs Tenant pays additional rent via a Supplemental Lease to the existing space lease; the additional rent is structured to self-amortize over the lease term… the new rent is entirely tax-deductible Highlight Tenant Benefits Avert cap ex spend on TI assets that are not revenue generative and have no terminal value; financial institutions maintain capital adequacy ratios After-tax, leasing is less expensive than corporate WACC, and usually debt For tax, replace depreciation and end-of-lease acceleration with fully deductible self-amortizing TI lease rent For book, avoid depreciation altogether Invest capital in the business, not into TI at 70-80% after-tax NPV loss Provide material benefits to both cash position and P&L earnings Financial Impact Typically, $30-100 per SF of leased space For the typical large lease, $10 million or more Lance Capital LLC 212-541-2444 | 405 Lexington Avenue, 26th Floor | New York, NY 10174 Richard Podos John O’Rourke Lola Bellini [email protected] [email protected] [email protected] Adam Seiber Michael Dow Steve Kaufman [email protected] [email protected] [email protected] Avoid Tenant Improvement Cap Ex Spending Tenant Improvements Funding Solution Typical Large Lease at Inception Rent Landlord Owner Space Lease TI $ Owner Cap Ex $ Landlord’s TI (LL-TI) Building Tenant Owner Tenant’s Owned TI (TO-TI) New or Renewal Lease: TIFS Structure at Inception Rent and TI Rent Space Lease Landlord Tenant TI Lease Owner Building TI $ Owner LL-TI #1 (market) TI $ Owner LL-TI #2 (above-market) Lance Capital LLC 212-541-2444 | 405 Lexington Avenue, 26th Floor | New York, NY 10174 Richard Podos John O’Rourke Lola Bellini [email protected] [email protected] [email protected] Adam Seiber Michael Dow Steve Kaufman [email protected] [email protected] [email protected]
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