MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
To: Douglas Fairchild, Responsible Partner, Real Estate
From: Rafael Dominguez, Lead Associate, Real Estate
Date: April 20, 2023
Re: Initial Review of Landlord's Draft Lease — Aurelius Media Holdings Inc. / Greystone Metropolitan Realty LLC — 787 Seventh Avenue, Floors 34–38, New York, NY 10019
Matter No.: 1017-00009
Client: Aurelius Global Media Group PLC / Aurelius Media Holdings Inc.
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I. Introduction and Purpose
The purpose of this memorandum is to summarize key provisions and identify critical issues in the initial draft Agreement of Lease (the "Draft Lease") received from Pemberton Locke & Strauss LLP (Diane Ashford and Kevin Mulcahy), counsel for Greystone Metropolitan Realty LLC ("Landlord"), which was transmitted to our office on April 18, 2023. This memorandum is intended to provide a comprehensive initial assessment to facilitate our team's discussion of negotiation strategy and priorities prior to the preparation of a first redline markup.
The Draft Lease contemplates a lease between Greystone Metropolitan Realty LLC, a Delaware limited liability company, as Landlord, and Aurelius Media Holdings Inc., a Delaware corporation ("Tenant"), as Tenant, for the occupancy of approximately 185,000 rentable square feet ("RSF") on Floors 34, 35, 36, 37, and 38 of the building known as Greystone Tower, located at 787 Seventh Avenue, New York, NY 10019 (Block 1024, Lot 18, Borough of Manhattan) (the "Building"). The Building is a 52-story Class A, LEED Gold certified office tower, constructed in 2001, with total rentable area of approximately 1,450,000 RSF. The Building is owned by Greystone Metropolitan Realty LLC, which serves as the operating entity for Greystone Capital Partners Fund VI LP, a closed-end real estate fund managed by Greystone Capital Advisors LLC.
The approximate aggregate deal value of the contemplated lease is approximately $90,000,000 over the proposed 15-year term, making this one of the larger single-tenant lease commitments currently under negotiation in Midtown Manhattan. Given the magnitude of this commitment and Tenant's status as a wholly owned subsidiary of a publicly traded multinational company, it is essential that the lease terms adequately protect Tenant's operational flexibility, financial interests, and strategic optionality.
This memorandum is organized by topic. Each section identifies the Landlord's proposed terms as set forth in the Draft Lease, our assessment of market conformity based on recent comparable transactions in Class A Manhattan office buildings, and our recommended negotiation positions for discussion with the client team, including Tariq Nassar, General Counsel of Aurelius Global Media Group PLC, and Vivienne Caldwell, Senior Vice President, Global Real Estate & Facilities.
As noted in certain sections below, Cynthia Ho is concurrently reviewing certain discrete provisions—most notably the change of control assignment provision—and will provide a supplemental analysis memorandum with market comparables in the coming weeks. Her findings will be integrated into our negotiation strategy as the redline process progresses.
II. Summary of Basic Lease Terms
A. Parties. The Draft Lease identifies the following parties:
• Landlord: Greystone Metropolitan Realty LLC, a Delaware limited liability company, with its principal office at 600 Lexington Avenue, 32nd Floor, New York, NY 10022.
• Tenant: Aurelius Media Holdings Inc., a Delaware corporation, which is a wholly owned subsidiary of Aurelius Global Media Group PLC, a public limited company incorporated in England and Wales and listed on the London Stock Exchange (LSE: AGMG) and cross-listed on the New York Stock Exchange (NYSE: AGMG).
We note that the Draft Lease does not reference Aurelius Global Media Group PLC as a guarantor of Tenant's obligations under the Lease. The business terms contemplated a parent guaranty from the PLC entity, but this has not been incorporated into the Draft Lease itself and is to be negotiated as a separate instrument. This is discussed in greater detail in Section V below.
Additionally, we should confirm that Aurelius Media Holdings Inc. is the appropriate Tenant entity for purposes of this lease. Given that Aurelius operates through a complex global corporate structure with numerous intermediate holding companies and operating subsidiaries, it would be prudent for Tariq Nassar to confirm that the execution of this lease by Aurelius Media Holdings Inc. does not require any additional internal corporate approvals beyond the anticipated board authorization, and that the entity has the requisite authority to enter into a lease of this magnitude and duration.
B. Premises. The Draft Lease defines the Premises as Floors 34, 35, 36, 37, and 38 of the Building, each floor comprising approximately 37,000 RSF, for a total of approximately 185,000 RSF. The Premises are to be delivered in their current "as-is" condition, subject to the tenant improvement allowance described in Section VI below.
The use clause in the Draft Lease restricts the permitted use of the Premises to "general and executive office use." As discussed more fully in Section IX below, this formulation is unduly narrow and must be broadened to include studio and production facilities, content creation spaces, and other ancillary uses consistent with a global media, entertainment, and e-commerce headquarters. The current restriction could, if enforced literally, prevent Aurelius from operating key components of its business—including on-site production studios and broadcast facilities—from the Premises.
C. Term. The Draft Lease provides for the following term structure:
• Lease Term: Fifteen (15) years (180 months).
• Proposed Commencement Date: August 1, 2023.
• Proposed Rent Commencement Date: February 1, 2024 (reflecting a six-month rent-free period for initial build-out and fit-up of the Premises).
• Expiration Date: July 31, 2038.
The six-month rent abatement period is consistent with the business terms outlined in the Blackmoor Advisory Group LLC letter of intent. We should, however, confirm that the Draft Lease clearly provides that during the abatement period, Tenant shall not be obligated to pay base rent but shall be responsible for its Proportionate Share of operating expense and tax escalations above the base year, as well as electric charges, to the extent applicable during the build-out period.
