Why Some Commercial Real Estate Lease Structures are Better than Others

There is an art in negotiating a lease in the best interests of your company or customer. As commercial real estate professionals, in order to create great work, we need to be armed with the right tools to understand the operational and financial aspects of the agreements to which we are binding our company or customer.

You may have heard this line from someone recently: industrial and commercial real estate is becoming a commodity. Corporate real estate, the real estate investment trusts, brokerages, industrial properties, and others are all headed towards service and product standardization. Unfortunately, due to market forces and participants pushing us to accept the “market” way of structuring lease agreements, we may eventually get there.

However, there are several reasons to doubt the commodity-theory in the near future. One reason is companies and customers need customization in their lease agreements, achieved through creativity in negotiations, in order to meet their very real financial and operational requirements. They may have near-term capital requirements, concerns about sublease risk, cash flow requirements, and better use of capital outside of real estate.

This article is the first of a series of posts about using the variability of lease terms in order to meet company or customer requirements. It is also about creating awareness of what happens to cash flows when standard lease elements, such as the length of a lease term, are adjusted in isolation and with other lease elements to reach a desired outcome.


Ultimately, each commercial lease transaction is an opportunity to create a financial obligation for the company or customer, which will be profitable after considering the operational cash flow generated by the occupying business unit, debt, and any tax consequences. Ideally, commercial real estate professionals would include their company or customer’s operational, debt, and tax information into their analysis of the financial impact of a lease. Otherwise, the lease cash flows will be negative and there will be no ability to determine the profitability of the prospective lease commitment.

However, even if operational and tax consequences are not part of the financial analysis of a lease, it is important that commercial real estate professionals ask their companies or customers for any guidance regarding structuring such real estate cash flows. Often finance professionals with the business operation understand the proforma cash flows for a prospective operation and can convey how the operation might benefit from certain lease elements, such as rent abatement or a tenant improvement allowance for certain requirement improvements. By understanding how the certain lease elements might benefit them, we can pursue better lease structures for the customer or company.

Most companies use depreciated cash flows, or cash flows discounted to present value, when evaluating the financial impact of business decisions. Often called DCFs for short, these cash flows are the prospective financial performance of the company for a particular investment or project. DCFs are typically for a set number of years, depending on the project length and operational considerations involved. Some operational cash flows will be considered in a DCF for a period longer than the initial lease term and even beyond the terms of any options to renew. In such instances, commercial real estate professionals may be asked to make assumptions regarding real estate cash flows into the distant future.

Since this post deals with lease cash flows, I will address the metrics that will help us evaluate leases independent of any operational cash flows, debt, and tax consequences. Fortunately, there are several ways to assess lease cash flows for commercial real estate professionals to consider. I have outlined several metrics commonly used to assess leases with some of their positive and negative attributes, followed by a short summary of when and how to use them.

Initial Month or Year of Base Rent: Base rent can be net of operating expenses or gross, which includes of all or parts of estimated operating expenses. Since gross base rents often include different levels of operating expenses and may not include charges such as common area maintenance (CAM), for comparative purposes it is important to make sure the operating expense categories included in gross rents are the same among the different options. In addition, since operating expenses can account for a significant portion of the gross base rent, it is important to include them in any comparison analysis to understand the total real estate costs.

Start Rate (or coupon rate): The start rate or coupon rate is the initial month or year of base rent divided by the rentable unit of size of the premises being leased. As mentioned above, the start rate is a more accurate metric when it is derived from a gross rent versus a rent net of operating expenses.

This metric is very common and simple to obtain. When most lease terms are the same, it can be an effective barometer of cost per unit of size per unit of time. However, the start rate does not provide any information about the other elements to the lease structure, such as rent abatement, rent escalations, and tenant improvement allowances. As such, when there is variability in lease terms between options, the start rate is likely not a good metric to use.

Total Consideration: The total consideration of a lease is the sum of all the base rent to be paid under the term of a lease. Sometimes, total consideration can be reduced by any cash inducements such as a tenant improvement allowance or moving allowance. As with the initial month or year of base rent, total consideration is a more accurate estimate of costs when shown as a gross amount. However, unless the base rent is already on a gross basis with fixed increases, additional assumptions may need to be made about the rate of growth, if any, in operating expenses over the term. When comparing total consideration for different space options on a gross basis, it is important that the operating expense assumptions remain the same across all options.

