TXU Energy, a leading energy service provider -- was in the process of being purchased in the largest private equity transaction in history -- when it retained Studley to review its already in progress, but unexecuted, lease negotiation for its retail energy operations headquarters in Dallas. Studley (now Savills Studley) presented a case for substantially improving the transaction by using a non-traditional negotiation strategy.
A thorough analysis of the situation was performed using multiple value lenses designed for savings and flexibility. Studley created a model for transparent, parallel negotiation using credible, creative alternatives including the retention of an existing operations center in Irving. Studley was able to quantify to the landlord -- a large REIT focused on single-tenant NNN leased facilities -- the impact of losing the TXU tenancy through a compelling scenario using cash flow analysis.
Prior to TXU’s prospective tenancy, the facility was 100% leased to a third party through 2010. The Studley/TXU team was able to convince the third party to sublease TXU’s downtown premises in return for TXU's entering into a lease at 6555 Sierra -- where the third party had an obligation too significant for its downsized operation. The unique single-tenant nature of 6555 Sierra and the difficulty to re-lease in the marketplace were leveraged in addition to the Discounted Cash Flow and Funds from Operations analyses creating a transaction structure to meet TXU’s objectives as well as to offer a framework for the landlord's negotiation team to successfully present the terms to its board. Ultimately leverage alternatives and landlord interest arbitrage were used to convince the landlord to accept the restructured terms more favorable to TXU.
The end result was the creation of material savings over the long-term lease. In addition, Studley, in conjunction with the law firm of Fulbright & Jaworski, heavily negotiated the lease document in a manner which provided significantly less liability on a number of different levels to TXU including but not limited to:
- revised insurance provisions
- allocation of capital expense
- core and shell responsibility
- compliance allocation
- termination rights.
Sierra at Las Colinas III,