D. Base Rent
The Draft Lease sets forth the following base rent schedule:
During the six-month abatement period (August 1, 2023 through January 31, 2024), no base rent is payable. The abated rent value during this period is approximately $2,590,000 (six months at the Year 1 rate of $431,666.67 per month).
The aggregate base rent over the full 15-year term (exclusive of the abatement period) is approximately $88,395,000 in nominal dollars. When the abated rent value is factored in, the effective aggregate deal value is approximately $85,805,000, although the $90,000,000 figure cited in the letter of intent may include estimated escalation payments and other pass-throughs.
Assessment: The rent escalation structure as set forth in the Draft Lease appears consistent with the agreed-upon business terms from the Blackmoor Advisory Group LLC (Dennis Rourke) letter of intent dated March 22, 2023. We do not identify any material deviation from the negotiated economic terms with respect to base rent, and no further negotiation on the base rent schedule is recommended at this time.
E. Operating Expense and Tax Escalations
The Draft Lease provides for a base year/escalation structure for operating expenses and real estate taxes, summarized as follows:
• Base Year: Calendar year 2023.
• Tenant's Proportionate Share: 12.76% (185,000 RSF ÷ 1,450,000 RSF).
• Escalation Structure: Full pass-through of increases in operating expenses and real estate taxes above the base year amounts. There is no operating expense stop or cap in the Draft Lease.
Tenant's Proportionate Share of 12.76% appears arithmetically correct based on the stated rentable areas and is consistent with the letter of intent. However, we should verify the Building's stated total rentable area of 1,450,000 RSF against available sources (including the Building's property tax records and recent REBNY filings) to confirm accuracy.
Issue Identified: The Draft Lease does not include any cap on controllable operating expenses. Under the Landlord's proposed structure, there is no limitation on the rate at which controllable operating expenses (i.e., expenses within Landlord's reasonable control, excluding real estate taxes, utility costs, and insurance premiums) may increase from year to year. This exposes Tenant to potentially significant and unpredictable escalation charges.
Recommendation: We recommend insertion of a 5% cumulative annual increase cap on controllable operating expenses, meaning that for purposes of calculating Tenant's escalation payments, controllable operating expenses in any calendar year shall not exceed 105% of the controllable operating expenses for the immediately preceding calendar year (compounded annually). This cap is consistent with the client's instructions and with market practice for Class A Manhattan leases of this size and term. In our experience, landlords of institutional quality typically agree to a controllable expense cap in the range of 4% to 6% for large-block, long-term tenants.
Additionally, the Draft Lease's definition of "Operating Expenses" requires careful review for potentially overbroad inclusions. We have identified preliminary concerns regarding the following categories, which may be included in the Draft Lease's definition but should be excluded or limited:
• Capital expenditures (should be excluded or, if included for energy-saving or code-compliance improvements, amortized over useful life at a reasonable interest rate with annual charges capped);
• Management fees in excess of the lesser of actual fees or 3% of gross revenues (the Draft Lease does not appear to specify a cap on management fees, which in a fund-owned building may be set at above-market levels);
• Leasing commissions, tenant improvement costs, and other costs incurred in connection with leasing space to other tenants;
• Costs of correcting construction defects in the Building;
• Costs of environmental remediation of pre-existing conditions; and
• Legal fees and costs incurred in connection with disputes with other tenants or with governmental authorities.
A detailed markup of the Operating Expenses definition will be prepared as part of the first redline.
F. Electricity. The Draft Lease provides for direct metering of electricity to the Premises, with Tenant responsible for the cost of its own electric usage. Tenant will contract directly with the applicable utility provider (currently Consolidated Edison Company of New York, Inc.) for electric service to the Premises.
The Draft Lease notes an estimated electric cost of $3.15 per RSF per year, which is provided for informational purposes only and is not incorporated into the base rent calculation.
Assessment: Direct metering is the most favorable arrangement for a tenant of this size, as it avoids the risk of above-market rent inclusion charges or submetering markups that are common in alternative electric provisions. We do not identify any issues with the electric provision as currently drafted and consider this arrangement favorable to Tenant's interests.
III. Assignment and Subletting Restrictions
A. General Assignment and Subletting
The Draft Lease provides that Tenant may not assign the Lease or sublet all or any portion of the Premises without Landlord's prior written consent. The consent standard set forth in the Draft Lease is "in Landlord's sole and absolute discretion."
This is a critical issue. A "sole and absolute discretion" consent standard for assignment and subletting is wholly unacceptable for a transaction of this nature and is well below market norms for a major Class A Manhattan office lease. The overwhelming majority of institutional landlords in comparable transactions agree to a "not to be unreasonably withheld, conditioned, or delayed" consent standard, which imposes upon the Landlord an obligation of commercial reasonableness in evaluating proposed assignees and subtenants. We must insist that this standard be revised accordingly.
In addition, the Draft Lease includes a Landlord recapture right that is triggered upon any proposed assignment or subletting. Specifically, upon Tenant's delivery of a request for Landlord's consent to an assignment or subletting, Landlord has the right, exercisable within thirty (30) days of receipt of Tenant's request, to recapture the applicable space and terminate the Lease with respect to such space (or, in the case of an assignment of the entire Lease, to terminate the Lease in its entirety). In the case of a proposed partial subletting, the termination would be limited to the portion of the Premises proposed to be sublet.
The recapture right as currently drafted applies broadly to all assignments and all sublets, without exception, and without regard to the size, duration, or nature of the proposed transfer. This effectively gives Landlord the ability to terminate the Lease—or to carve out significant portions of the Premises from the Lease—at any time Tenant seeks to rationalize its space usage through subletting. This is a significant deterrent to Tenant's operational flexibility and must be substantially narrowed.
