Structuring Leases as Cash Assets to Improve Tenant Equity Value
At Hughes Marino, our commitment to serving commercial tenants extends beyond negotiating favorable lease terms. Our Corporate Finance Group specializes in tenant real estate equity strategies, helping credit tenants share in the equity their leases and occupancies create. Whether your company is approaching a lease renewal, evaluating a relocation or considering a building purchase, our corporate real estate strategy applies the same financial discipline that drives equity value across every other area of your business.
Our Belief
We believe that firms with strong balance sheets should be equal financial partners with their landlord in virtually any real estate project they consider occupying. The credit tenant is the engine of value creation in a commercial lease, and yet the traditional leasing model leaves all of that equity on the table for the landlord. Hughes Marino exists to change that.
Winning Equity Structures
By applying risk-adjusted return metrics comprehensively to tenant real estate, we help our clients understand their unique impact on real estate equity. That insight forms the foundation for “win-win-equal” equity structures. Frameworks that recognize the tenant’s financial contribution and create genuine partnership between the credit tenant and its chosen landlord.
Results We Achieve in New York
Hughes Marino’s shared equity approach to commercial lease negotiation delivers meaningfully improved cash value and P&L outcomes versus traditional leasing models. Credit tenants who engage our Corporate Finance Group typically achieve a wholesale space cost structure, on average approximately 25% less expensive on a cash basis and 20% less on a book basis compared to fully negotiated market pricing.
Details We Take Into Consideration
Our team brings a rigorous corporate finance lens to every tenant real estate engagement. Variables we analyze include:
- Cost of capital/hurdle rate/discount rate
- Time value of money
- Credit impact on risk spread
- Capitalization rates & leverage
- Yield, equity terminal value, MOIC
- Risk adjusted returns
- NPV cash, P&L & balance sheet impacts per GAAP [ASC-842]
- Impacts on enterprise value & equity value
Hughes Marino is uniquely positioned locally and nationally as a corporate finance group exclusively focused on generating lease equity returns that benefit the consumer of real estate space—the tenant. While virtually all other New York firms focus on the supplier or investor side of the equation, we work entirely on behalf of the companies that occupy space. Our approach to commercial lease advisory gives our clients access to a level of financial analysis that has historically been reserved for institutional real estate investors, now applied to their benefit.
Frequently Asked Questions
A corporate finance group in commercial real estate applies institutional-grade financial analysis, including NPV modeling, risk-adjusted returns and MOIC analysis, to tenant lease transactions. Rather than treating leases purely as occupancy costs, a corporate finance group evaluates them as capital decisions that affect a company’s balance sheet, P&L and enterprise value.
Every commercial lease negotiation has downstream consequences for a company’s equity value. Lease terms affect operating costs, balance sheet obligations under ASC 842 and cash flow. All of which flow into enterprise value calculations. Hughes Marino quantifies these impacts before, during and after lease negotiations so our clients can optimize their real estate decisions with full financial visibility.
ASC 842 is the current GAAP lease accounting standard that requires companies to recognize most leases as right-of-use assets and liabilities on their balance sheets. Because lease accounting under ASC 842 directly affects reported financials, debt covenants and investor perceptions of leverage, the structure of a lease, not just its economics, carries significant financial consequences. Our Corporate Finance Group factors ASC 842 treatment into every strategy we develop.
Our Corporate Finance Group applies its shared equity framework to lease renewals, office relocations, new lease negotiations and building purchase evaluations. In each case, we help the tenant understand its true financial leverage and negotiate structures that reflect its credit strength and its contribution to the landlord’s equity position.
Multiple on Invested Capital, or MOIC, is a private equity metric that measures how many times an investor has returned their original capital. In the context of tenant real estate, we apply MOIC analysis to quantify the equity multiple a landlord earns on the basis of a credit tenant’s occupancy. That figure becomes the foundation for negotiating a structure that shares that return equitably between the landlord and the tenant.
Partner With Our Corporate Finance Group
We look forward to partnering with your company to help unlock the true value of the equity embedded in your leased real estate. Schedule a consultation with Hughes Marino’s Corporate Finance Group to learn how a shared equity approach to commercial tenant representation can improve your company’s financial position.