With a lease agreement in plain English, negotiating parties have an easier time understanding the terms of the deal.
From Development Magazine Online published by NAIOP, National Association of Industrial and Office Properties
"Tenants often don't understand it. Brokers and owners have trouble negotiating it. And it requires hours of tweaking and finessing with each new deal.
But standard lease agreements don't have to be that way. A year ago, Spieker Properties cut the size of its standard lease agreement in half and the results have exceeded expectations.
The speed of doing business becomes more rapid with each day. When companies grow, their need for additional real estate space often must be fulfilled immediately. Deals must be executed quickly, with minimal time wasted in the negotiation process.
Most of Spieker's tenants are businesses occupying between 6,000 and 8,000 square feet. While the long-form lease still is a viable and even preferred option for some larger tenants, these smaller customers often do not have the resources to spend on extensive and sometimes exhausting negotiations.
A great deal of time was being spent negotiating terms irrelevant to many of these smaller tenants. In addition, the 16-page long-form lease included legalistic language difficult for tenants to understand.
Each provision was reviewed in terms of whether or not it was an issue that had bogged down negotiations unnecessarily in the past. If its elimination did not present any true risk to either party, the provision was simply removed. The search was aimed especially for provisions that had repeatedly become sticking points with tenants.
The short-form lease has completely changed the tenor of Spieker's relationships with tenants. No longer are they intimidated by a lengthy document written in complex language more suited to legal experts. With a lease agreement in plain English, negotiating parties have an easier time understanding the terms of the deal. They spend less time discussing interpretations of the language and more time pushing negotiations forward.
The legal time previously required to execute a lease reduced by 50-75%.
In some cases, legal costs are eliminated altogether and leases are signed essentially in their original form." for more information see www:houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Monday, December 31, 2007
Thursday, December 27, 2007
New Biotech Building for Houston
Dec. 14 - Houston developer Frank Liu is buying the former headquarters buildings of Tanox Inc., with the intention of using them as the first components in a new biotechnology park.
Liu's Lovett Commercial is acquiring the two buildings, which total 110,000 square feet, as well as 24 acres of vacant land that's earmarked for future biotech development. The property is located just south of the 610 Loop on Stella Link, a couple of miles from the Texas Medical Center.
"We're planning on creating a much-needed biotech park to serve the thriving Medical Center," Liu says. "The park will feature state-of-the-art, cutting-edge facilities."
Lovett Commercial is buying the site from California-based Genentech Inc., a large pharmaceutical company that completed the acquisition of Houston-based Tanox several months ago. Genentech paid approximately $919 million for Tanox, which developed the asthma drug Xolair.
Retail landlords offer blue-light specials to tenants
Dec. 7 - Not too long ago, retail broker Joel English was offering neighborhood retail center tenants about $15 to $20 per square foot as an improvement incentive. These days, that sum just won't cut it.
English and other brokers and landlords in the retail real estate field have had to up the ante, offering as much as $35 per square foot or more for tenant improvements. And in some cases, landlords are throwing in other deal sweeteners such as longer build-out periods, and even free rent, in an effort to shore up the struggling sector.
"It's a citywide problem," says English, president of Houston-based CEC Brokerage. "Landlords are getting anxious because there's too much retail on the ground and it's getting tougher to compete with the grocery-anchored centers."
Indeed, the third quarter of this year represented the third straight year-to-year drop in occupancy levels in the neighborhood center sector, as overall occupancy fell to 84.57 percent. That's down from 85.09 percent in the third quarter of 2006 and 85.68 percent in the third quarter of 2005, according to Houston-based real estate services firm O'Connor & Associates.
The south sector of the city recorded the highest occupancy rate, 93 percent, while the lowest occupancy was found in the far north sector at 77 percent.
"It appears that occupancy is trending down, so it would make sense that landlords are offering discounts to lease the vacant space," says Kathryn Koepke, a researcher at O'Connor & Associates. Even with the incentives, English says, some centers are taking as long as three to four years to fully lease.
West Houston office-building boom getting more fuel
Nov. 30 - Two office developments planned in West Houston stand to add nearly half a million square feet of prime space to the booming area where many energy companies and oilfield service firms do business.
Dallas-based Behringer Harvard Real Estate Investments plans to add a third building to its Eldridge Place office complex, with construction slated to start in the spring.
And Houston-based Woodcreek Development Co. is entering into the office development business with plans to start construction on two facilities in Park 10 during 2008 -- a 150,000-square-foot Class A building and a 90,000-square-foot tiltwall building.
Behringer Harvard is making plans for Three Eldridge Place, an office building with 275,000 square feet to 300,000 square feet of Class A space.
"Since that property is not scheduled to start construction until '08, we honestly aren't able to disclose any details," says Jasmine Bouyer, a Behringer Harvard spokeswoman.
The new structure would be added to One Eldridge Place, which was built in 1984, and Two Eldridge Place, which went up in 1986. The real estate investment trust acquired the buildings in December 2006.
Those two buildings -- located in the Energy Corridor submarket -- have a total of 519,000 square feet of space. They are located at 757 N. Eldridge Parkway and 777 N. Eldridge Parkway, just south of I-10 near Memorial Drive. For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Liu's Lovett Commercial is acquiring the two buildings, which total 110,000 square feet, as well as 24 acres of vacant land that's earmarked for future biotech development. The property is located just south of the 610 Loop on Stella Link, a couple of miles from the Texas Medical Center.