Recommendation: We recommend the following modifications to the assignment and subletting provisions:
1. The consent standard must be revised from "sole and absolute discretion" to "not to be unreasonably withheld, conditioned, or delayed."
2. The recapture right should be narrowed to apply only to (a) proposed assignments of the entire Lease to unrelated third parties, and (b) proposed sublettings of more than two (2) full floors for a term in excess of seventy-five percent (75%) of the remaining Lease Term. The recapture right should not apply to (i) assignments or sublettings to affiliates or permitted transferees, (ii) sublettings of less than two full floors, (iii) sublettings for terms of less than three (3) years, or (iv) change of control assignments (discussed in Section III.B below).
3. In the event Landlord exercises a recapture right, Landlord should be obligated to reimburse Tenant for the unamortized value of Tenant's leasehold improvements in the recaptured space (amortized on a straight-line basis over the initial Lease Term).
4. The Draft Lease should include provisions governing the sharing of subletting profits (i.e., any excess of subrent over the rent payable under the Lease, net of reasonable transaction costs including brokerage commissions, legal fees, and the cost of preparing the sublet space). A 50/50 profit-sharing arrangement between Landlord and Tenant is standard in the Manhattan market.
B. Change of Control — Critical Deficiency
The Draft Lease does not include a tenant-favorable change of control assignment right. This is perhaps the single most critical deficiency in the Draft Lease and represents our highest-priority negotiation item.
The Landlord's draft treats any "change of control" of Tenant as a deemed assignment of the Lease, requiring Landlord's prior written consent. Given that the general assignment consent standard is "sole and absolute discretion," the Draft Lease effectively gives Landlord an absolute veto over any change of control transaction involving Tenant—a result that is commercially unworkable and fundamentally incompatible with Tenant's corporate structure and public company status.
The Draft Lease defines "change of control" as any transaction or series of related transactions resulting in a change in the identity of the person or entity that "Controls" Tenant. "Control" is defined broadly as the direct or indirect ownership of more than fifty percent (50%) of the voting equity interests of Tenant, or the power to direct or cause the direction of the management and policies of Tenant, whether through the ownership of voting securities, by contract, or otherwise. The definition expressly captures mergers, consolidations, stock sales, asset sales, and corporate reorganizations.
This provision is fundamentally problematic for several interrelated reasons:
First, Aurelius Media Holdings Inc. is a wholly owned subsidiary of Aurelius Global Media Group PLC, which is publicly traded on the London Stock Exchange and cross-listed on the New York Stock Exchange. Any M&A transaction, going-private transaction, leveraged buyout, spin-off, or corporate reorganization involving the parent PLC—transactions over which the Tenant entity itself may have no control—would constitute a "change of control" under the Draft Lease's definition and would require Landlord's consent. This could effectively give an office landlord a veto over a multibillion-dollar corporate transaction.
Second, even routine internal corporate reorganizations—such as the interposition of a new intermediate holding company in the chain of ownership between the PLC and the Tenant entity—could trigger the change of control provision if the reorganization results in a change in the entity that directly or indirectly "Controls" Tenant.
Third, the combination of the change of control provision with the Landlord's recapture right means that Landlord could, upon learning of a proposed change of control, elect to terminate the Lease entirely rather than consenting to the deemed assignment, thereby depriving the successor entity of the benefit of the leasehold and causing substantial disruption to Tenant's operations.
Recommendation: We must negotiate a comprehensive carve-out providing that, upon a change of control of Aurelius Media Holdings Inc. or Aurelius Global Media Group PLC (whether by merger, consolidation, stock sale, asset sale, going-private transaction, or otherwise), Tenant shall have the right to assign the Lease to the successor entity without Landlord's consent, provided that the following conditions are satisfied:
(i) The successor entity has a tangible net worth (calculated in accordance with United States generally accepted accounting principles) equal to or greater than the tangible net worth of Aurelius Global Media Group PLC as of the date of the Lease (currently approximately $3.1 billion based on publicly reported FY2022 financial statements);
(ii) The successor entity expressly assumes in writing all obligations of Tenant under the Lease arising from and after the effective date of the assignment;
(iii) Tenant provides Landlord with not less than thirty (30) days' prior written notice of the proposed change of control transaction, together with reasonable evidence of the successor entity's financial condition (including audited financial statements for the most recently completed fiscal year); and
(iv) As of the date of the change of control assignment, no uncured Event of Default exists under the Lease.
Further Recommendation: The Landlord's recapture right must be waived entirely in the case of a change of control assignment. The recapture right should be retained only for voluntary assignments to unrelated third parties that are not the result of a change of control transaction. Permitting the Landlord to recapture the Premises upon a change of control would defeat the purpose of the carve-out and would render the change of control assignment right illusory.
We also recommend that the change of control carve-out expressly provide that changes in the trading of the publicly held shares of Aurelius Global Media Group PLC on any recognized stock exchange, including accumulation of shares by any person or group, shall not constitute a "change of control" for purposes of the Lease, so long as Aurelius Global Media Group PLC remains a publicly traded company. This addresses the risk that an activist investor's accumulation of a controlling stake in the PLC—a routine occurrence for public companies—could inadvertently trigger the change of control provision.
Cynthia Ho is preparing a detailed analysis of change of control assignment provisions in comparable Class A Manhattan office leases involving publicly traded tenants. This analysis will provide market data to support our negotiating position and will be circulated by May 10, 2023.
C. Permitted Transfers
The Draft Lease includes a "Permitted Transfer" exception permitting Tenant to assign the Lease or sublet all or any portion of the Premises to an "Affiliate" of Tenant without Landlord's consent, subject to certain conditions. "Affiliate" is defined as any entity that directly or indirectly controls, is controlled by, or is under common control with Tenant, with "control" defined consistently with the change of control definition discussed above.
