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Randy Mason's Commercial Real Estate Insider- Analysis of a Sale-LeasebackA sale-leaseback allows a company to raise money from the sale of its property while retaining its use, so a sale-leaseback opportunity typically happens when an owner occupant/tenant would rather not relocate. When the owner-occupant company sells its building to … Continue reading →
- Personal GuarenteesThere is an abundant amount of information on the internet about personal guarantees (PG) so I will be brief. In commercial real estate, generally there are 2 times you can negotiate a personal guarantee. The first time is when you … Continue reading →
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- Analysis of a Sale-Leaseback
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Personal Guarentees
There is an abundant amount of information on the internet about personal guarantees (PG) so I will be brief.
In commercial real estate, generally there are 2 times you can negotiate a personal guarantee. The first time is when you are moving into a new location and the second is when you are renegotiating your lease.
Moving into a new location is when you have the most leverage in the negotiations. Presuming you are a business that has been around longer than 3-5 years and have a good track record in paying you other bills and rent, show a healthy profit and loss statement and balance sheet a full term PG may not be warranted.
As the new landlord has no payment history with you, it is reasonable to provide them with some type of limited PG, say 1-2 years if it’s a 5 year lease term. If you are not late paying them the rent and other expenses the PG should go away after that period of time.
You can also negotiate the amount of money the PG will cover. This is a function of how much the landlord invested in the space for tenant improvements just for your specific use. If you have a specialized use, it’s not unusual for the landlord to want to recapture much of those costs in the event the “business goes out of business”.
The second time you can negotiate a PG is when you are about to renew and renegotiate your lease. Presuming the business has paid its rent on time and has a strong profit and loss statement and balance sheet a PG may not be warranted as the business has proven themselves for many years.
If the business has been late on its rent numerous times or the landlord is investing money into tenant improvements some type of PG may be warranted.
Alternatives to PG’s could be an increased security deposit or a letter of credit.
In these interesting times it is not unreasonable for the landlord to require some type of PG if the business or entity in not financially sound and solid. Professional negotiation on this point can save the “guarantor” a lot of heart ache should the landlord require a personal guarantee.
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About randymasonbroker
Randolph T. Mason, CCIM, SIOR is the Managing Partner at Commercial Realty Specialists. With over twenty two years of real estate brokerage and consulting experience, we specialize in the leasing and selling of office and industrial properties throughout the Orange County marketplace as well as representing various multi-market firms across the country. We represent the tenant and buyer side of the transaction which has allowed us to focus on our client’s needs by being their fiduciary and exclusively represented advocate. We are extremely detail oriented and take pride in the level of attention we provide our clients.