Straight-line Rent: The straight-line rent is the total rent paid during the term of the lease divided by the number of months in the term. Straight-line rents are commonly used for accounting purposes. Straight-line rents typically account for rent abatement and rent escalations, but not cash inducements.

Effective Rate (or average rate): The effective or average rate is the total consideration divided by the rentable unit of size, divided by the number of years or months in the lease term. This metric can be shown as net or gross of operating expenses and, unlike the Start Rate, will account for rent abatement, rent escalations, and sometimes cash inducements (e.g. tenant improvement) if included in the total consideration calculations.

Discounted Cash Flow (DCF): The positive and negative cash flows during a specific period of time, discounted to their present value based on a selected discount rate. DCF periods are not necessarily tied to lease term length and may also incorporate operational cash flows, debt, and before/after tax analysis in addition to real estate cash flows. DCFs are typically viewed as a better financial measurement than total consideration since it incorporates the time-value of money. However, since they are based on assumptions of future performance and appropriate discount rates, DCFs are subject to being inaccurate, especially as the DCF period grows and the risk involved is unclear.

Net Present Value (NPV): Net present value is the sum of the present value of all cash flows during the cash flow period, net of any initial cash outlays or receipts. A positive net present value indicates whether future cash flows are profitable after considering an initial investment while the negative shows the opposite. In evaluating a prospective lease’s cash flows, NPV will generally be negative for a tenant and positive for a landlord due to the payment (negative) or receipt (positive) cash flows for each. Any cash inducements from a landlord, such as a tenant improvement allowance, will typically be shown at Period 0, and will be positive or negative amounts depending on whether viewed from the tenant’s or landlord’s perspective.

As a stand-alone metric, NPV’s utility is in comparison with alternative lease cash flows. A smaller negative NPV is desirable from a tenant’s perspective while a larger positive NPV is desirable from a landlord’s perspective.

As with DCFs, NPVs are often viewed as financially more accurate than total consideration because NPV accounts for the time-value of money. The discounting of future cash flows is especially useful when considering leases of different length. Normally longer leases would typically be at a disadvantage when using total consideration or effective rates because the rent many years from now has the same value as the rent today, even in a lease with no increases. NPV accounts for the fact that a $1.00 today is worth more than a $1.00 five years from now, and therefore presents a more accurate financial picture of leases with different terms.

However, NPV’s are subject to the same downsides as DCFs. Selecting the appropriate discount rate is not always clear and may be disputed among different parties. Many companies or customers may suggest an appropriate discount rate to use when calculating NPV. Often this is their weighted average cost of capital or WACC. However, others might suggest tying the discount to a perceived risk during the lease-which may change over time. You can start with a discount rate of 6%, which is equal to the firm’s WACC, but maybe later on in the term you want to use a higher discount rate to account for more uncertainty with the property’s utility or some other factor. Since the discount rate is often determined by the company or customer and has a significant impact on the NPV, it is worth making sure interested parties are aware of what discount rate(s) were used so all can agree it is the appropriate discount rate to use.

Net Present Value Rate (NPV Rate): The net present value rate is the net present value of lease cash flows divided by the number of years or months in the initial lease term. The NPV rate has the upsides and downsides of net present value. However, the NPV rate addresses a challenge of using net present value to compare leases for different sized buildings and proposed lease terms. The NPV will tell you which option has a larger discounted cash flow but it doesn’t tell you what the discounted cash flow is per unit of space per unit of time, which would average out the differences in size and lease term. The NPV rate provides the net present value as a per unit of space and time (typically per square foot/meter per month or year). Therefore, the NPV rate is very useful in comparing multiple prospective locations and leases proposals.

When to Use Certain Lease Metrics

Selecting when and how to use certain metrics to measure financial aspects of a lease is extremely important. Using the right metrics with the right audience can lead to a better terms in a negotiation, a useful variable to “goal-seek” using different lease structures, and ultimately the success of a leasing project. Obviously, the converse is true as well.

