English Prestige integrated online to offline (O2O) transactional model and positioning as one stop shop for entire home services model brings exhaustive supply, demand and distribution together to tap the highly fragmented brokerage market.

1. COMMERCIAL LEASING:
TENANT &
LANDLORD REPRESENTATION
English Prestige

2. SCHEDULE
8:00 - 8:30 am Registration / Attendance / Pre-Course Announcements
8:30 - 10:10 am Class
10:10 – 10:25 am Break
10:25 – 12:00 pm Class
12:00 – 1:00 pm Lunch
1:00 – 2:30 pm Class
2:30 – 2:40 pm Break
2:40 – 4:00 pm Class
4:00 – 4:10 pm Break
4:10 – 5:35 pm Class
2

3. 3
I. History
A. Traditional Representation / Listing
B. Landlord Pays Fees
 Assumed all agents represented Landlord
 Market Pressure caused TREC to change Agency rules
II. Responsibilities
A. Fiduciary responsibility to Landlord interests
B. Show all offers
C. Marketing
Landlord Representation

4. 4
I. History
 Occurred in practice prior to TREC formerly recognizing
 Developed (Commercial RE) because of imbalance of
expertise w/r/t complexities of lease transaction between
Landlord and Tenant
II. Responsibilities
 Fiduciary responsibility to Tenant interests
 Understand Clients needs
 Understand Market for comparable space
 Understand economics and dynamics of Leasing Process
Tenant Representation

5. II. AGENCY
5

6. TYPES OF AGENCY
 Universal Agency – Very broad and general scope of power
to the agent to act for the Principal; acquisition, disposition,
expenditure of funds. Principal held accountable for actions of
Agent. Not common in Real Estate transactions.
 General Agency – More restricted than Universal. Agent
authorized to conduct certain transactions and can obligate
Principal to certain types of transactions. Most common form is
Broker relationship with the broker’s associates. Listings,
marketing activities, representation agreements, etc.
 Special Agency – Agent can perform only those acts
permitted by the Principal. Most common form of agency between
real estate agent and client; authority does not extend beyond the
terms of listing / representation agreement.
6

7. AGENCY: CLIENT VS. CUSTOMER
Level of Service: A licensee works for a Client and with
a Customer. Client is an agency relationship usually written
(Listing or Representation agreement). No agency
relationship exists with Customer.
 Client: Entitled to accurate Information,
Opinions, Advice, and Fiduciary responsibility.
 Customer: Entitled to accurate Information from
licensee, honesty, fairness.
7

8. AGENCY DOCUMENTATION
 Landlord Representation: Listing Agreement
 Tenant Representation: Letter of Representation
 Disclosure of Agency
 When
 How: Information About Brokerage Services Form
 National Association of Realtors: Two thirds of complaints are
due to misrepresentation issues.
8

9. III. LEASING ECONOMICS
Leasing is the engine that drives value. In order to fully
understand the Economics of Leasing, how it impacts value,
and therefore, how and why a property owner would be
willing to negotiate some items and not others, we must first
understand the economics that underlie the Property as an
Investment.
9

10. Investment
(You)
Cash
Outflow
Timing of
Cash
Flows
Risk
Cash
Inflow
Elements of an Investment
• Cash Outflow: Money
expended for the Investment
• Cash Inflow: Money you
receive from the Investment
• Timing: When do the Cash
Flows (positive or negative)
occur?
• Risk: What is the
probability that the predicted
Cash Flows will occur? What
is the variance?
10

11. INVESTOR MEASURES OF RETURN / VALUE
Four Common Measurements for Real Estate
Investments
 Capitalized Value (a function of NOI)
 Cash-on-Cash
 Present Value / Net Present Value
 Internal Rate of Return / Yield
11

12. CAPITALIZATION
Capitalization - is a method that uses the Income of a property to determine
Value. The relationship (ratio) of Income to Value is expressed by a factor
known as a Cap Rate.
Cap Rate:
 Cap Rate = NOI / Value (Price)
 The Cap Rate expresses a relationship between Net Operating Income (NOI) and Value.
 It is an Inverse Relationship with Value (Higher Cap Rate = Lower Value; Lower Cap
Rate = Higher Value)
Cap Value:
 Cap Value is determined by dividing NOI by the Cap Rate.
12