"We're planning on creating a much-needed biotech park to serve the thriving Medical Center," Liu says. "The park will feature state-of-the-art, cutting-edge facilities."
Lovett Commercial is buying the site from California-based Genentech Inc., a large pharmaceutical company that completed the acquisition of Houston-based Tanox several months ago. Genentech paid approximately $919 million for Tanox, which developed the asthma drug Xolair.
Retail landlords offer blue-light specials to tenants
Dec. 7 - Not too long ago, retail broker Joel English was offering neighborhood retail center tenants about $15 to $20 per square foot as an improvement incentive. These days, that sum just won't cut it.
English and other brokers and landlords in the retail real estate field have had to up the ante, offering as much as $35 per square foot or more for tenant improvements. And in some cases, landlords are throwing in other deal sweeteners such as longer build-out periods, and even free rent, in an effort to shore up the struggling sector.
"It's a citywide problem," says English, president of Houston-based CEC Brokerage. "Landlords are getting anxious because there's too much retail on the ground and it's getting tougher to compete with the grocery-anchored centers."
Indeed, the third quarter of this year represented the third straight year-to-year drop in occupancy levels in the neighborhood center sector, as overall occupancy fell to 84.57 percent. That's down from 85.09 percent in the third quarter of 2006 and 85.68 percent in the third quarter of 2005, according to Houston-based real estate services firm O'Connor & Associates.
The south sector of the city recorded the highest occupancy rate, 93 percent, while the lowest occupancy was found in the far north sector at 77 percent.
"It appears that occupancy is trending down, so it would make sense that landlords are offering discounts to lease the vacant space," says Kathryn Koepke, a researcher at O'Connor & Associates. Even with the incentives, English says, some centers are taking as long as three to four years to fully lease.
West Houston office-building boom getting more fuel
Nov. 30 - Two office developments planned in West Houston stand to add nearly half a million square feet of prime space to the booming area where many energy companies and oilfield service firms do business.
Dallas-based Behringer Harvard Real Estate Investments plans to add a third building to its Eldridge Place office complex, with construction slated to start in the spring.
And Houston-based Woodcreek Development Co. is entering into the office development business with plans to start construction on two facilities in Park 10 during 2008 -- a 150,000-square-foot Class A building and a 90,000-square-foot tiltwall building.
Behringer Harvard is making plans for Three Eldridge Place, an office building with 275,000 square feet to 300,000 square feet of Class A space.
"Since that property is not scheduled to start construction until '08, we honestly aren't able to disclose any details," says Jasmine Bouyer, a Behringer Harvard spokeswoman.
The new structure would be added to One Eldridge Place, which was built in 1984, and Two Eldridge Place, which went up in 1986. The real estate investment trust acquired the buildings in December 2006.
Those two buildings -- located in the Energy Corridor submarket -- have a total of 519,000 square feet of space. They are located at 757 N. Eldridge Parkway and 777 N. Eldridge Parkway, just south of I-10 near Memorial Drive. For more information see www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Wednesday, December 19, 2007
Simplified lease documents aid the need for speed, better tenant
"Tenants often don't understand it. Brokers and owners have trouble negotiating it. And it requires hours of tweaking and finessing with each new deal.
But standard lease agreements don't have to be that way. A year ago, Spieker Properties cut the size of its standard lease agreement in half and the results have exceeded expectations.
The speed of doing business becomes more rapid with each day. When companies grow, their need for additional real estate space often must be fulfilled immediately. Deals must be executed quickly, with minimal time wasted in the negotiation process.
Most of Spieker's tenants are businesses occupying between 6,000 and 8,000 square feet. While the long-form lease still is a viable and even preferred option for some larger tenants, these smaller customers often do not have the resources to spend on extensive and sometimes exhausting negotiations.
A great deal of time was being spent negotiating terms irrelevant to many of these smaller tenants. In addition, the 16-page long-form lease included legalistic language difficult for tenants to understand.
Each provision was reviewed in terms of whether or not it was an issue that had bogged down negotiations unnecessarily in the past. If its elimination did not present any true risk to either party, the provision was simply removed. The search was aimed especially for provisions that had repeatedly become sticking points with tenants.
The short-form lease has completely changed the tenor of Spieker's relationships with tenants. No longer are they intimidated by a lengthy document written in complex language more suited to legal experts. With a lease agreement in plain English, negotiating parties have an easier time understanding the terms of the deal. They spend less time discussing interpretations of the language and more time pushing negotiations forward.
The legal time previously required to execute a lease reduced by 50-75%.
In some cases, legal costs are eliminated altogether and leases are signed essentially in their original form." for more information see : www.houstonrealtyadvisors.com and www.houstonrealtyadvisors.net
But standard lease agreements don't have to be that way. A year ago, Spieker Properties cut the size of its standard lease agreement in half and the results have exceeded expectations.
The speed of doing business becomes more rapid with each day. When companies grow, their need for additional real estate space often must be fulfilled immediately. Deals must be executed quickly, with minimal time wasted in the negotiation process.
Most of Spieker's tenants are businesses occupying between 6,000 and 8,000 square feet. While the long-form lease still is a viable and even preferred option for some larger tenants, these smaller customers often do not have the resources to spend on extensive and sometimes exhausting negotiations.
A great deal of time was being spent negotiating terms irrelevant to many of these smaller tenants. In addition, the 16-page long-form lease included legalistic language difficult for tenants to understand.
