VEGAS INC Magazine - Latest Las Vegas business news, features and commentaries about gaming, tourism, real estate and more
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VEGAS INC COVER STORY Hiring lawyers and advisors can keep a crisis at bay DEAL WITH ISSUES EARLY ON TO PREVENT HEADACHES LATER BANKRUPTCY, FROM PAGE 1 "As far as commercial bankruptcies, I foresee a lot more coming," said Zach Larson, a bankruptcy attorney at the Las Vegas law firm Marquis Aurbach Coffing. "I think a lot of the businesses that initially weathered the storm have now hit a point where they can no lon- ger weather it." "They've been through their savings, they've liquidated what they can, they've gotten rid of the liabilities they can," Larson said. "Now they're facing a situ- ation where total sales are still down. If they want to try to keep their business going, and it's viable to do so through a bankruptcy, that's where they're look- ing to go now." VEGAS INC. sat down with Larson and other bankruptcy professionals to talk about strategies businesses can consider to reduce their expenses and restructure their debt. EXPENSE REDUCTION 101 M any struggling companies fail to come to grips with their problems early on, while their businesses are still viable. Dealing decisively with issues when they start can prevent headaches and un- necessary legal expenses later, said Ran- dy Creighton, a Black & LoBello attorney who works on out-of-court debt restruc- turings and bankruptcies. "Usually what I see is people's eyes closed to the debt," Creighton said. "All they do is they make payments, and they have no idea (of their financial situation) because they're too afraid to look. All you're doing is kicking the can down the road. You need to have a come-to-Jesus talk and sit down with yourself, your busi- ness partner, your manager, whoever is in charge of the books, and on a piece of paper have all your debt outlined. Really examine it and analyze it so you can see what's causing you the most harm." Businesses, for example, can get on the | 2 JULY 2012 | 13 right path in many cases simply by reduc- ing their operating expenses or negotiat- ing more favorable terms on property or equipment leases. "Say you're an operating business and you have food costs and you have been us- ing food service Company A for 15 years, and you know the salesman and you play golf every other weekend. What you don't see is you're paying $15,000 per month for food, and if you went to Company B, you could be paying $12,000 per month," Creighton explained. "I worked with one business owner, and we reduced operat- ing expenses by 15 percent without touch- ing any debt or the lease." In the current real estate market, troubled commercial landlords dealing with a glut of empty or under-leased of- fice properties may be agreeable to lease concessions. The difficult reality for land- lords is that they're in a market where office vacancies have increased by close to 25 percent. Warehouse and industrial vacancies are running above 15 percent, and retail vacancies are estimated at about 10 percent. Concessions are often preferable to having a vacant property that an owner will have trouble re-leasing, Creighton said. "You have to educate and inform the landlord that this space is built for Busi- ness A. The guy across the street is pay- ing $2 in rent per square foot, and I'm paying $4.25. I can't survive at $4.25," Creighton said. "If we leave here, you're going to have to lease this place out at $2. Let's make this reasonable. I'll pay you $2.50, and I can survive at that point. And if I leave, your new tenant will want to make changes, and you'll have to pay out of pocket (for improvements)." But keep in mind: Such negotiations also require a struggling tenant to con- vince his landlord that he won't be back in a year or two seeking additional con- cessions, Creighton said. 20120702_VI01_F.indd 13 6/28/12 1:56:10 PM