13. CAPITALIZED VALUE
A key figure in the Capitalization
process is Net Operating Income
(NOI). Simply stated, NOI is the
income remaining after
subtracting Operating Expenses
but before deducting Debt
Service and Income Taxes.
13
Rent – Operating Expenses =
Net Operating Income (NOI)
Cap Rate =
NOI / Value (Price)
Capitalized Value =
NOI / Cap Rate
NOI =
Cap Rate x Value

14. CAPITALIZED VALUE
EXAMPLE
Rent $1,000,000
- Op. Expenses ($600,000)
NOI $400,000
14
Value = NOI = $400,000 = $5,000,000
Cap Rate .08
• Cap Rates reflect Market conditions for type, location, age, etc., of Property.
• Investor specific Cap Rate expresses how much an individual Investor is
willing to pay for a given NOI depending on Market conditions as well as the
Investor’s preferences, risk tolerance, etc.

15. CAPITALIZED VALUE
RELATIONSHIP TO LEASING
 Leases individually mirror Investment as a whole
 Rent, Operating Expenses, Net Rent (NOI)
 Each lease contributes it’s proportionate share to the
investment as a whole
 Adjustments that increase / decrease Net Rent directly
impact Value
 Amortized Improvements
 Caps on Operating Expenses
 Stepped Rents
15

16. CASH-ON-CASH RETURN
Cash-on-Cash Return: The first years Cash Flow Before Taxes (CFBT)
divided by the initial investment.
Cash-on-Cash = Yr 1 CFBT / Initial $
 Cash on Cash Return represents the yield on the first year’s pre-tax cash
flow only.
 An Investor’s target C-on-C Return can be used to determine the price
and/or down payment he is willing to pay for a property based on the
projected CFBT
16

17. PRESENT VALUE / NET PRESENT VALUE
Present Value: The value today of a future cash flow.
(Discount Rate, Time).
Present Value of an Investment: The sum of the present
values of all future cash flows.
Net Present Value of an Investment: The sum of the
present values of all future cash flows minus the initial
investment.
17

18. NPV: DETERMINING INVESTMENT VALUE USING TARGET YIELD
18
n $
0 (10,000) - (738 + 1,393 + 4,350 + 5,172 = $11,653) = $1,653
1 797
2 1,625
3 5,480
4 7,036
i = 8% (e.g., Discount Rate, or, Target Yield)
Solution: NPV = $1,653
NPV of $1,653 means the Investment exceeds the target 8% return
by $1,653.

19. INTERNAL RATE OF RETURN / YIELD
IRR:
 That rate of Discount for which the sum of the Present Values of
future cash flows is exactly equal to the initial capital investment
(e.g., NPV = $0).
 From page 25 Example: IRR would be determined by recalculating
the cash flows at various discount rates until a rate is found where
the resulting NPV equals $0. (Page 25 Example IRR = 13.325%)
19

20. THE ECONOMICS OF LEASES
We have examined Investment Property Value and various
measurements of Value. Now we will examine “the engine that
drives Value” – Leases.
In the following slides we will look at the many factors that directly,
and indirectly, affect the dollars generated by Leases which, as
we have seen, directly impact Value for the Investor and the
Cost of Occupancy for the Tenant.
20

21. 21
Lobby
Tele/Elec M W
Premises
Stairwell Elevators
•Orange + Blue + Yellow +
Green =
Gross Area
•Orange + Blue + Yellow =
Floor Rentable Area
• Orange + Blue =
Floor Usable Area
• Orange =
Tenant Usable Area
Leasing Economics: Measuring Area
Gross / Rentable / Usable

22. LEASING ECONOMICS:
COMPONENTS OF RENT
Rentable Space vs. Usable Space (Office)
Usable: Area within the Tenant’s demised walls. The space the
Tenant actually “uses”.
Rentable: The Usable area plus an allowance (usually expressed as a
percentage; CAF) to account for, and have the tenants pay for, areas
that tenants use in common, e.g., corridors, bathrooms, lobbies,
mechanical / electrical.
Area Conversions:
CAF = R/U – 1
R = U x (1 + CAF)
U = R / (1 + CAF)
22

