In view of the greatly escalating office market in Indian cities and little Class A space offered, the company wanted the opportunity to relocate to top quality offices, secure needed contiguous expansion space available, design its office building itself and not be subject to market rental prices
The company did not want to own the building as title issues were risky
Market leases for office space did not offer expansion options and required market level rent reviews every 3 to 6 years.
Transaction
Site: land was located with suitable development rights, neighbors and transportation
Developer: a developer was selected to construct the building under a 9-year lease plus renewal options
Structure: the rent was a “cost plus” formulation (construction cost plus a developer fee); market rent renewal rates were capped. On this basis, the rent cost was projected to be above-market for an above-market product. However, because the rent formula was fixed before construction started, by the time the building was complete the rent was well below market
Design: the building was designed by the company to first class western specifications
Future expansion: expansion space would be made available through the later development of onsite office space comprised of unused FAR carried at a low rent
Ownership participation: a right of first refusal to purchase was obtained by the tenant to keep control of ownership and to cash in on upside value.
