Business Complexity Heightens Lease Audit Value
Posted by Jarrod M. Patten, President/CEO
On September 9, 2014, The Times-Picayune story about a recently released Louisiana Legislative Auditor’s report detailing the terms and current cost obligations resulting from the Benson Tower lease signed in 2009 between the State of Louisiana and the family of Saints owner Tom Benson may have made headlines, but it shouldn’t have come as a surprise to the real estate community. This will prove to be a classic case supporting lease audit value in complex business environments. Most observers will rightfully focus on the above market rents being paid by the state, the 17,000 square feet of leased space in the tower left unused by state agencies, or the fact that the deal, which was designed to save $280 million through 2025 and tied to the state’s effort to keep the Saints in New Orleans resulted in a near doubling of annual state office leasing costs. These are all valid concerns, especially for Louisiana taxpayers and citizens of one of America’s greatest cities, New Orleans. However, it’s important to consider the current circumstances of the state’s leased occupancy of the Benson Tower within the broader context. The deal that called for the Benson family to purchase the largely vacant downtown office tower then lease it back to the state resulted from a larger state government initiative to keep the Saints in New Orleans, and a correlated agreement reached between the state and the Benson family in early 2009. The Saints deliver sizable economic benefit to the State of Louisiana and City of New Orleans, and you’d be hard pressed to find anyone that wants the Saints to leave the city. However, the issues highlighted by the state auditor’s report including above market rents and vacant, unused space are real, valid concerns that should be addressed by the state and Zelia LLC, their landlord.
The State of Louisiana’s lease at Benson Tower is indicative of a commonly encountered reality in commercial and corporate real estate. Outside influencers, business demands, and the environment in which a deal is conceived and negotiated often result in unfavorable lease terms for a tenant. In this case, a state initiative, which focused on the needs of an NFL team and its ownership created an environment that influenced, and presumably dictated, the terms of a major long term lease and consolidation of state lease holdings. The results of which were chronicled by the Times-Picayune.
In dynamic, demanding real estate environments and complex negotiations a premium must be placed on clear lease language and demonstrable cost structure as a means to proactively address the complexities of the real estate process and life cycle. As a trusted advisor to our client partners, RRG’s wide breadth of experience in complex cost analysis, dispute resolution and overcharge recovery, delivers proven value that assists our clients even in the most challenging situations.