Yes-O-Phobia, A Barrier To Quickly Negotiating Agreements

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Yes-o-phobia: The fear of saying yes, often in the course of negotiating agreements. Usage example: “No.”

This phobia is more prevalent among those new to their field or job, but not exclusively to lesser experienced negotiators. It is also much more common among lower level staff than it is among principals or senior management. That’s because fear on the part of the phobicis not so much fear of giving up complete control over whatever may possibly happen in the future as it is a fear of being criticized by a superior. In law firms, “senior” partners, almost always, are willing to say “Yes” whereas newly minted attorneys and newly minted partners are commonly reticent. [Read more…]

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Ice Cream, Deal Making, The Law Of Diminishing Marginal Utility And Why It Matters To Real Estate Deal Makers

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We wanted to achieve two goals today: (a) to Ruminate about the negotiation process; and (b) to achieve record “shortness” [for Ruminations, that is]. When you reach the end, let us know “How’m I doing?” [see, Edward Irving “Ed” Koch].

The most essential economic concept affecting business negotiation is (or should be) what economists call “The Law of Diminishing Marginal Utility.” You and I love ice cream. You have a lot and I have none. But, I have money (or something else you’d like).

What is marginal utility? With apologies to Samuelson, Marshall, Krugman, Tirole, and others, we’re going to stick with our ice cream theme. Think how refreshingly delicious an ice cream cone would be on the hottest day of the hottest summer on record. “Ahhh… .” It’s so good, I think I’ll have a second. That was pretty good too. Not as good as the first bite of the first cone, but pretty good. To each individual, there comes a point where “enough is enough” [see, Streisand and Summers, No More Tears]. Yes, you would have paid a handsome premium for that first ice cream cone, but virtually nothing for the third, fourth or whatever is beyond your personal cut-off point. [Read more…]

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What Kind Of Help To A Tenant Is Self-Help? Part 1.

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Here a mantra often heard by tenants all of their lives: “Make sure you get self-help rights. Make sure you get self-help rights.” It’s not a bad theme, but is it a cure-all? No, it’s not, and what it doesn’t cure depends on the relationship between the leased premises and the entire property. More about that in a little while. First, we’re going to list the kinds of landlord obligations that tenant might want to fulfill if the landlord doesn’t: [Read more…]

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Mortgage Loan Term Sheets Are So Long; So, Why Are They Missing All Of The Provisions Borrowers Should Be Looking For? Part 2.

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Last week, we started a list of loan terms that regularly seem to be left out of Loan Term Sheets prepared by lenders despite those term sheets using up an entire tree for what is included. If you didn’t see that posting and you are compelled to start at the beginning of our Ruminations, click HERE to start at the beginning. Today, we continue and then conclude our list. Don’t confuse “conclude our list” with “conclude the complete list,” because we know the limits of our ability and experience. A further caveat would be – every deal has its own factors to consider, but most loan term sheets attempt to fit all shape pegs into a round hole.

So, here we go with the rest of our list of “missing” terms in the common Loan Term Sheet:

Cash Management Accounts. If a borrower can avoid a “clearing account” (essentially, a “lock box”), it should. For those unfamiliar with how those work, the lender “owns” an account at the bank you choose and all rent checks go to that account. Your bank agrees, with the lender, to “sweep” all money out of that account every night and put the swept funds in your own account. That is, it will do that sweep until the lender notifies the bank to sweep the money into the lender’s regular bank account (at whatever bank the lender uses). That allows the lender to interrupt the cash flowing to the borrower when the lender thinks a “Trigger Event” has occurred. A Trigger Event could be the borrower’s default or it could be that the rental income, though exceeding the debt service payments, doesn’t exceed it by enough. It could also be when a key tenant has left the property. In fact, it could be anything the loan documents say it is, including receipt of a report of alien abduction signed by two adults. Though the last example is unlikely, it does illustrate that if the Loan Term Sheet calls for a cash management account, it should state what the Trigger Events would be. [Read more…]

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Mortgage Loan Term Sheets Are So Long; So, Why Are They Missing All Of The Provisions Borrowers Should Be Looking For? Part 1.

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 We think it’s called “document creep.” When documents were hand-written, they were pretty short and the world survived. Then, along came the typewriter, and a three page mortgage and a five page lease were probably seen to be somewhat burdensome by the party most burdened. Then, as typing got faster, the documents got longer. Rudimentary word processors, such as memory typewriters, made it easy to go even longer. Modern word processing allows for 100-plus page mortgages, leases, and other documents. Yes, now, we’re able to craft super-long documents “in a single bound.”

Even the term sheets for loans have succumbed to this “document creep.” A dozen or more pages? – No sweat. Doesn’t this benefit everyone, having a complete set of loan terms right up front so that the lawyers don’t wind up negotiating important items while the “outside closing date” looms close? Wish that were the case, because, as lengthy and detailed loan term sheets are getting (call them commitment letters, loan applications or whatever), for some reason they don’t exactly cover all of a borrower’s concerns. Ruminations doesn’t mean “all of a ‘particular’ borrower’s concerns.” We mean all of the concerns that any (or every) borrower should or does have. Like what, you ask? Like, the kinds of items we’ll be covering this week and next (and maybe even the one after that). [Read more…]

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So, What Does It Take To Make A Lease Financeable? You Asked; We Answer.

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A couple of weeks ago, we Ruminated about leasehold mortgages and why landlords shouldn’t get bent out of shape when a tenant who qualifies for one wants to be able to encumber the tenant’s (not the landlord’s) interest in the lease. We won’t repeat much of that, if you hadn’t seen that blog posting or if it was immediately forgettable, you can visit or revisit it by clicking HERE.

Basically, our take on a leasehold mortgage and how it affects the leasing arrangement between a landlord and its tenant is as follows: [Read more…]

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Landlords Rejoice – Your Tenant Is Borrowing Money

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Everyone accepts that property owners borrow money for their businesses. Very few properties are unencumbered by a mortgage. Other than in a very, very limited number of situations, tenants readily, perhaps automatically, accept that their lease will be subordinate to at least the lien of a mortgage. If a tenant can be insulated from the bad effects of a lender taking over a property or from the fallout of a foreclosure, it will or should be somewhat indifferent to having a lender or a new owner step in when its then-landlord can’t financially support the property any longer. Yes, it is messy, but think [Read more…]

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Business Interruption Coverage Too Complicated To Understand? Almost, But Not Quite.

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Last week, we promised to tell our readers more about what we reluctantly refer to as “Business Interruption Insurance.” We say, “reluctantly,” because it’s not a term you’ll find in an insurance policy – it may have been in years gone by, but now it is a business concept. So, that will be our jumping off point.

We’ll begin with a caveat or disclaimer. Today’s posting will be useless to anyone who is seeking to buy coverage. This form of coverage is conceptually simple but, in application, it is exceptionally complicated. That’s why insurance professionals were invented. Our goal is to get leasing and lending professionals to understand the “what’s” and “why’s” of “business interruption insurance,” not the “how’s.” Our objective to help non-insurance professionals “know what is going on,” not to turn readers into experts. Too many of us who are “doing deals” insist on asking for insurance coverages that don’t exist. Too many of us ask for insurance coverages that make no sense. And, too many of us don’t ask for insurance coverages that are really needed in the context of our deals. [Read more…]

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