The Permitted Transfer carve-out is acceptable in concept, as it permits the kind of internal corporate transfers that are routine in a large multinational organization. However, the Draft Lease imposes two conditions on Permitted Transfers that are unnecessarily burdensome:
First, Tenant is required to provide Landlord with not less than thirty (30) days' prior written notice of any Permitted Transfer, together with documentation evidencing the affiliate relationship. While we do not object to a notice requirement, thirty days' advance notice may be impractical for certain internal reorganizations and should be reduced to ten (10) business days.
Second, the Draft Lease requires that the Affiliate transferee satisfy a net worth test equal to Tenant's net worth as of the date of the Lease. This requirement is inconsistent with the purpose of the Permitted Transfer carve-out, which is to accommodate internal transfers within the Aurelius corporate family. An affiliate transferee's financial obligations will, in most cases, be backstopped by the parent guaranty. The net worth test should be eliminated for Permitted Transfers, or at a minimum, should be satisfied by the combined net worth of the transferee and the guarantor.
Assessment: The Permitted Transfer carve-out requires revision to be made workable for a multinational tenant with a complex corporate structure. In particular, the carve-out should be broadened to cover all internal corporate reorganizations—including the creation of new intermediate holding companies, the merger of Tenant with a sister subsidiary, and the transfer of Tenant's assets to a newly formed affiliate—without triggering either the notice/net worth requirements or the Landlord's recapture right.
IV. Security Deposit
A. Amount and Form
The Draft Lease requires Tenant to deliver a security deposit in the amount of $5,180,000, which is equal to one (1) year of initial base rent at the Year 1 rate.
The security deposit must be in the form of an irrevocable standby letter of credit issued by a "nationally recognized commercial bank." The Draft Lease does not further define "nationally recognized commercial bank," and in particular does not address whether a non-U.S. bank with a U.S. branch would satisfy this requirement.
Assessment: The amount of the security deposit is consistent with the business terms negotiated in the letter of intent and is within the market range for a transaction of this size. The form requirement (irrevocable standby letter of credit) is standard and acceptable to Tenant.
However, we recommend that the Draft Lease be revised to specify that the letter of credit may be issued by a commercial bank organized under the laws of the United States or the United Kingdom, provided that such bank (a) has a branch or agency office in the City of New York, (b) maintains a long-term credit rating of at least "A" (or its equivalent) from Standard & Poor's or Moody's, and (c) is authorized to issue letters of credit under applicable law. This revision is necessary because Aurelius's primary banking relationship is with Caledonian National Bank PLC, a UK-chartered bank with a full-service branch at 350 Park Avenue, New York, NY 10022. Caledonian National Bank PLC currently maintains a long-term credit rating of A+ from S&P and A1 from Moody's. If the Draft Lease is not revised to accommodate a UK-chartered bank, Aurelius may be required to incur additional cost and administrative burden to establish a letter of credit facility with a U.S.-chartered bank.
B. Burn-Down Schedule
Issue Identified: The Draft Lease does not include a burn-down schedule for the letter of credit. Under the Landlord's proposed terms, the full security deposit amount of $5,180,000 is required to be maintained for the entire 15-year Lease Term. This is an unusual and commercially unreasonable provision for a tenant of Aurelius's credit quality and for a lease of this duration.
In the institutional Class A Manhattan market, burn-down schedules for letters of credit are the norm for creditworthy tenants, particularly those backed by publicly traded parent companies. A burn-down schedule reflects the reality that as the lease term progresses and Tenant demonstrates a consistent payment history, the Landlord's risk exposure diminishes and the rationale for maintaining the full security deposit amount is correspondingly reduced.
Recommendation: We recommend negotiating a burn-down schedule that reduces the letter of credit amount by 20% ($1,036,000) at the end of each of Lease Years 5, 7, 9, 11, and 13, provided that no uncured Event of Default exists under the Lease at the time of each reduction. This would result in the complete return of the letter of credit at the end of Lease Year 13, two years before the expiration of the initial Lease Term. The proposed schedule is as follows:
This burn-down schedule reflects Tenant's strong credit profile. Based on publicly available information, Aurelius Global Media Group PLC reported FY2022 revenue of approximately £4.87 billion, with a current market capitalization of approximately $11.2 billion. In combination with the parent guaranty to be provided (discussed in Section V below), the proposed burn-down schedule appropriately balances the Landlord's security interests with Tenant's objective of minimizing the cost and administrative burden of maintaining a large letter of credit for an extended period.
As an alternative, if Landlord resists a full burn-down to zero, we may propose a modified schedule in which the letter of credit is reduced to a floor of $1,036,000 (approximately two months' initial base rent) for the remainder of the term after Year 11, rather than being fully returned at Year 13.
V. Parent Guaranty
The Draft Lease acknowledges that a guaranty is required from the "parent entity" of Tenant but does not specify the terms, cap, form, or substance of the guaranty. The guaranty provision in the Draft Lease is a placeholder, stating only that "Tenant shall cause its parent entity to deliver a guaranty in form and substance reasonably satisfactory to Landlord." This is inadequate and must be substantially developed during the negotiation process.
Recommendation: The guaranty should be provided by Aurelius Global Media Group PLC, guaranteeing all obligations of Aurelius Media Holdings Inc. under the Lease. The guaranty should be subject to a monetary cap of $18,000,000, which represents approximately two (2) years' average base rent over the Lease Term. An uncapped guaranty is neither necessary nor appropriate given the security deposit letter of credit, Tenant's own financial resources, and the parent's publicly traded status and associated transparency.
