Accretive Health

Situation
Accretive Health, the leading provider of end to end revenue cycle services for hospitals across the country, was rapidly growing and needed additional space.  The firm was preparing for a 2010 IPO and was focused on keeping occupancy costs low and minimizing capital expenditures.  It needed to restructure its existing 22,000sf long term lease and take an additional 22,000sf (44,000sf total) with further aggressive expansion and contraction rights to prepare for uncertain future business dynamics.  The challenges were securing aggressive economic and business terms for Accretive in spite of the long remaining lease term when the landlord had significant leverage in the negotiations. 

In another transaction, Accretive Health needed to expand its call center location in Mumbai, India.  Its current building could not accommodate the rapidly growing tenant.  Relocating would be required.

Resolution
Through an exhaustive negotiation process, Accretive was able to secure transaction terms that met all of its needs.  The firm was able to restructure its existing lease and reduce costs and secure market concessions to renovate its space.  Expansion space is being leased at market rents with market concessions and the company has additional expansion rights on multiple floors.  BREA was able to negotiate an unusual right for Accretive: a “favored nation’s clause.” This clause, which is rarely seen in leases, protected Accretive from another tenant obtaining lower economic terms in a subsequent transaction.  If the landlord offered better terms to another tenant, Accretive would have to be given the same economics.  As the market declined, the landlord did become more aggressive and was required to provide Accretive with additional dollars that the company would spend on their improvements.

In the Mumbai transaction, BREA served as an adviser to the Accretive Health team. Brown Real Estate Advisors was able to leverage its lease knowledge to assist the company in negotiating a more aggressive transaction.  Specific areas of value add included pass-throughs and allocations of operating expenses and taxes, annual lease escalations and termination rights and obligations at lease expiration or termination.  An example of economic impact resulting from our involvement was the cost to vacate the premises at lease termination or expiration. “Hidden” in the lease was a clause that stated the company would have to restore the premises to its original condition when the lease terminated. The cost to do so could have cost the client as much as $1M.