In any real estate transaction there are always two different parties with competing agendas, the landlord and the tenant, both of whom must find common ground through a myriad of financial variables that comprise the lease. Most often this process involves spreadsheets and other outdated tools fraught with error. To help bring leasing into the modern age, former investment officer John Cona founded F9Analytics. The company just launched its completely rebuilt online platform that allows anyone to quickly and easily analyze leases.
“For years, leasing professionals have relied on spreadsheets or back-of-the-envelope calculations to both structure and negotiate commercial property leases,” explained Cona. “Ten years ago this may have been satisfactory, but today’s investors are more sophisticated.”
According to Cona, back in the mid 1990’s when commercial property was trading at 10.0% CAP rates, small back-of-the-envelope calculations and poor methodologies may have been satisfactory, but not today. The excessively low property yield environment simply does not provide for margins of error when property investors are looking for greater precision.
Prior to founding F9Analytics, Cona served some of the most prominent investment firms in the U.S. as technical asset manager, analyst, and investment officer, underwriting some $30 billion in aggregate assets; and acquiring some of the most recognizable buildings on the U.S. skyline. His highly specialized analytic skill-sets were cultivated from his beginnings as an analyst serving both research and later finance capacities; all of which leveraged technology.
“Being an investment officer, valuing buildings as a whole, you are always faced with looking at specific leases and their relationship with the building or portfolio value as a whole,” said Cona. “So you are constantly underwriting to figure out if you have missed something. How can you structure the deal with this lease in place that would make sense for both parties? So you’re constantly being challenged with these obstacles. But it always comes down to: what’s the value of that lease?”
For many years, spreadsheets or ad hoc recipes have served as the technological backbone for commercial real estate finance. However powerful and robust these models may have been, their warehousing, use, and re-use, have always created challenges to the organizations they serve, according to Cona. Was an errant entry made by an inexperienced user? Has a broken formula gone untraced? Have the files been accessed from unprotected locations? Can a simple spreadsheet query a complex set of stored formulas to solve a lease problem?
F9’s lease optimization tool, called Lease Optimizer, provides 128 possible ways to optimize the financial structure of a commercial property lease. If you were using Excel to handle the same complex series of interlinked variables, you could easily crash both Excel and the computer. But F9’s platform exists securely in the Cloud, which means that it’s storing and accessing data and programs over the Internet instead of on your computer’s hard drive.
To optimize a lease to hit a property owner’s financial goals, all that’s needed is the leasing plan quote and the NPV (Net Present Value). The target NPV could be calculated in a company spreadsheet or by using F9Analytics’ Lease Compare tool. Any financial term of the lease, like free rent or a tenant improvement allowance, can be changed and the lease can be re-optimized with a simple radio button selection. With one more click, the program will solve for the desired financial terms that make the lease meet the building owner’s investment goals, even property IRR (Internal Rate of Return).
In his commercial real estate career, Cona has used just about every tool available for lease analysis. “Across the board the technologies that have been used all say five-years-old. Nothing looks like the future,” said Cona. “As a Microsoft Biz Spark Partner, we were granted early access to Windows 10 and I could see their vision. It looked like the future compared to every other operating system. The redesigned F9 platform was inspired by that. When you visit our site, you’re going to know that you are visiting a forward thinking tech company.”