23. 23
0
2
4
6
8
10
12
14
Gross Rent
Utilities: $1.75
Janitorial: $1.10
Management: $.60
Maintenance: $.80
Insurance: $.80
Taxes: $1.50
Net Rent: $7.00
The Components of Rent
Net Rent

24. 24
Operating Expenses
Operating Expenses: The costs of “Operating” the Property
including:
•Taxes (and costs incurred in an effort to reduce taxes),
•Insurance,
•Janitorial
•Maintenance (Building, Landscape, Elevator, etc.)
•Management,
•Utilities.

25. OPERATING EXPENSES
Typically does not include
• Marketing costs;
• costs for services provided to, and reimbursed by,
individual Tenants or costs associated with
enforcement of individual leases
• Capital Expenditures other than
• the amortization of Cap Exp’s incurred for the purpose of
reducing Operating Expenses, or,
• incurred due to Governmental mandate.
25

26. OPERATING EXPENSES OVER THE TERM
Year
Rent Components Over Term
OE Increases 0 $0.30 $0.62 $0.95 $1.29
BY Expenses $6 $6 $6 $6 $6
Net Rent $11 $11 $11 $11 $11
BY BY +1yr BY +2yr BY +3yr BY +4yr
26

27. LEASE STRUCTURES
27
Leases are structured (terms and the responsibilities of the
parties) in many different ways that typically vary based on
the type of property, market norms, location (local,
regional, national) and investor preferences.
Lease structures are most easily defined by how Operating
Expenses are handled. Is it the Landlord’s or the Tenant’s
responsibility to directly pay, or reimburse the other party,
for the various Operating Expenses?

28. COMMON
LEASE STRUCTURES
Full Service / Gross
Property
Taxes
Property
Insurance
Maintenance Management Water Janitorial Electric
28
Included in Base Rent:* Paid / Reimbursed by Tenant:
*Subject to Expense Stop
Types of Properties Most Likely to Use This Lease Structure
 Multi-Tenant Office

29. COMMON
LEASE STRUCTURES
Net of Electric (“Plus E”; Single Net)
Property
Taxes
Property
Insurance
Maintenance Management Water Janitorial Electric
29
Included in Base Rent:* Paid / Reimbursed by Tenant:
*Subject to Expense Stop
Types of Properties Most Likely to Use This Lease Structure
 Class A and some Class B Multi-Tenant Office
 Particularly prevalent in DFW Area

30. PERCENTAGE RENT
 Breakpoint
 Fixed or “Natural” Breakpoint
 Base Rent / % Rent = Natural Break (NB)
 Sales above NB x % rent = Percentage Rental (PR)
 Example: Percentage Rent = 6% above Natural Breakpoint
 $12,000/yr BR / 6% = $200,000 NB
 $300,000 Sales - $200,000 NB = $100,000 sales subject to % Rent
 $100,000 x 6% = $6,000 percentage rent (paid in addition to Base
Rent)
30
In some retail leases the tenant is required to pay, as additional rental
above Base Rent, a percentage of their retail sales, usually above an
agreed level, the Breakpoint.

31. PERCENTAGE RENT
$ Rent
$ Sales
Base Rent
% x Sales
Natural Breakpoint
$ $
$ of % Rent
31

32. OTHER LEASING ECONOMIC FACTORS
Planning
 Efficient planning can reduce
costs for both Tenant and
Landlord
 For Tenant: Size, layout,
workflow, construction costs
 For Landlord: Construction
costs
 Planning can help sell deal to
Tenant
Construction
 Construction issues can help
make a deal but more often will
negatively impact a transaction
 Costs: Exceed allowances,
CM fees; Bidding
 Timing: Unable to
commence and complete
within Tenant’s timetable
 Misunderstandings
regarding costs and what is
included
32

33. UNDERSTANDING MARKETS
Concessions:
 Lower Rates; Stair-stepped Rents
 Free Rent
 Above Standard Construction Allowances
 Other:
 Free Parking
 Moving Allowance
 Memberships
Problems with reporting: For those who gather market
information it is very difficult to obtain accurate and
consistent information on concessions.
33

