Industrial Case Study

MARKET RENT ANALYSIS, LEASE ARBITRATION

Property developed on a build-to-suit basis, first 10-years fixed rate, two 5-year renewals at market. Large multi-national Tenant, with out-of-province legal representation; Landlord local ownership group. Parties couldn’t agree on renewal rental rate. Property was a single user manufacturing facility in Edmonton; ± 36,000 SF, roughly ½ fabrication shop and balance split between office and machine shop/parts area; upgraded power, floor loading, elevated ceiling height with cranes and crane ways; site coverage exceeded 24%, considered high for heavy industrial use.

Initial consultation with lawyer/Tenant, followed by discussion about property and improvements and inspection. Market rental analysis completed for lease arbitration of 5-year renewal; also, completed previous 5-year renewal that went to arbitration with same legal team. Market valuation using estimated market rent as a “check” on rate. Review of other third party reports for cross-examination. Follow-up discussions with lawyer/Tenant.

Market rental analysis with review of subject property and lease, market and comparable leases; property valued by Income Approach using estimated market rent (e.g. Direct Cap, Argus cash flow modeling, Adjusted NOI per SF), and Direct Comparison Approach (adjustment process); and, appraisal review for cross-examination.

Market rent concluded to be lower than other experts. Estimated market rent supported by Income and Direct Comparison Approaches in valuation. Review of other experts’ reports deemed their market rents to be high, and their adjustments and market values not supportable. The client received significant cost savings on market rents as rents settled at mid-point through negotiation prior to Hearing while previous arbitration was 100% in favor of our client plus they were awarded all costs based on our analysis.

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