Download - Real Estate Leasing: Lessons Learned
The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator.
Real Estate Leasing: Lessons Learned
Greg Ewig
Director of Real Estate Services Office of the Chancellor
Slide 2
Overview
• New Items
• Authority to lease
• Where are our leases?
• Typical lease costs – Metro and Outstate
• Approvals
• Leases and the Allocation Framework
• Lessons
• Final Thoughts
Slide 3
New items
• 2009 Legislative Session – – requesting explicit statutory leasing authority
– Ease private – public partnerships
• Leasing Procedures – Updated to reflect the new statutory scheme
• Accounting / ISRS Lease Screen – Scheduled to roll out April 1
• Forms – New Facilities Use agreement (off campus)
Slide 4
Authority to Lease
Current:
• Minn. Stat. §136F.06, under general powers of the Board
• Have used Minn. Stat. §16B.24 for guidance
Proposed:
• §136F.60, Subd. 6 and 7 (new)
The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator.
Where are our leased locations?
Slide 6
Current Snapshot
• 50 campuses lease off-campus
• About 100 active off-campus leases
• Range in size from 25 sf to 101,000 sq. ft.
• Large land leases in outstate campuses
• International leases in England (castle) and Germany
Slide 7
Typical Lease Costs
Periodic Costs
• Rent ($10-$13 psf/net for office)
• Operating Expenses (real estate taxes, insurance, utilities) ($5 - $10 psf+ office)
One Time Costs
• Tenant improvements (including telecommunications)
• Furniture, fixture, equipment
Slide 8
Leasing in Current Environment
• Vacancy is up
• Landlords are nervous
• BUT: asking rents and operating costs aren’t going down (yet)
• Outstate market is generally down – Fargo/Moorhead is unusual (energy price spike in late 2008 helped North Dakota economy)
Slide 9
Approvals
Board of Trustees
Facilities Agreements that exceed $2,000,000 (including options to renew)
Vice Chancellor – Chief Financial Officer
All Facilities Agreements with terms that:
a) exceed five (5) years or
b) the total value exceeds $100,000.
Maximum: 20-year total term off campus
Slide 10
Leases and the Allocation Framework
Off campus leases are recognized in the allocation framework if they meet the following 3 criteria:
1. $100,000 or greater
2. Instructional focus
3. With a party other than ourselves or one of our foundations
However --
• Moratorium effective FY2008 on recognizing any new leases.
• The lease recognition in the framework will end in FY2011.
Slide 11
General Lessons
Generally
• Involve the OOC early and often for larger leases
• 5 years or longer or over $100,000 require OOC approval
• Leases over $2 million requires Board approval
Off Campus
• Give yourself enough time (1 year is optimal for leases of space greater than 5,000 sq. ft.)
• Goal should be a self-sustaining lease – revenue should cover the costs of the space and labor
• Should be deals out there
Slide 12
Final Thoughts
• If a lease is onerous, open up negotiations
• Market has not bottomed out yet
• Termination right – it’s a very powerful thing
• We are still considered a good credit tenant