What constitutes the right metric with the right audience? It depends on the objective and ability for the parties to consent to certain assumptions. For instance, if my objective is to compare several different lease scenarios with varying terms with my internal finance team, NPV and NPV rate would be much better metrics than start rate or even effective rate. NPV and NPV rate would be more accurate financial measures of such leases and my audience would presumably be very familiar with their use.

Conversely, if my objective is to negotiate a fair market rent for a renewal option with a landlord, it probably makes sense to only focus on the start rate. The other lease terms are likely dictated in the lease and the landlord will certainly be aware of what a start rate is and not question its use in the negotiations.

Sometimes we want to use a metric to function as a financial target for adjusting terms of a lease, what you might call to “goal-seek”. Goal-seeking is useful when you have a proposed lease structure that has an acceptable metric, but not necessarily an acceptable structure. For example, a proposed lease could include no tenant improvement allowance from the landlord but has an effective rental rate which is acceptable to all parties. If the tenant wants a tenant improvement allowance, their corporate real estate professionals or consultants may adjust the cash flows to add in the desired tenant improvement, and then adjust the other lease terms until the effective rental rate equals the effective rental rate prior to the tenant improvement allowance. An argument can be made to the landlord that based on the effective rental rate, the revised lease structure should be acceptable.

The following chart plots the metrics discussed based on their complexity on the y-axis and whether their use is more likely to be exclusively internal. A metric becomes more complex when it involves a calculation, assumptions, or both. For example, NPV, NPV Rate, and DCFs involve calculations and discount rate assumptions where effective rate involves calculations. A metric is more likely to be of internal use only when it is challenging to use in discussions with an outside party, such as in a lease negotiation. Challenging could mean there needs to be agreement on assumptions, such as the appropriate discount rate with NPV, NPV Rate, and DCF, or the metric is not typically used to only analyze lease cash flows, such as a DCF.

Depending on the requirements of the lease analysis and audience, this chart can help determine an appropriate metric to use in a given situation.

One final word on measuring lease value; if you are evaluating a lease for your business or customer internally I would strongly suggest you use the appropriate sign in your cash flows. For example, rent paid to a landlord should be a negative cash flow from a tenant’s perspective while a tenant improvement allowance would be positive, and vise-a-versa from the landlord’s perspective.

Using the correct sign in lease cash flows makes it easier to avoid making mistakes when evaluating leases and combining with operational cash flows. Showing a positive cash flow from both rent paid to a landlord and a tenant improvement allowance will result in an incorrect net present value. Furthermore, a prospective lease with a positive net present value from the tenant’s perspective may lead to wildly unrealistic results when combined with the tenant’s operating cash flows.

Avoiding Negative Outcomes: Risks to Consider in Industrial Real Estate Transactions

In my last post I made the case that the most important objective of any industrial real estate transaction is to avoid negative outcomes. Since risk is the probability of a negative result, evaluating and reducing risk is the way to reach the most important objectives in industrial real estate transactions. In general, a mindset which prioritizes risk avoidance is one that maintains company purpose, relationships, and leads to the best results overall.

But such a mindset is not simplistic in the sense there is more to evaluating risk than not doing or doing something. Risk avoidance in industrial real estate transactions often involves weighing a multitude of risks at the same time to understand the best course of action. Some risks, like environmental liability, can be existential risks for some companies while other risks, like opportunity risks, can be almost neutral in nature. Therefore, if you wanted to avoid a negative outcome, assuming the preceding sentence was true, you wouldn’t assume higher environmental risk just to lower your opportunity risk.

In order to properly weigh risk in an industrial real estate transaction, it is helpful to think about specific risks as relating to common elements of industrial real estate. Such common elements may include:

  • Property condition
  • Workplace environment
  • Location
  • Legal nature of agreements
  • Government or utility impacts
  • Opportunity risks

Although every transaction is unique, the type of risks are relatively constant from transaction to transaction. It is the amount of risk within those categories that must be assessed, weighted, and reduced if possible.

