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