The Challenge

At the time of engagement, the client had no capital to improve the building, offer tenant improvement allowances, provide free rent, or pay brokerage commissions. Despite these constraints, the organization urgently needed rental income from the property to remain financially viable.

Although zoning permitted school use, prior entitlements had expired, and a new conditional use permit was required. The vacant and deteriorating property had become a magnet for trash and homeless encampments, frustrating neighboring residents and negatively impacting surrounding property values. While there was interest from school users due to favorable demographics and valuable play yards, nearly all prospects were unwilling to invest approximately $4 million in modernization costs without ownership certainty.

Our Approach

Lee & Associates began by having the building accurately remeasured in accordance with BOMA standards, uncovering that the property had been undermeasured for years. The newly captured rentable square footage immediately increased future rental income, allowing the cost of remeasurement to be recovered within months.

Recognizing one qualified school tenant willing to modernize the building if future ownership could be secured, the team structured a creative lease solution. This included negotiating fair-market rent based on the building’s to-be-improved condition rather than its as-is state, providing the parish with immediate income.

To protect the tenant’s long-term investment, the lease incorporated ongoing rights of first offer (ROFO) and a fixed-price purchase option exercisable in the mid-years of the lease, with CPI adjustments. Any rent paid above fair market value would be credited toward the purchase price if the tenant exercised either the ROFO or purchase option. This structure aligned the interests of all parties while accommodating the constraints of the client’s bankruptcy timeline.