In this post I will cover risks and risk reduction relating to the condition of a property and the workforce environment. Subsequent posts will cover the other categories mentioned above.

Property Condition

Risks related to property condition include functional obsolescence, deferred maintenance, environmental, soils, and location-specific property condition concerns such as seismic retrofitting. Unlike some of the other categories of risk, property condition risks can usually be quantified using proper due diligence prior to entering into an agreement.

For example, functional obsolescence is usually identified when evaluating potential sites and is more likely in situations where there is a long-term hold for existing buildings being considered. Reducing the risk of functional obsolescence may include eliminating properties with older construction from consideration or adhering to a certain standard for amenities.

Many industrial properties without significant functional obsolescence may still have substantial deferred maintenance. Force majeure aside, the most consequential events during an industrial firms lease or ownership of a property are from deferred maintenance. They typically impact the utility of the property and, if the industrial firm is responsible, the overall operating costs of the operation. Consider what an electrical panel malfunction does to a manufacturing operation or what a roof replacement means if the tenant is responsible for the replacement cost. The early use of landlord questionnaires, property condition reports, and negotiating business and lease terms accordingly are a great way to reduce deferred maintenance risk.

As with deferred maintenance, reducing environmental risk should be prioritized in any real estate transaction. Due to the extremely costly nature of environmental liability, industrial firms who are exposed to environmental risk can experience a resource-draining remediation process and sometimes are forced to enter bankruptcy.

Environmental risks can also be reduced through the use of due diligence practices prior to entering an agreement with a landlord or seller. At a minimum, both prospective buyers and tenants should hire an environmental expert who will study the property’s potential for environmental liability and provide a baseline for future reference before purchasing or leasing a property.

Soil conditions are not always of concern in industrial real estate transactions. Typically, soils or geotechnical studies are recommended when there is a known concern, such as liquefaction in the area, or new development is anticipated.

Similarly, location-specific property risks are not always pertinent depending on where the property in question is located. In California, for example, seismic retrofitting may be required for certain industrial buildings to prevent their collapse during an earthquake. The best way for industrial firms to mitigate location-specific property risks is to investigate local and regional requirements which may impact the specific properties they are considering purchasing or leasing.

Workplace Environment

Risks associated with workplace environments would have been mostly addressed in property condition-related discussions in the past. Industrial firms would have sufficiently reduced the known risks to their workforce by making sure the property was in physically safe, there were no toxic or irritating substances present, and oversight agency guidelines were being followed for additional safety features.

With the advent of COVID-19, limiting the risk of illness to employees clearly requires more than just these measures. Although improvements and practices to mitigate sickness in the workforce are evolving, some of the best practices released by health and commercial real estate professionals include:

  • A workplace that can be easily and routinely cleaned
  • Isolation areas or rooms for workers who become sick on the job
  • Designing worker areas to provide isolation and physical distancing
  • Increasing ventilation and installing negative atmosphere areas where needed
  • Separate entrances and exits

This is a rapidly changing area of risk for industrial companies. Firms should continually be consulting experts in workplace safety and following their recommendations to mitigate the risk of infection to their workforce.

Avoiding Negative Outcomes: How to Focus on What is Important in Industrial Real Estate Transactions

If you were to choose the most important objective of any industrial real estate transaction, what would it be? Spectacular savings compared to market? Getting acceptance on all the important legal terms? Above market tenant improvement allowance? Operations is happy with the property condition? On-time occupancy?

While all those results would be fantastic and are certainly worthy objectives, they are not the most important objective of any industrial real estate transaction. The most important objective is to avoid negative outcomes. Why?

Because deep down in our collective psyche, avoiding negative outcomes is what people, and thus organizations, care about the most. We care about winning, but not as much as avoiding losing. In real estate terms, we care about positive results such as beating the market on pricing, but not in exchange for terms which increase risk.

This is the essence of our negativity bias and its impact on industrial real estate transactions. A negativity bias or negativity effect is when, all else being equal, things of a negative nature have a stronger impact on us than things of a neutral or positive nature. In fact, experts say that it can take five positive events to outweigh a negative one. In industrial real estate transactions, this ratio is probably understating the impact of certain negative events on what the firm would consider a successful project.