Each provision was reviewed in terms of whether or not it was an issue that had bogged down negotiations unnecessarily in the past. If its elimination did not present any true risk to either party, the provision was simply removed. The search was aimed especially for provisions that had repeatedly become sticking points with tenants.
The short-form lease has completely changed the tenor of Spieker's relationships with tenants. No longer are they intimidated by a lengthy document written in complex language more suited to legal experts. With a lease agreement in plain English, negotiating parties have an easier time understanding the terms of the deal. They spend less time discussing interpretations of the language and more time pushing negotiations forward.
The legal time previously required to execute a lease reduced by 50-75%.
In some cases, legal costs are eliminated altogether and leases are signed essentially in their original form." for more information see : www.houstonrealtyadvisors.com and www.houstonrealtyadvisors.net
Tuesday, December 18, 2007
Arbitration Sets $56M Rent For Sony Offices
Sony Pictures Entertainment will pay rent of $56.1 million to landlord Transpacific Development Co. over the next five years as the result of what is believed to be the largest rent arbitration ever decided on the West Coast. The arbitration decision in favor of Transpacific came after Sony and the Torrance-based building owner failed to reach an agreement during negotiations over rent for Sony's approximately 330,000 sf of office space at 10000 W. Washington Blvd.
From GlobeSt.com News, December 4, 2007 www.globest.com/news <http://www.globest.com/news>
"Sony occupies the entire building at 10000 W. Washington, which is also known as Sony Pictures Plaza, under a 35-year triple-net lease that began in 1993. The entertainment firm's lease provides that the rent be adjusted once every five years rather than through yearly CPI increases, and that the new rent be established by arbitration if the parties can't agree on a figure.
In the recent arbitration, Sony proposed a new rent of $870,000 per month for the next five years, compared with the $710,000 per month that the entertainment firm has been paying for the past five years.
Transpacific proposed a rent of $935,000 per month for the 330,000 sf of office space and a 400,000-sf parking garage totaling 1,100 spaces that is covered by the lease.
Sony's proposal would have totaled $52.2 million over the five years, compared with the $56.1-million Transpacific proposal. The decision was made according to what is known as baseball-style arbitration, so named because of its use by Major League Baseball, in which matters in dispute are decided by arbitrators who must choose either one or the other of the two proposals submitted by the opposing parties.
Sony did not return calls seeking comment on the arbitration, but those who were involved on the Transpacific side tell GlobeSt.com that the case is a sign of the growing number of rent arbitrations now under way in the L.A. area. Transpacific president Tom Irish, attorney Tony Natsis of Allen Matkins Leck Gamble Mallory & Natsis, and CB Richard Ellis appraiser Dave Zoraster all tell GlobeSt.com that the already rising number of rent arbitrations appears likely to keep increasing.
`This is something that is really starting to take off,'
Zoraster says. The CBRE appraiser says he is working on six or seven rent arbitration appraisals right now. Natsis says that he is working on 10 rent arbitration cases now, compared with only 20 that he worked on for the first seven years of this decade, and Irish says that he knows of 25 or so that are in the works in the Los Angeles area.
Natsis points out that rent arbitrations occur primarily in two
circumstances: in the case of an extremely long-term lease like Sony's that adjusts the rent mid-term, or in a more standard-length lease that comes up for renewal. He says that the rising number of arbitrations lately reflects supply-and-demand market conditions that have turned the Westside into one of the tightest and most expensive office markets in Southern California, as well as the determination to push rents substantially higher on the part of landlords who paid top dollar for their properties and need to achieve higher rents to pay for them.
In rent disputes, as Natsis explains, the arbitrators typically are appraisers. The three arbitrators include one chosen by the landlord, one chosen by the tenant and one neutral third party that both parties agree upon.
The tenant's arbitrator and the landlord's arbitrator each submits a number representing what they believe the fair market rent should be, and neither party knows what the other's number is until the figures are exchanged at arbitration. When the arbitration is baseball style, Natsis points out, the neutral third party arbitrator is the one who makes the decision by choosing one of the two figures.
Natsis says that in theory, at least, baseball arbitration encourages both sides to submit figures more toward the middle ground because the neutral third party arbitrator is likely to reject any number that is excessively high or low. In practice, however, landlords and tenants are still sometimes miles apart in their perceptions of what the rent should be.
A case in point was the previous arbitration between Sony and Transpacific five years ago, when the two parties were $20 million apart in their proposals. Natsis, who along with Zoraster also represented Transpacific in that case, says that $20-million difference is the largest spread ever that he is aware of in rent arbitration and that the
$56.1 million is the largest rent figure he knows of that has been arbitrated on the West Coast.
Zoraster says that no two arbitrations are alike because the leases vary so much in how they are structured and in the array of factors that must be considered in determining fair market rent. The appraiser must first look at the lease, to see what it specifies regarding the obligations of the landlord and the tenant, and then must research a host of factors, including comparable leases of similar facilities. Appraisal work for leases is `a lot more complex than looking at a sale value,'
Zoraster says.
Natsis and Irish both credit Zoraster with producing comprehensive and accurate appraisals that won the case for Transpacific both in this arbitration and in Transpacific's previous arbitration with Sony. The Torrance-based investment and development firm bought Sony Pictures Plaza in 2000, when the 35-year lease was already in place, and although Transpacific has prevailed in both of its arbitrations, Irish says that he would prefer not to have to go to through the process because it is both costly and unpleasant.
