Sigma Tau Pharmaceuticals
Sigma Tau Pharmaceuticals had signed a lease for approximately 25,000 SF at a high point in the market, in one of the more prominent office buildings in Gaithersburg, MD. Their space generally worked well operationally, but the rental costs were impacting earnings. In performing a lease analysis for Sigma Tau, Serten uncovered a termination option that the new management had not realized existed.
Consideration & Analysis
Sigma Tau’s principal objective was to reduce costs. The current location worked well, but they were prepared to move in order to reduce the annual rent expense. The office market where they were located was soft, and there were few tenants actively search for space or expanding. Serten Advisors brought Sigma Tau into the market, specifically to lower cost alternatives in higher quality buildings. A few viable options were uncovered with landlords that were willing to offer extremely competitive terms, including paying the cost for Sigma Tau to terminate their existing lease. To better understand their current landlord’s issues, Serten was able to obtain the loan documents for the property. Serten uncovered the fact that if Sigma Tau were to vacate the building, their landlord would be required to escrow a significant portion of the building’s rent until the space vacated by Sigma Tau was released by new tenant. Serten found that the structure of the landlord’s parent company was comprised of numerous families that relied on the dividends paid out of the building cash flow. Having to escrow funds would have been a major problem for the owners.
Serten Advisors was able to leverage the much lower terms offered by the alternative locations. As a result, combined with the information on the potential loan and dividend payout issues, the landlord agreed to restructure the lease which reduced Sigma Tau’s rent by 23% annually.