Since industrial real estate’s value to the industrial firm is largely its utility, the greatest risks lie in the inability to secure and utilize such assets while it is owned or leased. Therefore, we should focus our efforts to reduce the possibility of negative outcomes within the transaction process, both for the risk to utility but also because the industrial firm will most likely judge project success on the lack of negative results.

In other words, we should employ risk mitigation strategies to the extent they are reasonable and possible. Risk mitigation strategies are processes whereby risks are identified, prioritized, and reduced. In industrial real estate transactions, such processes should be defined and a part of the real estate organizations best practices or playbook.

C&W Updates on Industrial CRE and COVID-19

Since there is so much uncertainty out there, I thought I would share a few interesting sources of information from C&W:



Evaluating the Value of Tenant Credit to a Landlord based on the Market

The value of a tenant’s credit to a landlord is largely dependent on the global, national, and local marketplaces. In stronger markets, the value of a credit tenant will diminish relative to weaker markets. This is easy to see if you consider what constitutes risk in ownership of income properties. Vacancy, lease-up costs, eviction costs are all well known risks protected against by creditworthiness.

Vacancy and lease-up costs are less likely in strong markets, and therefore any hedge to protect against them will be devalued. In weak markets with higher vacancy and lease-up costs, the opposite will take place.

However, the qualitative approach above does not provide a framework to determine monetary value, only that values changed depending on the marketplace. The determination of monetary value requires quantifying the worth of credit based on its affect to the pricing terms of a transaction.

In my experience, there is limited literature online which reviews how to quantify the worth of credit in commercial real estate transactions. I am unaware of any standard process by which all tenants and landlords approach this issue internally. Whatever process is used, it must be recognizable and relatively easy to understand for all parties involved. Otherwise, it will be difficult to gain the consensus necessary to negotiate any value of creditworthiness effectively.

Tenant Credit Value via the Direct Comparison Approach

One approach to quantifying the value of tenant credit is the direct comparison approach. Tenant A leases a 100,000 square foot single tenant industrial building for $10.00 per square foot. Tenant B leases a comparable building in the same market for $11.00 per square foot. Adjusting for differences such as length of term, tenant improvements, and amenities it is determined Tenant A’s creditworthiness is worth $0.50 per square foot per year.

Despite appearing to be a simple approach to value, it is exceedingly difficult to establish that tenant credit value is the adjusted difference between two comparable lease transactions. First, there is determining how much adjustment is required for factors such as length of term, rent abatement, tenant improvements, and amenity differences.

Furthermore, there are other considerations outside of the transaction and physical differences. What about the skill of the negotiators involved, the appetite for coupon rates versus effective rates in one or both parties, the requirements of the landlord’s credit committee, etc.? The direct comparison approach, if used to determine the value of tenant creditworthiness, would likely result in more complexity in establishing a value and more challenges in finding consensus among interested parties.

Tenant Credit Value via Vacancy and Credit Loss

Therefore, a better approach to quantifying the value of tenant credit in a given market is to use standard underwriting methods which are familiar to landlords. In particular, the vacancy and credit loss percentage, used to adjust gross scheduled income for the overall risk of vacancy and credit loss in the market, can be adjusted according to the perceived risk profile of the tenant’s credit.

Any adjustment in the vacancy and credit loss percentage will impact the landlord’s anticipated net operating income, creating an opportunity to calculate comparative net operating incomes depending on tenant and market creditworthiness. As the following example will outline, it is not difficult to proforma rents based upon comparative tenant credit if there is an understanding of market rents and vacancy factors.


