Macrovision, Santa Clara, CA
Macrovision’s challenge was four-fold:
- The tech firm required immediate expansion space to meet aggressive growth projections.
- It faced the burden of a long-term, over-market remaining obligation at its existing site.
- Its options were constrained by an executive directive limiting any increase in annual GAAP expenses.
- Expansion alternatives were limited and competition for the optimal alternative was fierce. Macrovision retained David Polatnick and his team to achieve its growth strategy while not exceeding its current annual GAAP charge.
After consulting with Polatnick’s real estate accounting team, Polatnick negotiated an extension of Macrovision’s existing lease, whereby the extension rent will be derived by a “FMV determination” method with a floor reflecting today’s soft market conditions. This structure allowed Macrovision to adjust (downward) its current annual GAAP rent charge. The GAAP savings generated by the “FMV” extension offset the new GAAP charges associated with the expansion space commitment. Macrovision successfully competed for its optimal expansion alternative. However, it was obligated to secure more space than immediately required. Polatnick, in turn, and prior to occupancy, further secured a short-term subtenant to completely offset the expense of the excess expansion space.
Polatnick’s team successfully negotiated a 5-year extension of Macrovision’s existing lease and a new 12-year lease for expansion space totaling 160,000 RSF. Polatnick also secured a credit subtenant for approximately 1/3 of the expansion commitment. The entire transaction had a negligible impact on Macrovision’s annual GAAP charge – from a GAAP accounting perspective, Macrovision leased an additional 75,000 RSF at a rental rate of $8,000/month, which is less than one penny per RSF per month.