The guaranty instrument must also specifically address the interaction between the parent guaranty and the change of control assignment right. We recommend the following structure:
(a) Upon a change of control assignment that is permitted under the Lease without Landlord's consent (as described in Section III.B above), the successor entity or its parent shall be required to execute and deliver a replacement guaranty on substantially the same terms as the original guaranty (including the same monetary cap);
(b) Upon delivery of the replacement guaranty, Aurelius Global Media Group PLC shall be automatically and unconditionally released from all obligations under the original guaranty arising from and after the effective date of the change of control assignment; and
(c) Aurelius Global Media Group PLC shall remain liable under the guaranty for obligations that accrued prior to the effective date of the change of control assignment, but only to the extent that such obligations remain unsatisfied as of such date.
The guaranty form will be negotiated as a separate document and will be attached to the Lease as an exhibit or entered into as an ancillary agreement. We recommend that the guaranty be executed simultaneously with the Lease and that delivery of the executed guaranty be a condition precedent to the Commencement Date.
The key substantive terms of the guaranty—including the cap amount, the scope of guaranteed obligations, the conditions for release, and any limitations on Landlord's remedies against the guarantor—will need to be carefully negotiated. We should also consider whether the guaranty should include a "good guy" provision that limits the guarantor's exposure upon a voluntary surrender of the Premises following an uncured default, which is a common feature in New York commercial lease guaranties.
VI. Tenant Improvement Allowance (Work Letter)
A. TI Allowance Amount
The Draft Lease includes a Work Letter providing that Landlord will contribute a tenant improvement allowance ("TI Allowance") toward the cost of Tenant's initial build-out of the Premises. The TI Allowance amount set forth in the Draft Lease is $75.00 per RSF.
At 185,000 RSF, this yields a total TI Allowance of $13,875,000.
Issue Identified: Aurelius's target TI Allowance, as communicated by Vivienne Caldwell and consistent with the client's internal capital planning, is $85.00 per RSF, yielding a total TI Allowance of $15,725,000. The difference between the Draft Lease amount and Aurelius's target is $10.00 per RSF, or $1,850,000 in the aggregate.
A TI Allowance of $85.00 per RSF is consistent with current market conditions for a 15-year lease of this scale in a Class A Midtown Manhattan tower. Based on our review of comparable transactions closed in Q4 2022 and Q1 2023, TI Allowances for leases of 100,000+ RSF with 15-year terms in Class A Midtown buildings have generally ranged from $80.00 to $95.00 per RSF, depending on the condition of the space, the extent of Landlord's base building work, and the overall economics of the transaction.
Recommendation: We recommend negotiating the TI Allowance to $85.00 per RSF ($15,725,000). This increase is justified by the size and term of the lease commitment, Tenant's strong credit profile, and the significant investment Tenant will be making in leasehold improvements that will ultimately inure to the Building's benefit upon lease expiration.
B. Excess TI Option
The Draft Lease does not include an excess TI option (i.e., an option for Tenant to draw additional TI Allowance beyond the base amount, with the excess amortized into base rent).
Recommendation: We recommend negotiating an excess TI option of up to $15.00 per RSF ($2,775,000 based on 185,000 RSF). The excess TI amount, if elected by Tenant, would be amortized into base rent at an interest rate of 7.5% per annum over the remaining Lease Term from the date of disbursement. The inclusion of an excess TI option provides Tenant with flexibility to fund a higher-end build-out—particularly the studio and production facilities contemplated for portions of the Premises—without requiring a larger upfront capital commitment. The proposed interest rate of 7.5% is within the current market range for amortized TI in Manhattan.
C. Disbursement Procedures
The Draft Lease provides for disbursement of the TI Allowance in a single lump sum upon (i) completion of Tenant's work in accordance with the approved plans and specifications, (ii) issuance of a temporary or permanent certificate of occupancy (or the equivalent) for the completed Premises, (iii) receipt of final lien waivers from all contractors, subcontractors, and materialmen, and (iv) delivery of Tenant's architect's certificate of completion.
Issue Identified: The single lump-sum disbursement mechanism proposed in the Draft Lease is unacceptable. Under this structure, Tenant would be required to fund the entire cost of construction—potentially in excess of $20,000,000—out of its own resources and would not receive reimbursement from the TI Allowance until all work is complete and all close-out documentation has been delivered. This imposes an unreasonable cash flow burden on Tenant and is contrary to standard market practice for TI Allowance disbursement in transactions of this magnitude.
Recommendation: The TI Allowance should be disbursed on a monthly progress payment basis, against architect-certified requisitions submitted by Tenant's architect of record. Each requisition should be accompanied by (i) a certification from Tenant's architect that the work described in the requisition has been completed in accordance with the approved plans and specifications, (ii) partial lien waivers from all contractors, subcontractors, and materialmen for work covered by the preceding month's requisition, and (iii) such other documentation as Landlord may reasonably require.
We further recommend that Landlord be permitted to retain ten percent (10%) of each progress payment as retainage, with the aggregate retainage amount to be released upon (a) substantial completion of Tenant's work, (b) issuance of a temporary or permanent certificate of occupancy, and (c) delivery of final unconditional lien waivers from all contractors, subcontractors, and materialmen. This retainage mechanism provides Landlord with reasonable protection against incomplete work or lien claims while allowing Tenant to access the bulk of the TI Allowance on a current basis during the construction period.
D. Architect and Construction Manager
The Draft Lease requires Landlord's prior approval of Tenant's architect and construction manager. The approval standard specified is "not to be unreasonably withheld," which is acceptable.
Aurelius intends to engage the following firms for the initial build-out:
• Architect: Ashworth Patel Design Studio LLC (Rohan Patel, AIA, Principal), specializing in corporate headquarters and media production facility design.
