Case Study: Landlord Challenges

Background

Maquila Properties, Inc. had leased a 100,000 Sf building 20 years previous to the Mexican subsidiary of a company in the framed art business CAGINC.    The owner was the previous operator of a flooring company manufacturer that was sold, but the assets were the property of two US Companies through a Fideicomiso, or trust as was required when the Land was purchased in 1987.

The Situation

The original Lease had expired and the original owner had passed away, so the new Owner of the Parent company, who had inherited the facility, dealt directly with the Mexican manager of the previous tenant.  They came to a deal, and without consulting a lawyer, or Maquila Properties, and since they had had such a good  personal relationship though the last 20 years, during the death of the original owner, he executed a lease.  The lease was way below market and had a clause which allowed the manager to sublease the building, without the approval of the landlord – A fatal mistake – Under Mexican law the sub-lessor has no responsibility for the payments of the sub-lessee, which is why subleases are almost never granted without approval of the landlord.   The rents dried up, the sub-lessor blamed the sub-lessee and the owner turned to Maquila Properties, after interviewing other firms, to rectify the situation.

Challenges Involved

Maquila Properties reviewed the situation and came to the conclusion that the manager was trying to steal the building, by failing to pay his expenses, like the property tax, and the Bank Fees for the Fideicomiso, and then attempting to buy the property cheap from the bank if they put it out to market after foreclosure.

The Solution – How We Helped

After protracted negotiations, the old tenant was replaced by a bigger tenant that had a  US presence, and a US corporate guarantee was put in place.  Maquila Properties moved the old tenant (Who was not paying his rent) to a smaller facility owned by the new tenant and subsidized the move with free rent.

Outcome

The building is currently renting for over $34,000 Per month NNN.  Now, Maquila Properties is selling the building on behalf of the owners for over $3 million as a leased investment to a local investor with which they have a long term relationship.  It is a difficult process due to the lack of a paper trail, as much of the original information was lost when the original owner passed away.  But we have put a team together to clean up all the overdue fees and taxes, and have positive cash flow.