34. UNDERSTANDING MARKETS
Market Dynamics & Trends:
 Supply
 Vacant Space
 Sublease Space
 New Construction
 Demolition or conversion of existing buildings
 Demand
 Growth or consolidation of existing Tenant base
 New businesses
 In-migration of companies into the area
 The Real Estate Cycle
34

35. Absorption
Of Supply
High
Vacancies
Dropping
Rents
Over
Supply
Low
Vacancies
More
Construction
Increasing
Rents
Real Estate Cycle

36. TENANT REPRESENTATION: PART ONE
Tenant’s Objectives / Concerns: Needs Analysis
 Physical: Facilities to accommodate the smooth operation
of their business
 Layout
 Quantities: Does it, or will it, have the proper number and
size of offices, open area, conference rooms, storage,
support areas, docks, clear height, etc.
 Configuration: Will the configuration of the space allow for
the efficient operation of the business. (Adjacencies,
interior flow, etc.)
36

37. TENANT REPRESENTATION
Tenant Economics
Tenant Economics: The following factors have an impact on the
economics of the lease you negotiate on behalf of your tenant.
It is important to educate your client about these factors and to
try to determine the relative importance of each. This is
especially important since several of the factors have a direct
impact on each other. Example: A desire for above standard
construction or up front concessions will have an impact on their
desire for the lowest possible Rent.
37

38. TENANT REPRESENTATION
 Size of Space (Rent versus Rate)
 Lease Structure (Composition of Base Rent)
Full Service
Net of Electric
Modified Gross
NNN
 Operating Expenses
Base Year
Caps
History for the building or Landlord
38

39. Needs Analysis
Develop Needs Criteria,
Location, Size, Layout,
Economics
Research Market
Database, Survey calls,
Internal Library, Drive;
Terms, Floorplans,
Present Alternatives
Present Client with all qualifying
alternatives in comprehensive,
clear, consistent format. Narrow
Selection
Analysis
Present Comparison of
Terms, Financial Analysis,
and non-economic factors
Tour Properties
Inspect selected
properties. Narrow
Selection
Proposals
Prepare and present
detailed RFP’s to
Selected Properties
Select Finalist(s)
Determine Preferred
Building. Maintain
Back-up Alternatives)
Lease Document
Review Lease
Document for Terms,
Problems, Changes
Planning / Construction
Develop Space Plan(s) to
determine functionality on preferred
building(s). Pricing Plan.
Final Negotiations
Negotiate Final Terms on
Economics, Construction
Pricing, Lease Document
Construction Pricing
Pricing Plan to
Contractor(s). “Value
Engineering”
Execute Lease
Document
Construction
Monitor Permitting and
Construction Process
Move Into New
Space
Implementation
Assist in analyzing bids,
select vendors, coordinate
deliveries, etc.
Relocation Assistance
Assist in finding Vendors
and obtaining bids for
Movers, Telecom,
Furniture, etc.
L
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P
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Copyright 2003 Clifford Bogart CCIM 39

40. THE LEASING PROCESS
 Needs Analysis
 Physical
 Location
 Economics
 Timing
 Market Survey
 Available Data Sources
 Survey for all potential
qualifying alternatives
 Market Knowledge
 Contact Landlords
(“Missing” buildings)
 Include current building
 Present Alternatives
 Comprehensive, clear,
consistent
 Quoted Terms
 Floorplans
 Picture
 Map
 Order: Present in order
from most likely to least
likely
 Narrow Selection
40

41. THE LEASING PROCESS
 Tour
 Preferably 3 – 8 short list
 Efficient: Set up in geographic
order. Best use of your client’s
time
 Meet Building Agent or
representative at each building
to answer questions
 Narrow Selection
 RFP / Proposals
 Prepare individual RFP for each
building. Address specific issues
pertaining to differences in each
building / space.
 Economic Terms
 Layout / Construction
 Parking
 Other
 Proposals: Follow-up with agents
to answer questions, get proposals
in timely manner
41

