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Why Our Leasing Agents Learn to Underwrite

Why Our Leasing Agents Learn to Underwrite

When I made the transition from investment sales back into the leasing world, I took for granted the knowledge I had gained…

When I made the transition from investment sales back into the leasing world, I took for granted the knowledge I had gained in underwriting investment properties.

Throughout the course of my investment sales career I evaluated hundreds of properties and reviewed thousands of leases and tested their impact on the value of the properties. My mentor, Chad Knibbe walked me through countless proformas showing me how valuations could shift dramatically with the discovery of a previously unmentioned clause (in one of the tenant’s leases) and then I personally felt the impacts of that when working with clients trying to finance the property.

Later, working in the leasing market, the knowledge of how various terms can have disproportionate impacts on the value of the investment led my negotiations when working for landlords. When working with tenants, I utilized the knowledge of what the owner valued to obtain what my tenant needed in a different part of the lease.

A good example of this was when a tenant I was representing wanted a specific spot that already had an agreed to LOI. I was able to demonstrate to the owner that the multiple units my tenant operated would reduce his exit cap ever so slightly and significantly improve his net proceeds should he try to sell. Later, during lease negotiations, the landlord became frustrated because the tenant’s attorney attempted to shift some typical maintenance responsibility on the landlord. He threatened to kill the whole deal. The tenant could not understand why the landlord would draw a line in the sand for something that would likely cost less than $5,000 a year. I was able to show the tenant by doing so, there was now a leakage of operating expenses and based on the current cap rates this amount was actually over $60,000 to the landlord and would reduce his buyer pool to local owners or owners with local management due to the landlord having to coordinate those repairs. My tenant conceded the point and got the space they wanted. Both the tenant and landlord are happy.

For this reason, our investment sales division works with our leasing agents to perform underwriting on various centersthat we represent. This gives context to the entireleasenegotiations as well as empathy and understanding for the motivations of the other player so as to better present solutions that benefit both parties. This leads to shorter negotiations and better leases for both tenants and landlords.

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About the Author
Bethany Babcock founded Foresite Commercial Real Estate in 2014 after more than a decade in commercial real estate. She has worked in leasing, management and investment sales and brings her experiences from each of those disciplines to better serve her clients. She was named one of San Antonio's 40 under 40 in 2018 by the San Antonio Business Journal.

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