-Two tenants interested in leasing a 100,000 rentable square foot single tenant industrial property (“Premises”)

-Tenant 1 has 0% chance of default (i.e. the U.S. Government)

-Tenant 2 has average credit for the market with a 5% vacancy rate

-Market rents for the property are $10.00 per square foot annually

-Operating expenses are $2.00 per square foot annually

Tenant 1 anticipated net operating income for year 1 can be calculated as follows:

Scheduled Gross Income: $1,200,000
-Vacancy Factor:$0 (0% chance of vacancy)
+Other Income: $0
=Effective Gross Income: $1,200,000
-Operating Expenses: $200,000
=Net Operating Income: $1,000,000

Tenant 2 anticipated net operating income for year 1 can be calculated as follows:

Scheduled Gross Income: $1,200,000
-Vacancy Factor: $60,000 (5% chance of vacancy)
+Other Income: $0
=Effective Gross Income: $1,140,000
-Operating Expenses: $200,000
=Net Operating Income: $940,000

Based on our example above, Tenant 1 could argue that it should pay $60,000 less per year than the average credit tenant or $0.60 per rentable square foot per year based on 100,000 rentable square feet. In this example, Tenant 1’s credit value is $60,000 per year compared to the market.

However, in a strong landlord market with very limited market vacancy, such as 100,000 square foot industrial buildings in Southern California, the vacancy rate for comparable properties will be lower than 5% and likely closer to 0%. This lower market vacancy will reduce the comparative advantage of Tenant 1’s creditworthiness, thus reducing its credit value to the landlord.

Lastly, tenant credit is not usually equivalent to the U.S. Government and may not be average for a given marketplace either. Therefore, it is likely when two parties try to quantify the value of tenant credit, there will be a range of value due to variances in the vacancy factor used in the calculation of the net operating income.

Tenant Credit Value via Increase in Property Value

Another strategy for determining the value of a tenant’s creditworthiness to a landlord is through an increase in property value. Although considerably less precise than the adjustment of vacancy and credit loss, comparative sales of similar properties leased by credit tenants versus those leased by non-credit tenants can provide indications of how much value creditworthiness can add to a property.

For example, if comparable investment sales in a certain market indicate that investors will pay 50 basis points more for a property leased to a credit tenant than they will for a comparable property leased to a non-credit tenant, then the value of the tenant’s credit on the purchase price can be calculated using several assumptions as follows:

Two comparable 100,000 RSF buildings
Leased for similar terms at market rate of $5.00 / SF NNN

Credit Tenant
NOI = $500,000
Market cap = 5%
Income approach to value = $10,000,000

Non-Credit Tenant
NOI = $500,000
Market cap = 5.5%
Income approach to value = $9,090,909

Additional Property Value created by Credit Tenant
$10,000,000 - $9,090,909 = $909,091

Calculate Appropriate Reduction in Credit Tenant NOI
Market cap = 5%
Income approach to value from Non-Credit Tenant = $9,090,909
Adjusted NOI = $454,545

Based on the example above, a credit tenant’s value to a Landlord could equate to a $45,455 in rental value per year.

The above approaches are just three examples of ways to determine the value of a tenant’s credit based on the market. In the next few weeks I will review other considerations in determining tenant credit value such as property type, debt, and ownership profile.

Evaluating the Value of Tenant Credit to a Landlord

In our current battle against COVID-19, uncertainty is heightened and market participants are scrambling to understand what might happen today, tomorrow, and further into the future. Uncertainty and its measure, risk, are paradoxically very easy to see yet challenging to quantify, especially in the high uncertainty period we find ourselves in today. Similarly, the value of tenant creditworthiness to a landlord is apparent and yet difficult to assess, particularly right now.

Therefore, it seems like the perfect time and the worst time to discuss how we can evaluate the value of tenant credit to a landlord. The essence of creditworthiness is establishing a level of trust in another based on past actions. When there is uncertainty in a market, credit would increase in importance. However, when there is too much negative noise in the economy, the value of credit can be significantly diminished by current events because it becomes nearly impossible to quantify. Consider that Bear Sterns posted record earnings in 2006.

Evaluating the value of tenant credit to a landlord is always a relative equation involving many different variables. In other words, “it depends”. In the next few weeks I will provide a framework for thinking about how to evaluate the value of tenant credit from a landlord’s perspective. This framework is invaluable to tenants wishing to negotiate terms effectively with a landlord. By projecting the value a landlord places on credit, tenants can translate that value into leverage for better lease terms and competitive advantage over other prospective tenants.

