WeinPlus Reduces Cost by 60% While Protecting Tenant Relationship

Background

Duane Stiller, Founder and President of Woolbright Development, received a letter in late 2008 suggesting his company owed a million dollars for a completed real estate project. “I was shocked,” Stiller says. “I knew we owed reimbursements but the amount we had in mind was much different than that of the other side.”

Woolbright, one of Florida’s largest commercial real estate owners, had signed on to build a 156,000 square-foot retail center in 2006. But after construction commenced, the real estate market tumbled, along with construction costs, which decreased by at least 30%. That meant the cost to build the center was much less and according to the contract, Woolbright was obligated to reimburse the anchor tenant for the difference in cost.

Woolbright and the retailer had a long-standing relationship and going head to head with a prime tenant was not a move Woolbright wanted to take. “It was critical that we maintained a high level of reputational capital with this partner,” Stiller explains. At the same time, Stiller and his team felt strongly that the responsibility for overage costs should be shared according to the lease. How to go about breaking up the costs and working with the retailer to negotiate what was owed was a challenge Stiller needed to tackle next.

Stiller had a large and capable internal team but felt the job of forensically reviewing incurred costs belonged more appropriately with an outside consultant, someone who was experienced in the construction field and well-regarded as a neutral third party. “We needed someone to come into the project who had credibility as an expert,” Stiller says. “The person needed to be viewed with the utmost integrity.”

Luckily, Stiller had met with Rachel Elias Wein, Principal of WeinPlus Real Estate Advisory Services, just weeks before the letter came across his desk. “I was instantly impressed by Rachel’s passion for saving owners or tenants money on their construction,” Stiller says. He called WeinPlus and asked them to review the letter and supporting contracts.

Solution:

After only a brief look at the materials, WeinPlus could see there were several issues which made the tenant’s reimbursement request appear open to negotiation.

First, it was clear there had been unintentional cost misallocations by the owner’s contractor. WeinPlus identified several costs the contractor had claimed to be associated with the store canopy, which would be Woolbright’s responsibility to pay, when actually the costs were associated with the store, and were the tenant’s responsibility.

WeinPlus took a forensic approach to the problem, carefully reviewing contracts, payments, and other records to ensure Woolbright was paying the retail tenant fairly, but not overpaying. WeinPlus looked at every dollar Woolbright spent on the project, including internal personal costs, architect and impact fees, and environmental studies. The goal was to figure out – with total certainly – what monies were the tenant’s responsibility and what should be attributed to the developer, Woolbright.

WeinPlus worked with the president and project manager of Woolbright’s contractor to review bids and determine an accurate schedule of values for the development project. Also reviewed were costs the developer incurred to see which items, such as materials testing, were allowable to be passed through to the tenant.

The approach was fair. In order to protect the relationship with the tenant, Woolbright asked for only what it truly felt was accurate, and, thanks to WeinPlus, amassed documentation to back up each and every request.

Outcome:

With documentation and a clearer picture of who owed what, Woolbright and the tenant sat down to negotiate in the summer of 2009. In the meeting, the tenant was impressed with the accuracy of the information collected by WeinPlus on behalf of Woolbright: they didn’t refute the accounting or that the contractor had made mistakes. (Since then, this tenant has requested WeinPlus’ assistance on its own projects.)

In the end, WeinPlus was able to reduce the Woolbright reimbursement amount by $630,000 – direct savings related to the misallocation of costs and impact fees - or a 60% savings.

Throughout the process, WeinPlus was able to protect Woolbright’s relationship with the retailer, an important partner. “The tenant relationships are the lifeblood of the company,” Stiller says. “WeinPlus made the tenant feel they were treated fairly.”

Overall, Stiller was extremely pleased with the outcome of working with WeinPlus. “Our expectations were met,” Stiller says. “With WeinPlus there is brilliance, creativity, and passion combined with expertise that few people can deliver.”

Stiller was particularly impressed by WeinPlus’ insights about how Woolbright could run its business more effectively. “Rachel asked us to think about how we approach our future contractors and construction vendors,” Stiller says. “She went through hundreds of bills and came up with suggestions that could speed up and improve our accounting process.”

Woolbright continues to partner with WeinPlus on projects that protect the value of the company’s real estate investments. “We’re very excited about doing more things with WeinPlus in the future,” Stiller says.