`We prefer to reach agreement with our tenants through negotiation rather than arbitration,' Irish says. `If we agree, both parties are satisfied. If we go to baseball-style arbitration, one side wins and one side loses, which is not conducive to a positive landlord/tenant relationship--especially if the rents are significant.'
The Sony lease commenced on Jan. 1, 1993, so the new rent will be for years 16 through 20 of the 35-year lease. Irish points out that although it's a 35-year lease, Sony is only locked into the building for 20 years and both parties have the option to terminate at the end of the next five years." For more information see www:houstonrealtyadviosrs.com
or www.houstonrealtyadvisors.net
From GlobeSt.com News, December 4, 2007 www.globest.com/news <http://www.globest.com/news>
"Sony occupies the entire building at 10000 W. Washington, which is also known as Sony Pictures Plaza, under a 35-year triple-net lease that began in 1993. The entertainment firm's lease provides that the rent be adjusted once every five years rather than through yearly CPI increases, and that the new rent be established by arbitration if the parties can't agree on a figure.
In the recent arbitration, Sony proposed a new rent of $870,000 per month for the next five years, compared with the $710,000 per month that the entertainment firm has been paying for the past five years.
Transpacific proposed a rent of $935,000 per month for the 330,000 sf of office space and a 400,000-sf parking garage totaling 1,100 spaces that is covered by the lease.
Sony's proposal would have totaled $52.2 million over the five years, compared with the $56.1-million Transpacific proposal. The decision was made according to what is known as baseball-style arbitration, so named because of its use by Major League Baseball, in which matters in dispute are decided by arbitrators who must choose either one or the other of the two proposals submitted by the opposing parties.
Sony did not return calls seeking comment on the arbitration, but those who were involved on the Transpacific side tell GlobeSt.com that the case is a sign of the growing number of rent arbitrations now under way in the L.A. area. Transpacific president Tom Irish, attorney Tony Natsis of Allen Matkins Leck Gamble Mallory & Natsis, and CB Richard Ellis appraiser Dave Zoraster all tell GlobeSt.com that the already rising number of rent arbitrations appears likely to keep increasing.
`This is something that is really starting to take off,'
Zoraster says. The CBRE appraiser says he is working on six or seven rent arbitration appraisals right now. Natsis says that he is working on 10 rent arbitration cases now, compared with only 20 that he worked on for the first seven years of this decade, and Irish says that he knows of 25 or so that are in the works in the Los Angeles area.
Natsis points out that rent arbitrations occur primarily in two
circumstances: in the case of an extremely long-term lease like Sony's that adjusts the rent mid-term, or in a more standard-length lease that comes up for renewal. He says that the rising number of arbitrations lately reflects supply-and-demand market conditions that have turned the Westside into one of the tightest and most expensive office markets in Southern California, as well as the determination to push rents substantially higher on the part of landlords who paid top dollar for their properties and need to achieve higher rents to pay for them.
In rent disputes, as Natsis explains, the arbitrators typically are appraisers. The three arbitrators include one chosen by the landlord, one chosen by the tenant and one neutral third party that both parties agree upon.
The tenant's arbitrator and the landlord's arbitrator each submits a number representing what they believe the fair market rent should be, and neither party knows what the other's number is until the figures are exchanged at arbitration. When the arbitration is baseball style, Natsis points out, the neutral third party arbitrator is the one who makes the decision by choosing one of the two figures.
Natsis says that in theory, at least, baseball arbitration encourages both sides to submit figures more toward the middle ground because the neutral third party arbitrator is likely to reject any number that is excessively high or low. In practice, however, landlords and tenants are still sometimes miles apart in their perceptions of what the rent should be.
A case in point was the previous arbitration between Sony and Transpacific five years ago, when the two parties were $20 million apart in their proposals. Natsis, who along with Zoraster also represented Transpacific in that case, says that $20-million difference is the largest spread ever that he is aware of in rent arbitration and that the
$56.1 million is the largest rent figure he knows of that has been arbitrated on the West Coast.
Zoraster says that no two arbitrations are alike because the leases vary so much in how they are structured and in the array of factors that must be considered in determining fair market rent. The appraiser must first look at the lease, to see what it specifies regarding the obligations of the landlord and the tenant, and then must research a host of factors, including comparable leases of similar facilities. Appraisal work for leases is `a lot more complex than looking at a sale value,'
Zoraster says.
Natsis and Irish both credit Zoraster with producing comprehensive and accurate appraisals that won the case for Transpacific both in this arbitration and in Transpacific's previous arbitration with Sony. The Torrance-based investment and development firm bought Sony Pictures Plaza in 2000, when the 35-year lease was already in place, and although Transpacific has prevailed in both of its arbitrations, Irish says that he would prefer not to have to go to through the process because it is both costly and unpleasant.
`We prefer to reach agreement with our tenants through negotiation rather than arbitration,' Irish says. `If we agree, both parties are satisfied. If we go to baseball-style arbitration, one side wins and one side loses, which is not conducive to a positive landlord/tenant relationship--especially if the rents are significant.'
