The Minnesota State Colleges and Universities system is an Equal Opportunity employer and edu Real Estate Leasing: Lessons Learned Greg Ewig Director of Real Estate Services Office of the Chancellor
Jan 18, 2016
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