• Construction Manager: Pinnacle Build Group LLC, a New York-based construction management firm with extensive Class A office build-out experience in Midtown Manhattan.
Assessment: The approval standard is acceptable in concept. However, to avoid any delay or dispute during the build-out process, we recommend that pre-approval of both Ashworth Patel Design Studio LLC and Pinnacle Build Group LLC be obtained during the lease negotiation and expressly referenced in the Work Letter. Landlord should have no basis to object to either firm given their established reputations and relevant experience, but obtaining pre-approval will eliminate this as a potential friction point.
We should also review the Work Letter for provisions regarding Landlord's right to approve the plans and specifications for Tenant's work. While Landlord approval of major elements affecting the Building's structure, systems, and exterior appearance is reasonable, the approval process should be streamlined and subject to defined time frames (e.g., Landlord must respond within ten (10) business days of submission, with failure to respond deemed approval).
VII. Expansion Option
A. Expansion Space
The Draft Lease includes an expansion option granting Tenant the right to lease additional space on Floors 39 and 40 of the Building (the "Expansion Space"). Each floor comprises approximately 37,000 RSF, yielding a total Expansion Space of approximately 74,000 RSF. If exercised, the expansion would increase Tenant's total occupancy to approximately 259,000 RSF (approximately 17.86% of the Building's total rentable area).
B. Exercise Window
The Draft Lease provides that Tenant must exercise the expansion option during the period between the 24th and 36th month of the Lease Term (i.e., between August 1, 2025 and July 31, 2026).
Issue Identified: The exercise window proposed in the Draft Lease is too early in the Lease Term. Aurelius anticipates that its space needs will evolve significantly during the first several years of occupancy as the company implements its global consolidation strategy and determines which business units and functions will be headquartered at 787 Seventh Avenue. An exercise window that closes at month 36 does not allow sufficient time for Aurelius to assess its actual space requirements and make an informed decision regarding expansion.
Recommendation: We recommend extending the exercise window to the period between the 36th and 48th month of the Lease Term (i.e., between August 1, 2026 and July 31, 2027). This twelve-month extension provides Aurelius with an additional year of operating experience in the Premises before it must commit to the Expansion Space, while still giving Landlord a reasonable planning horizon for the Expansion Space if the option is not exercised.
C. Expansion Rent
The Draft Lease provides that rent for the Expansion Space shall be at Fair Market Rent ("FMR") as of the date of exercise, with no floor or ceiling on the FMR determination.
Recommendation: We recommend that the Expansion Space rent include a rent floor (but no ceiling) to provide Landlord with reasonable downside protection while ensuring that Tenant is not paying above-market rates. Specifically, the rent for the Expansion Space should be not less than ninety-five percent (95%) of the then-current base rent per RSF payable on the initial Premises at the time of exercise.
For example, if the expansion option is exercised during the Lease Years 6–10 period, the rent floor would be calculated as follows: 95% × $33.00/RSF = $31.35/RSF minimum. If the FMR as determined under the Lease's FMR procedure (discussed in Section VIII below) exceeds $31.35/RSF, the FMR would apply. If the FMR is below $31.35/RSF, the floor would apply.
This structure is advantageous to both parties: Landlord receives assurance that the Expansion Space will not be leased at a deep discount to the existing rent, while Tenant benefits from a cap-free upside that ensures it will not pay more than the prevailing market rate.
D. Expansion Term
The Draft Lease provides that the term of the Expansion Space lease shall be co-terminous with the initial Lease Term (i.e., expiring on July 31, 2038). This is standard and acceptable. A co-terminous expansion term aligns with Tenant's operational planning and avoids the complexity of staggered expiration dates within the same building.
E. Expansion TI Allowance
The Draft Lease provides a TI Allowance for the Expansion Space of $40.00 per RSF.
Recommendation: We recommend negotiating the Expansion TI Allowance to $50.00 per RSF ($50.00 × 74,000 RSF = $3,700,000). The increase is justified by the shorter remaining term at the time of expansion (the Expansion Space will have a remaining term of approximately 11–12 years if the option is exercised during the proposed exercise window), the likely market conditions at the time of exercise, and the need for Tenant to build out the Expansion Space to a standard consistent with the initial Premises. A $40.00/RSF allowance for a remaining term of 11–12 years is below market based on current trends.
VIII. Fair Market Rent Determination Procedure
The Draft Lease includes a Fair Market Rent ("FMR") determination procedure that applies to both the expansion option (Section VII above) and the renewal options (Section X below). The procedure is structured as follows:
(1) Landlord's Notice: Landlord delivers written notice to Tenant of Landlord's determination of the FMR for the applicable space.
(2) Negotiation Period: The parties have thirty (30) days following Tenant's receipt of Landlord's notice to negotiate and attempt to agree upon the FMR.
(3) Arbitration: If the parties are unable to agree upon the FMR within the thirty-day negotiation period, the FMR is determined by baseball-style arbitration. Each party selects one arbitrator, and the two party-appointed arbitrators select a third arbitrator. Each party submits its final determination of FMR to the arbitration panel, and the panel selects whichever of the two submitted values is closer to the panel's own independent determination of FMR.
Assessment: Baseball-style arbitration is the prevailing market standard for FMR disputes in Class A Manhattan office leases and is generally favorable to both parties, as it incentivizes each side to submit a reasonable FMR determination rather than an extreme position. We accept this procedure in concept.
However, the Draft Lease's FMR procedure requires review and revision in several respects:
• Timing: The thirty-day negotiation period should be confirmed as adequate. We should also ensure that the arbitration process is subject to a defined timeline (e.g., arbitrators to be appointed within fifteen days of the expiration of the negotiation period; arbitration hearing and decision to be completed within sixty days of the appointment of the third arbitrator).