Force Majeure

After researching an article on tenant creditworthiness, I decided to switch gears over the weekend and focus on the COVID-19 implications for CRE, specifically the Force Majeure provision of most leases. Fortunately before getting too far, an attorney named Howard F. Klien beat me to it. I am linking to Howard’s great article on Force Majeure here: https://creradio.com/can-a-tenant-stop-paying-rent-because-of-the-coronavirus/

COVID-19 and CRE

Corporate real estate often plays an important role in ensuring the safety and security of corporate employees, not just the real estate itself. Efforts such as increased cleaning of work spaces, remote worker infrastructure, security/screening of office employees and visitors, and other seemingly non-real estate related functions often are lead by corporate real estate professionals. As the COVID-19 virus spreads in the U.S. and world, I thought I would take a moment to recognize and thank the corporate real estate professionals who are leading the way in efforts to minimize the virus’ impact to their companies and everyone else.

Keeping Track

Everyone seems to have different ways of keeping track of their obligations, daily events, etc. so I thought I would share what I am currently using today. Of course, I am always open to suggestions for improvement.


Every morning at 5:45 AM I have a scheduled block of 15 minutes to create a note within Evernote for the day. That note is a template which has four sections:

-What did I learn yesterday?

-What kind of experiments do you want to run today?

-Today’s most important question

-Today’s notes

The first three sections incorporate some of the best suggestions for awareness and learning I have run across. The fourth obviously is to keep track of what happens during the day.

Evernote also allows you to upload handwritten notes in searchable formats, which is a necessity because I often am unable to take notes within the program for various reasons.


My company has a customized version but most companies I encounter these days use Salesforce for customer relationship management. I keep all of my business related information and task-tracking here.


Things is a task tracker I use on my iPhone to keep track of mostly personal tasks I need to complete during the week. I have tried so many task trackers over the years and Things provided the most utility and functionality.

Gantt Charts in Excel

Over the years I have utilized gantt charts for numerous projects because they can accurately delineate, schedule, and track each step in a project timeline. The excel templates made by Vertex42 are really good and worth the money if you use gantt charts frequently.

Why Split Roll Taxes will Drive More Business Out of California

On November 3rd Californians will decide whether to partially remove property tax protections, granted under Proposition 13 in 1978, for most non-residential properties. The initiative they will vote on, the California Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative (2020), would amend the state constitution to require commercial and industrial properties be taxed at their market value.

Currently all property in California is protected by Proposition 13 (1978), which limits property taxes to 1% of the purchase price plus up to 2% of inflation per year. By removing such protections for commercial properties, some estimate the initiative will generate another $13 billion of property taxes in California. While not arguing the merits of the initiative’s objective, should the initiative pass I do think it will negatively impact California businesses in ways familiar to corporate real estate but perhaps not the general public.

The obvious impact of increasing property taxes on non-residential property is on the non-residential property owners themselves. Some of the largest commercial employers in California also have large property holdings in California. For companies who own their real estate, an increase in property tax is shown on income statement as an increase in operating costs. Which means when property taxes are increased, all sorts of indicators of company health are negatively impacted like EBITA, profitability ratios, price-earnings ratios, etc. That may be acceptable if you are a tech company whose investors may focus more on the cash flow statement, but not OK if you are an established aerospace company heavily penalized for any indication of being unprofitable.

Perhaps less known are the impacts on companies leasing space when property taxes are increased. The vast majority of leases stipulate that any increases in property taxes are “passed-through” to the tenant leasing the space. This means the tenant, not the landlord, is responsible for the increased tax. For the impacts to corporations who lease space, the negative impact of property tax increases on their income statement is the same as the ownership example above.

While proponents of this initiative have argued the initiative will target wealthy investors and large corporations, small and medium sized businesses will likely get impacted the most. Small and medium sized businesses in office buildings, multi-tenant industrial parks, and shopping centers likely do not have any protections from property tax increases in their leases. Their landlords will pass along the cost of the additional property tax to them.

Do you know who is much more likely to have protection against tax increases in their leases? Typically large corporations, who had substantial negotiating leverage with the landlord when they entered into their lease, and wealthy investors savvy enough to include them in leases when they purchased a business and leased back from the Seller.