The Sony lease commenced on Jan. 1, 1993, so the new rent will be for years 16 through 20 of the 35-year lease. Irish points out that although it's a 35-year lease, Sony is only locked into the building for 20 years and both parties have the option to terminate at the end of the next five years." For more information see www:houstonrealtyadviosrs.com
or www.houstonrealtyadvisors.net
Friday, December 14, 2007
Retail landlords offer blue-light specials to tenants
Not too long ago, retail broker Joel English was offering neighborhood retail center tenants about $15 to $20 per square foot as in improvement incentive. These days, that sum just won't cut it.
English and other brokers and landlords in the retail real estate field have had to up the ante, offering as much as $35 per square foot or more for tenant improvements. And in some cases, landlords are throwing in other deal-sweeteners such as longer build-out periods and even free rent in an effort to shore up the struggling sector.
"It's a citywide problem," says English, president of Houston-based CEC Brokerage. "Landlords are getting anxious because there's too much retail on the ground and it's getting tougher to compete with the grocery-anchored centers."
Indeed, the third quarter of this year represented the third straight year-to-year drop in occupancy levels in the neighborhood center sector, as overall occupancy fell to 84.57 percent. That's down from 85.09 percent in the third quarter of 2006 and 85.68 percent in the third quarter of 2005, according to Houston-based real estate services firm O'Connor & Associates.
The south sector of the city recorded the highest occupancy rate, 93 percent, while the lowest occupancy was found in the far north sector at 77 percent.
"It appears that occupancy is trending down, so it would make sense that landlords are offering discounts to lease the vacant space," says Kathryn Koepke, a researcher at O'Connor & Associates.
Even with the incentives, English says, some centers are taking as long as three to four years to fully lease.
English has represented six centers on Louetta over the past year and says he has had particular difficulty finding tenants for the centers in that area of Northwest Houston.
That's where the financial carrots come in.
English was given the green light to offer that $35-per-foot tenant improvement at a retail center he is currently leasing at 4000 Louetta. The center, which was built in 2006, is only 70 percent leased.
English has also been involved in leasing a center in the 9000 block of Louetta, which was built in January 2007, that is only 40 percent leased, as well as another center on the same block built in March of this year that hasn't leased to a single tenant.
"It's very unfortunate because there's just a glut of this type of space out there, and it's hard to attract any sort of interest," he says.
Meanwhile, Lyle Cowand, senior vice president with retail brokerage firm The Weitzman Group, says certain areas -- such as north of Barker Cypress, north of Fry Road and north of Eldridge -- are home to a large percentage of these struggling neighborhood centers, which typically are designed to be unanchored.
He says the roads in those areas are full of vacant neighborhood centers flying banners that read "Free Rent." Cowand believes many of these centers were built by inexperienced developers who didn't fully study the market before breaking ground.
"They build 30,000-square-foot centers under the notion that if they build it, retailers will come, but there has to be a reason for the center and a reason for the retailers to come," he says.
Cowand believes that low occupancy rates are more a function of poorly located neighborhood centers rather than a marketwide problem. Weitzman Group leases 25 centers in the Houston market, and Cowand says free rent is not even a topic of discussion when it comes to leasing those centers.
Hard time for small-timers
Typical tenants of unanchored neighborhood centers are mom-and-pop shops and service retailers such as restaurants and hair salons, but retail sources say many of these businesses are having trouble surviving.
Ace Schlameus, a vice president with Grubb & Ellis, says typical neighborhood center occupants are having difficulty getting finances to open or expand their businesses.
"We're definitely seeing a softness in the market," Schlameus says. "These individuals don't have capital access to credit lines to realize their dreams. We're just not seeing the same level of interest."
Meanwhile, he says, many landlords are having to deal with the one-two punch of higher operating costs, which are often passed on to the tenant.
"Higher tax valuations are raising operating costs, and the market is being taxed out," Schlameus says. "I know of one center where operating costs went up by $12 per foot."
Schlameus says landlords are beginning to work as partners with potential tenants in order to seal a deal.
"If a person's credit is good, the landlords are now willing to extend additional concessions to try and structure a deal the build their business," he says. "We're having to be a lot more creative."
awollam@bizjournals.com • 713-395-9632
For more inforamtion see : www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
English and other brokers and landlords in the retail real estate field have had to up the ante, offering as much as $35 per square foot or more for tenant improvements. And in some cases, landlords are throwing in other deal-sweeteners such as longer build-out periods and even free rent in an effort to shore up the struggling sector.
"It's a citywide problem," says English, president of Houston-based CEC Brokerage. "Landlords are getting anxious because there's too much retail on the ground and it's getting tougher to compete with the grocery-anchored centers."
Indeed, the third quarter of this year represented the third straight year-to-year drop in occupancy levels in the neighborhood center sector, as overall occupancy fell to 84.57 percent. That's down from 85.09 percent in the third quarter of 2006 and 85.68 percent in the third quarter of 2005, according to Houston-based real estate services firm O'Connor & Associates.
The south sector of the city recorded the highest occupancy rate, 93 percent, while the lowest occupancy was found in the far north sector at 77 percent.
"It appears that occupancy is trending down, so it would make sense that landlords are offering discounts to lease the vacant space," says Kathryn Koepke, a researcher at O'Connor & Associates.
Even with the incentives, English says, some centers are taking as long as three to four years to fully lease.
English has represented six centers on Louetta over the past year and says he has had particular difficulty finding tenants for the centers in that area of Northwest Houston.
That's where the financial carrots come in.
English was given the green light to offer that $35-per-foot tenant improvement at a retail center he is currently leasing at 4000 Louetta. The center, which was built in 2006, is only 70 percent leased.