42. THE LEASING PROCESS
 Lease Document
 Review Landlord’s lease
document
 Confirm all terms match
negotiated deal
 Other “Market”
negotiable clauses
 Suggest (in writing) that
client have their attorney
review document
 Final Negotiations
 Finalize economic terms,
especially as they relate
to construction issues
 Finalize / confirm plan
and construction pricing
 Insure all agreed terms,
clauses, language, etc.,
is correctly represented
in Final Lease Document
42

43. THE LEASING PROCESS
 Execute Lease Documents
 Authorized person with client
company should sign and
initial per Landlord’s
requirements
 Checks: Typically First
Month’s rent and Security
Deposit
 Financial Information: Detailed
financial info presented at this
time (usually sooner).
 Construction
 Maintain contact with client
and building Construction
representative throughout
process
 Emphasis on preventing
problems or delays before
they occur
 Visit space periodically
during construction phase
 Client Moves into Space
43

44. LANDLORD REPRESENTATION
 Landlord Concerns and Objectives
 Preservation / Security of Asset
 Insurance / Liability
 Security / Safety / Structural Integrity
 Maintenance
 Return on Investment: Cash Flow
 Leasing
 Maintain High Occupancy
 Maintain highest rent market will bear
 Quality Tenants
 Quality Leases
 Return of Investment
 Disposition
 Appreciation
 Equity build-up through Principal reduction
44

45. LANDLORD REPRESENTATION
 REITs
 Portfolio Value of Asset
 Cash Flow for Shareholders
 Pension Fund / Insurance /
Institutional
 Portfolio Value of Asset
 Cashflow
 Developer
 Quality Leases / Rents
 Disposition Value
 Private Investment Group
 Objectives Vary
 Typically more flexible than
Institutions
 Private Investor
 Varies, often Cash Flow most
important
 Typically most flexible in Lease
terms
45
Different types of Landlords

46. LANDLORD REPRESENTATION
MARKETING TO TENANTS
Marketing directly to Tenants creates awareness of your
property. This awareness may result in a direct deal or
expression of interest to Tenant’s Broker.
 Signs
 Mailings
 Advertising
 PR: News articles
 To existing Tenant base
 Tenant Relations; Events
 Create awareness of available space and other properties
46

47. LANDLORD MARKETING & LEASING PROCESS
1. Marketing (described above)
2. Survey:
 Provide Info requested; Floorplans, Building Info, Quoted
Terms, Picture(s). Prompt & Complete response
 Delivery
 Website or email
 Fax, mail, delivery
3. Tour
 Prompt
 Prepare Space
 Collateral materials
 Easy In / Easy Out
 Cellphone #’s
47

48. LANDLORD MARKETING & LEASING PROCESS
4. Proposal
 Prompt and Complete response; address all items in RFP
even if answer is no
 Leave some negotiating room in initial proposal to address
unknowns, but too much may eliminate you in first round
 Quote realistic TI Allowance for Tenant’s needs (support /
qualify your quote); lowballing may cause problems later
 Request Financial Information on Tenant
5. Negotiations: Friendly but Firm
 Stay involved, solicit Feedback
 Keep door open
 Explain: Provide support for your positions
 Never stop selling
48

49. LANDLORD MARKETING & LEASING PROCESS
6. Planning & Construction Pricing: Often the key
element in the selection of your building from the short-listed
properties
 Efficient plan helps sell prospect on your building
 Get finish notes in the planning process
 Have reliable source for accurate, timely preliminary pricing
7. Lease Document
 Should never get in the way of making deal
 Keep Negotiations Non-confrontational
 Explain reasons behind your positions. Look for creative ways
to address both party’s concerns
 Have Tenant begin document review as early as possible when
focus turns to your property. The more time, effort, money
Tenant has in your building the less likely he is to turn to another
building
49

50. LANDLORD MARKETING & LEASING PROCESS
8. Final Negotiations
 Economic Terms
 Lease Document Issues
 Plan, Finishes, Construction Pricing
9. Lease Execution: Make sure you are clear to Tenant / Broker of exact
requirements to avoid delays and duplications
10. Construction
 Construction kick-off meeting with Tenant, planner, Contractor
and CM (or equivalent) to sign off on final plans
11. Move-In
 Provide Tenant with move-in procedures soon after Lease
Execution
 Assist Tenant with approved vendor alternatives
50