SPEAR TECHNOLOGIES
The Challenge
Spear Technologies leased approximately 15,000 square feet on two floors at 436 14th Street in Oakland, California. Spear needed to reduce its real estate expenses to survive financially. The market was flooded with sublease space and the demand for space from creditworthy users was nonexistent. Spear was reluctant to sublease for fear that the sublessee would default on its sublease obligation.
The Solution
Equistone Partners was retained to evaluate Spear’s options. Our evaluation included a review of Spear’s financial statements, the provisions of the lease and a pro-forma analysis of the scheduled lease payments and potential disposition outcomes.
Our appraisal indicated that Spear was in the “zone of insolvency” and that immediate relief was required. We presented Spear’s case to the landlord and an agreement was negotiated that provided for the reduction of Spear’s premises to 1 floor, of the monthly rent by 75%, and of the lease term from 5.5 years to 2.5 years—in exchange for payment of $150,000 (offset by a month of “free rent”), forfeiture of their $100,000 security deposit and a bill of sale for the furniture from the floor that Spear had vacated.
The Savings
The restructure of Spear’s lease resulted in a reduction of the scheduled lease payments by almost $3,500,000.