Deals are taking longer and, in this market, it means everybody is losing out. On all sides of the process, those of us involved have felt deal timelines creep up and up and up since the COVID-19 ‘race for space’ ended.
According to our research, deals are, on average, now taking almost twice as long as they did in a normalised market. Where 6-8 weeks used to be considered standard, the average big box deal today is taking around three months. DTRE is currently tracking 3.6 million sq. ft. that has been under offer for even longer than that, and our data indicates that, the longer a deal takes, the more likely it is to fall through.
In this market, transaction management is even more important, but there are other factors at play to be mindful of…
Don’t Rush, But Don’t Wait
What we need is transparency and clarity. Sluggishness benefits no one, but nor does it pay to be too eager. When imprecision and carelessness creeps in during the rush to do a deal, delays and misunderstandings naturally follow.
Tenants need to be clear on when they require a facility, intend to move in and the reasons for those timings. Most Landlords will respond positively to being in possession of the facts. Of course, landlords also need to be honest and upfront with occupiers: additional scrutiny and sharing of information prior to appointing solicitors will aide with navigating the legal and due diligence processes.
For our part, we as advisers must ensure that we have assisted in this process and carefully managed communications between landlord, tenant and consultants. At the outset of the process, establish a realistic transaction timetable, which should include legal meetings, either in person or virtually.
Sorry, Lawyers
Too often, speed is prioritised over accuracy, with a view that lawyers will pick up the slack. In reality, this only slows things down, and lawyers don’t come cheap.
Extra scrutiny when drafting heads of terms is crucial for minimising delays further down the line. By removing vagueness and ambiguity we can reduce the time in which legal teams are at the helm and, very generously, reduce lawyer workloads. This is a route to saving both time and money.
Careful consideration of transaction structures can bring significant timesaving benefits: accept Schedules of Condition over FRI leases or opt for an Agreement for Lease over capital contributions at your peril.
E-Speed-G
The increasing criticality of sustainability and the rise of green clauses is one legalistic element in particular where this refreshed approach would be of benefit. As a new and often unfamiliar area, widely misunderstood, it’s an element in contracts and deal processes that is time and again acting as a stumbling block.
Take solar power purchase agreements (PPAs). The complexity of such an agreement, coupled with tenants having little experience of acquiring properties with PPAs in place, is undoubtedly having an impact on the speed of transacting. Green leases, more sophisticated M&E, and a spate of contractor insolvencies are exacerbating the need for all parties to be well advised and pragmatic at this time.
Though no two cases are the same, there is clear scope to reduce the risk of this element of a lease negotiation significantly delaying a transaction. We would all benefit from deciding on what best practice in this area looks like.
Everyone’s A Winner
As advisers, we want and can do more. As an industry, we ourselves need to take a considered approach, identify points of difficulty, and work harder and more creatively to resolve these challenges.
In today’s world, pairing best-match parties is a route to efficiency and effectiveness, but one made harder when information is vague or withheld. Resolving this would be a positive for all involved, and a driver of greater returns and other outcomes.
When we all draw on personal, prior experience (or consult colleagues), communicate solutions effectively, and come together to provide clarity in process and best practice, we will build more trusting and information-led dealmaking.
All of this will help to inject some much-needed momentum. Picking a professional team capable of facilitating this has never been so important.