English has also been involved in leasing a center in the 9000 block of Louetta, which was built in January 2007, that is only 40 percent leased, as well as another center on the same block built in March of this year that hasn't leased to a single tenant.
"It's very unfortunate because there's just a glut of this type of space out there, and it's hard to attract any sort of interest," he says.
Meanwhile, Lyle Cowand, senior vice president with retail brokerage firm The Weitzman Group, says certain areas -- such as north of Barker Cypress, north of Fry Road and north of Eldridge -- are home to a large percentage of these struggling neighborhood centers, which typically are designed to be unanchored.
He says the roads in those areas are full of vacant neighborhood centers flying banners that read "Free Rent." Cowand believes many of these centers were built by inexperienced developers who didn't fully study the market before breaking ground.
"They build 30,000-square-foot centers under the notion that if they build it, retailers will come, but there has to be a reason for the center and a reason for the retailers to come," he says.
Cowand believes that low occupancy rates are more a function of poorly located neighborhood centers rather than a marketwide problem. Weitzman Group leases 25 centers in the Houston market, and Cowand says free rent is not even a topic of discussion when it comes to leasing those centers.
Hard time for small-timers
Typical tenants of unanchored neighborhood centers are mom-and-pop shops and service retailers such as restaurants and hair salons, but retail sources say many of these businesses are having trouble surviving.
Ace Schlameus, a vice president with Grubb & Ellis, says typical neighborhood center occupants are having difficulty getting finances to open or expand their businesses.
"We're definitely seeing a softness in the market," Schlameus says. "These individuals don't have capital access to credit lines to realize their dreams. We're just not seeing the same level of interest."
Meanwhile, he says, many landlords are having to deal with the one-two punch of higher operating costs, which are often passed on to the tenant.
"Higher tax valuations are raising operating costs, and the market is being taxed out," Schlameus says. "I know of one center where operating costs went up by $12 per foot."
Schlameus says landlords are beginning to work as partners with potential tenants in order to seal a deal.
"If a person's credit is good, the landlords are now willing to extend additional concessions to try and structure a deal the build their business," he says. "We're having to be a lot more creative."
awollam@bizjournals.com • 713-395-9632
For more inforamtion see : www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
Thursday, December 13, 2007
TROUBLE IN TEXAS: Huge Multifamily Owner Nears Collapse
Apartment Giant MBS Cos. Goes Deep in Arrears on More Than $600 Million in LoansMBS Cos., one of the largest multifamily property owners in the country, is delinquent, in default or in danger of becoming so, on more than $900 million in loans. For Michael B. Smuck (the MBS in the company name), that means he is in danger of seeing his apartment empire dissipate for the second time in his nearly 30-year real estate career. Based in the New Orleans area, MBS Cos. owns and operates more than 65 apartment complexes totaling about 17,000 units - all in Texas. Smuck's debt problems have been the subject of whispered conversations among financial firms and analysts for the past month as the extent of the company's financial problems slowly came to light. Those same financial analysts fear if MBS defaults, it could spell losses for many and affect property recovery operations, potentially for years to come. It will also generate a huge spike up in CMBS delinquencies, expected to be reported this week or next. (Editor's Note: For a complete list of MBS properties, the CMBS they are associated with, and notes on their individual loan status see Watch List
For more information see: www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
For more information see: www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
Friday, December 7, 2007
Tax appeal
Make friends with tax assessors.
from Retail Traffic OnLine, September 28, 2006
"Retail property owners (and their lawyers and accountants) say that the key is not viewing the relationship with assessors as being adversarial. Explain things clearly. Be nice. Desk pounding doesn't lower assessments. Good information does. To a great extent, working on property assessment is about building a relationship with the assessors.
The important thing to remember is that assessors are public servants trying to do a job. With cities and states strapped for cash, property taxes are an obvious area to try and increase tax revenues. In 2002 for example, New York City officials jacked up property taxes 25%.
In most states, property owners have a small window — a few weeks — to work with assessors between the time they make their valuation and the day it is finalized.
A key is to be prepared ahead of time — to look through your own numbers, check trends in the market and be prepared to make a case for why the assessment may be too high.
Begin early and monitor things on an ongoing basis. It's much more productive to deal with issues early on an information basis, rather than waiting until it becomes confrontational or a litigation situation.
It comes down to a key change in the usual mindset: Most of the time, owners talk about how great their properties are. But tax time means outlining the flaws.
If a property is underperforming relative to other regional malls, explain that. A regional or super-regional mall may be the only such property that an assessor knows. It may not occur to the assessor that the local mall is a dog compared to the one a couple of counties over.
Even after the deadline, owners have recourse in getting assessments changed. They can take their case to a review board and then on to court. Litigation is a last resort, of course, and it is very expensive, both in money and time.
But tax bills can be cut without going to court. Compare the assessment with an assessor's prevailing ratios between market value and assessed value. What you look for is not whether the assessment has changed much, but whether that assessment is still fair."
The assessor will use existing leases to generate an income figure in deriving an assessed value. Have market rents fallen since leases got signed? A judge may decide that that assessed value should reflect a combination of existing leases and market rents.
Even in states with property-tax caps, it's important to watch assessments. California caps annual increases at 2% over a property's base year — when it was last assessed or upon completion of construction. Thereafter, assessed value rises at the annual statewide inflation rate up to a maximum of 2%. If a property is scheduled for redevelopment and underperforming and the value rises 2% anyway, an owner should go see the assessor.