• Arbitrator Qualifications: The Draft Lease should specify that each arbitrator must be a licensed MAI appraiser with not less than ten (10) years of experience appraising Class A office properties in the Borough of Manhattan. This ensures that the arbitrators possess the specialized knowledge necessary to render an informed FMR determination.
• Cost Allocation: The Draft Lease should specify the allocation of arbitration costs. The standard approach is for each party to bear the cost of its own party-appointed arbitrator, with the cost of the third arbitrator shared equally.
• FMR Definition: Most critically, we must ensure that the definition of "Fair Market Rent" accounts for all relevant factors that would be considered in an arms-length lease transaction for comparable space, including not only the base rental rate but also free rent, TI allowances, and other concessions being offered to comparable tenants in comparable buildings at the time of determination. A FMR definition that considers only the face rent without regard to effective rent (after concessions) could result in a determination that is significantly above the true market rate.
A detailed markup of the FMR procedure will be included in the first redline.
IX. Use Clause
The Draft Lease restricts the permitted use of the Premises to "general and executive office use" only.
Issue Identified: This use clause is too narrow for Aurelius's intended operations at 787 Seventh Avenue. As a global media, entertainment, and e-commerce company, Aurelius plans to utilize portions of the Premises for studio and production facilities, content creation spaces, screening rooms, and other ancillary uses that are integral to its core business operations but may not fall within a strict interpretation of "general and executive office use." The current restriction could, if enforced literally, prevent Aurelius from operating key elements of its business from the Premises and could expose Tenant to claims of default under the Lease.
In particular, Aurelius has indicated that it intends to dedicate a significant portion of Floor 34 to studio and production facilities, including one or more professional-grade broadcast studios with associated control rooms, editing suites, and green rooms. These facilities will be used for the production of content across Aurelius's media platforms and are central to the company's operations. A "general and executive office use" restriction would arguably prohibit or, at a minimum, create uncertainty regarding the permissibility of these uses.
Recommendation: The use clause should be broadened to the following or substantially similar language:
"General office, executive office, studio, production, post-production, content creation, screening, and ancillary uses consistent with a global media, entertainment, and e-commerce headquarters, and any other lawful use permitted under the certificate of occupancy for the Building and applicable zoning regulations, provided that no such use shall create unreasonable noise, vibration, or disturbance to other tenants of the Building."
This formulation provides Aurelius with the operational flexibility it requires while preserving reasonable Landlord protections against uses that would be disruptive to other tenants or inconsistent with the Building's character as a Class A office tower.
As a preliminary matter, we should confirm that the New York City Zoning Resolution permits the intended uses at this location, including studio and production uses. The Building is located in a C5 or C6 commercial zoning district (to be confirmed), which generally permits office and media-related uses, but a specific review of the applicable zoning regulations and the Building's certificate of occupancy is warranted. Cynthia Ho will review zoning compliance as part of the due diligence process.
X. Renewal Options
The Draft Lease includes one (1) five-year renewal option, exercisable by Tenant upon not less than twelve (12) months' prior written notice before the expiration of the initial Lease Term. The renewal rent is to be at Fair Market Rent determined in accordance with the FMR procedure described in Section VIII above.
Issue Identified: Aurelius requires two (2) consecutive five-year renewal options, not one, to align with the company's long-term operational planning and to maximize the strategic value of its investment in leasehold improvements at 787 Seventh Avenue. If Aurelius exercises both renewal options, the total occupancy period would be twenty-five (25) years (the initial 15-year term plus two 5-year renewals), providing the company with a stable, long-term headquarters location.
A single five-year renewal option—as proposed in the Draft Lease—provides Aurelius with occupancy rights through only 2043. Given the scale of Aurelius's build-out investment (which, including the TI Allowance and Tenant's own capital, is expected to exceed $25,000,000) and the disruption and cost associated with a headquarters relocation, a single renewal option is insufficient.
Recommendation: We recommend negotiating a second five-year renewal option, with each renewal at Fair Market Rent determined per the FMR arbitration procedure. The second renewal option should be exercisable regardless of whether the first renewal option is exercised, provided that Tenant is not in default at the time of exercise.
Notice Period: The Draft Lease requires twelve (12) months' prior written notice for the renewal option. We recommend extending the notice period to eighteen (18) months. An 18-month notice period provides adequate time for the FMR determination process (including any arbitration proceedings) to be completed before the commencement of the renewal term, avoiding the risk that Tenant enters a renewal period without a determined rent.
Based on the initial Lease Term expiration of July 31, 2038, and an 18-month notice period, the first renewal notice deadline would be January 31, 2037. This date should be confirmed in the final lease drafting to account for any adjustments to the Commencement Date. If the second renewal option is obtained, the second renewal notice deadline (assuming the first renewal extends through July 31, 2043) would be January 31, 2042.
The renewal options should be subject to the following conditions: (i) no uncured Event of Default exists at the time of exercise; (ii) Tenant is in occupancy of not less than seventy-five percent (75%) of the Premises at the time of exercise (to prevent Tenant from exercising a renewal option for speculative purposes while occupying only a small portion of the Premises); and (iii) the renewal is for the entirety of the then-existing Premises (no partial renewals).
XI. Right of First Offer (ROFO)
A. ROFO Space
The Draft Lease includes a right of first offer ("ROFO") granting Tenant the right to lease any full floor on Floors 30 through 33 of the Building (the "ROFO Space") that becomes available during the Lease Term. Each of these floors comprises approximately 37,000 RSF, for a total potential ROFO Space of approximately 148,000 RSF. If Tenant were to lease all of the ROFO Space in addition to the initial Premises and the Expansion Space, Tenant's total occupancy would be approximately 407,000 RSF, representing approximately 28% of the Building's total rentable area.