Even sophisticated tax departments may miss some wrinkles, such as the effects of retenanting or a shift to gross leases. For example, if five shops paying $25 per square foot get replaced with a single Old Navy store paying $12.50 per square foot, the big new tenant looks pretty spiffy to the assessor — but it generates only half as much rent.
The assessor needs to know that.
For many landlords, such retenanting is defensive and therefore shouldn't lead to a higher assessment. It's maintaining what you have — stopping an erosion — not creating an increment of value. The center looks nicer, but you're not boosting your net operating income.
In the same vein, assessors' models may assume properties use net lease structures — in which tenants pay for taxes, insurance and common area maintenance. But if tenants have a gross lease — in which the owner pays those extras — an assessor may overestimate income. It's important to clarify that so the assessors' models are correct.
But owners using net lease structures need to be wary of assessments, even if they aren't bearing the brunt of the cost. Because the tax gets included in rent, letting assessments balloon means rents could be rising faster than the rest of the market. If your property is paying more taxes than a competitor it puts your leasing people at a disadvantage.
Assessments can also spike when properties change hands. Sale prices are an obvious guide for the value of property.
But property sale prices may include value beyond the worth of the real estate. Assessors won't make that adjustment unless you spell it out for them. At the time of a sale an acquiring company should break out real estate value from other items. Non-real estate items might include above-market leases such as often occur in sale-leasebacks, creditworthiness of tenants and build-to-suit improvements financed through the lease. Spell out those items in a purchase agreement that documents the number that you are happy with,that you believe is the true value of the real estate."
An independent study of regional and national capitalization rates for retail properties is also a useful tool. Such studies cost from $2,500 to $15,000. Having such a document on file helps the assessor fend off politicians who want to milk the mall. Such a study shows where a property fits income-wise in the framework of other similar properties regionally and nationally — and can buttress an owner's argument for a lower assessment.
The keys to a successful appeal are establishing credibility with the assessing authorities and proving your case."
for more information see: www.houstonrealtyadviosrs.com
from Retail Traffic OnLine, September 28, 2006
"Retail property owners (and their lawyers and accountants) say that the key is not viewing the relationship with assessors as being adversarial. Explain things clearly. Be nice. Desk pounding doesn't lower assessments. Good information does. To a great extent, working on property assessment is about building a relationship with the assessors.
The important thing to remember is that assessors are public servants trying to do a job. With cities and states strapped for cash, property taxes are an obvious area to try and increase tax revenues. In 2002 for example, New York City officials jacked up property taxes 25%.
In most states, property owners have a small window — a few weeks — to work with assessors between the time they make their valuation and the day it is finalized.
A key is to be prepared ahead of time — to look through your own numbers, check trends in the market and be prepared to make a case for why the assessment may be too high.
Begin early and monitor things on an ongoing basis. It's much more productive to deal with issues early on an information basis, rather than waiting until it becomes confrontational or a litigation situation.
It comes down to a key change in the usual mindset: Most of the time, owners talk about how great their properties are. But tax time means outlining the flaws.
If a property is underperforming relative to other regional malls, explain that. A regional or super-regional mall may be the only such property that an assessor knows. It may not occur to the assessor that the local mall is a dog compared to the one a couple of counties over.
Even after the deadline, owners have recourse in getting assessments changed. They can take their case to a review board and then on to court. Litigation is a last resort, of course, and it is very expensive, both in money and time.
But tax bills can be cut without going to court. Compare the assessment with an assessor's prevailing ratios between market value and assessed value. What you look for is not whether the assessment has changed much, but whether that assessment is still fair."
The assessor will use existing leases to generate an income figure in deriving an assessed value. Have market rents fallen since leases got signed? A judge may decide that that assessed value should reflect a combination of existing leases and market rents.
Even in states with property-tax caps, it's important to watch assessments. California caps annual increases at 2% over a property's base year — when it was last assessed or upon completion of construction. Thereafter, assessed value rises at the annual statewide inflation rate up to a maximum of 2%. If a property is scheduled for redevelopment and underperforming and the value rises 2% anyway, an owner should go see the assessor.
Even sophisticated tax departments may miss some wrinkles, such as the effects of retenanting or a shift to gross leases. For example, if five shops paying $25 per square foot get replaced with a single Old Navy store paying $12.50 per square foot, the big new tenant looks pretty spiffy to the assessor — but it generates only half as much rent.
The assessor needs to know that.
For many landlords, such retenanting is defensive and therefore shouldn't lead to a higher assessment. It's maintaining what you have — stopping an erosion — not creating an increment of value. The center looks nicer, but you're not boosting your net operating income.
In the same vein, assessors' models may assume properties use net lease structures — in which tenants pay for taxes, insurance and common area maintenance. But if tenants have a gross lease — in which the owner pays those extras — an assessor may overestimate income. It's important to clarify that so the assessors' models are correct.
But owners using net lease structures need to be wary of assessments, even if they aren't bearing the brunt of the cost. Because the tax gets included in rent, letting assessments balloon means rents could be rising faster than the rest of the market. If your property is paying more taxes than a competitor it puts your leasing people at a disadvantage.
Assessments can also spike when properties change hands. Sale prices are an obvious guide for the value of property.