Under the ROFO provision, when ROFO Space becomes available, Landlord is obligated to provide written notice to Tenant, setting forth the material terms on which Landlord proposes to offer the ROFO Space (including rent, term, and TI allowance). Tenant then has a period of ten (10) business days from receipt of Landlord's notice to accept the offered terms. If Tenant does not accept within the response period, Landlord is free to market and lease the ROFO Space to third parties on terms no more favorable than those offered to Tenant.
B. Issues Identified
Response Period: The ten (10) business day response period is too short. An offer for an additional full floor of approximately 37,000 RSF, at rents that may be $30.00/RSF or more, represents a significant financial commitment that requires internal review by multiple stakeholders within Aurelius's organization, including Vivienne Caldwell's Global Real Estate team, the finance department, and potentially the Board of Directors of Aurelius Global Media Group PLC. A ten-business-day period does not provide adequate time for this review process.
Recommendation: We recommend extending the ROFO response period to fifteen (15) business days. This provides Aurelius with an additional week (approximately) to evaluate the ROFO offer and obtain the necessary internal approvals, while still providing Landlord with a prompt and definitive response.
Subordination to Existing Rights: The Draft Lease provides that the ROFO is subordinate to the existing rights of Kestrel Insurance Holdings Inc. ("Kestrel"), which is the current tenant on Floors 30 through 32 of the Building. This subordination is acceptable with respect to Kestrel's existing renewal and expansion rights, as these rights predate Aurelius's ROFO and Aurelius cannot reasonably expect to supersede them.
However, we must confirm the following:
(i) Scope of Kestrel's Rights: We should request from Landlord a written summary or redacted excerpts of the relevant provisions of Kestrel's lease to confirm the precise nature and scope of Kestrel's rights with respect to Floors 30–33. Specifically, we need to understand whether Kestrel has (a) renewal options for all or any of Floors 30–32, (b) expansion rights to Floor 33 or any other floor, (c) a ROFO or ROFR on any additional space, and (d) any other rights that could affect the availability of ROFO Space.
(ii) No Other Superior Rights: We must confirm that no other tenants or prospective tenants in the Building have ROFO, ROFR, expansion, or other rights that are superior to Aurelius's ROFO with respect to Floors 30–33. If any such rights exist, they should be disclosed and the ROFO provision should identify them as superior rights.
(iii) Floor 33: We should specifically confirm whether Kestrel has any rights—whether renewal, expansion, or preferential leasing rights—with respect to Floor 33. If Kestrel does not occupy Floor 33 and has no rights to Floor 33, then Aurelius's ROFO on Floor 33 should be unencumbered by the Kestrel subordination, and this should be expressly stated in the Lease.
XII. Subordination, Non-Disturbance and Attornment (SNDA)
The Draft Lease provides that the Lease is subordinate to the existing first mortgage on the Building held by Atlas Continental Bank, N.A. (recorded on January 15, 2019, with an outstanding principal balance of approximately $620,000,000). The Draft Lease further requires Tenant to execute a Subordination, Non-Disturbance and Attornment Agreement ("SNDA") in the form provided by Landlord's mortgagee, without negotiation.
Issue Identified: The requirement that Tenant execute an SNDA in the mortgagee's standard form, without negotiation, is unacceptable. An SNDA is a critical tenant-protective instrument that safeguards Tenant's occupancy and lease rights in the event of a foreclosure or deed-in-lieu of foreclosure affecting the Building. Given the magnitude of Aurelius's lease commitment ($90,000,000 over 15 years) and the substantial investment in leasehold improvements, Aurelius cannot accept an SNDA that does not contain meaningful non-disturbance protections.
Standard form SNDAs prepared by lender's counsel—in this case, Halsted & Brinkley LLP (Thomas Brinkley)—typically contain provisions that are unfavorable to tenants, including:
• Broad exceptions to the non-disturbance covenant that would permit a successor landlord to disregard key lease provisions;
• Failure to recognize tenant options, including expansion, ROFO, and renewal rights;
• Elimination of tenant's right to offset rent for landlord defaults;
• Limitation of successor landlord's liability to its interest in the Building; and
• Restrictive casualty and condemnation provisions that could deprive the tenant of insurance or condemnation proceeds needed to restore the Premises.
Recommendation: The SNDA should be a negotiated tri-party agreement among Atlas Continental Bank, N.A. (as Lender), Greystone Metropolitan Realty LLC (as Landlord/Borrower), and Aurelius Media Holdings Inc. (as Tenant). The following key provisions must be addressed:
(i) Non-Disturbance: The SNDA must provide that so long as Tenant is not in default under the Lease (beyond applicable notice and cure periods), Tenant's possession of the Premises and all of Tenant's rights under the Lease shall not be disturbed by any foreclosure, deed-in-lieu, or other enforcement action by the Lender.
(ii) Recognition of Tenant Rights: The SNDA must expressly recognize and preserve all of Tenant's material rights under the Lease, including the expansion option, ROFO, renewal options, signage rights, and any rights to casualty or condemnation insurance proceeds for restoration purposes.
(iii) Insurance and Condemnation Proceeds: The SNDA must confirm Tenant's right to use casualty insurance proceeds and condemnation awards for the restoration of the Premises, consistent with the terms of the Lease.
(iv) Cure Periods: The SNDA should provide Tenant with adequate cure periods for defaults, including a reasonable period to cure monetary defaults (not less than ten (10) days after written notice) and non-monetary defaults (not less than thirty (30) days after written notice, or such longer period as may be reasonably necessary to effect a cure, provided Tenant is diligently pursuing the cure).