But property sale prices may include value beyond the worth of the real estate. Assessors won't make that adjustment unless you spell it out for them. At the time of a sale an acquiring company should break out real estate value from other items. Non-real estate items might include above-market leases such as often occur in sale-leasebacks, creditworthiness of tenants and build-to-suit improvements financed through the lease. Spell out those items in a purchase agreement that documents the number that you are happy with,that you believe is the true value of the real estate."
An independent study of regional and national capitalization rates for retail properties is also a useful tool. Such studies cost from $2,500 to $15,000. Having such a document on file helps the assessor fend off politicians who want to milk the mall. Such a study shows where a property fits income-wise in the framework of other similar properties regionally and nationally — and can buttress an owner's argument for a lower assessment.
The keys to a successful appeal are establishing credibility with the assessing authorities and proving your case."
for more information see: www.houstonrealtyadviosrs.com
Thursday, December 6, 2007
Automatic renewal
"The lease provided that it would renew automatically for an additional five years, provided that landlord was obligated to give a thirty day notice to the tenant of the pendency of the renewal and that tenant thereafter had the right to refuse to renew, all more than six months prior to the end of the term.
The landlord sent timely notice. The tenant responded with a notice that stated that
it would be my intent to renew the lease
but asking for a rent reduction because tenant improvements were complete. After the time for rejection of the automatic renewal had passed, the landlord responded with a letter stating that there had been an automatic renewal and stated the rent at an increased amount, apparently according to the cost of living adjustment.
The tenant paid the rent and remained in occupancy for over three years.
Then, when it terminated occupancy, it took the position that there had been no automatic five year renewal because it had implicitly rejected such renewal when it proposed to renew only at a reduced rent.
The trial court granted summary judgment to tenant, but the appeals court reversed, finding that the lease was in effect for the full five year renewal term.
For purposes of reviewing the summary judgment motion, the court assumed that ambiguous notice sent by the tenant gave the tenant no more than an option to renew, and did not bind her to an automatic renewal. And tenant's letter certainly did not constitute the need for a definite and unqualified determination to exercise the option.
The court ruled that when there is a requirement for notice of exercise of an option to renew, and the tenant holds over, the landlord may waive the requirement for notice and deem the lease renewed.
Comments on DIRT:
Note that this case depends on the existence of the renewal clause in the lease. Otherwise, if a tenant holds over, the landlord can send notice proposing a new lease, and hold the tenant to that lease if tenant continues to hold over, but such new lease cannot exceed the period defined by the Statute of Frauds, since the new lease is implied, and not written.
Here, the tenant had signed a lease with a renewal clause. Arguably, it was an automatic renewal, but the court assumed that the tenant had validly rejected the automatic renewal, and that this flipped the renewal clause into an optional renewal
for five years, which the tenant accepted by holding over.
The court admits, however, that if the tenant had unequivocally indicated that her holding over was not an acceptance of the proferred renewal, there would have been no such renewal.
Friedman on Leases, Randolph Edition, at Section 14.2, text accompanying note 172 et seq, states that a tenant's notice claiming to invoke the automatic renewal in a lease, but proposing alternative terms, constitutes a rejection of an offer. But there is authority that the offer remains effective and can be accepted by later action of the tenant, absent estoppel (such as the landlord reletting in reliance upon an apparent rejection). That is apparently the approach taken by the court here. This strikes the editor as a common sense resolution of a tricky technical problem.
Nevertheless, it should be noted that notion that a holdover automatically can bind the tenant to an extended renewal term exposes the tenant to a gotcha."
For more information see: www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
The landlord sent timely notice. The tenant responded with a notice that stated that
it would be my intent to renew the lease
but asking for a rent reduction because tenant improvements were complete. After the time for rejection of the automatic renewal had passed, the landlord responded with a letter stating that there had been an automatic renewal and stated the rent at an increased amount, apparently according to the cost of living adjustment.
The tenant paid the rent and remained in occupancy for over three years.
Then, when it terminated occupancy, it took the position that there had been no automatic five year renewal because it had implicitly rejected such renewal when it proposed to renew only at a reduced rent.
The trial court granted summary judgment to tenant, but the appeals court reversed, finding that the lease was in effect for the full five year renewal term.
For purposes of reviewing the summary judgment motion, the court assumed that ambiguous notice sent by the tenant gave the tenant no more than an option to renew, and did not bind her to an automatic renewal. And tenant's letter certainly did not constitute the need for a definite and unqualified determination to exercise the option.
The court ruled that when there is a requirement for notice of exercise of an option to renew, and the tenant holds over, the landlord may waive the requirement for notice and deem the lease renewed.
Comments on DIRT:
Note that this case depends on the existence of the renewal clause in the lease. Otherwise, if a tenant holds over, the landlord can send notice proposing a new lease, and hold the tenant to that lease if tenant continues to hold over, but such new lease cannot exceed the period defined by the Statute of Frauds, since the new lease is implied, and not written.
Here, the tenant had signed a lease with a renewal clause. Arguably, it was an automatic renewal, but the court assumed that the tenant had validly rejected the automatic renewal, and that this flipped the renewal clause into an optional renewal
for five years, which the tenant accepted by holding over.
The court admits, however, that if the tenant had unequivocally indicated that her holding over was not an acceptance of the proferred renewal, there would have been no such renewal.
Friedman on Leases, Randolph Edition, at Section 14.2, text accompanying note 172 et seq, states that a tenant's notice claiming to invoke the automatic renewal in a lease, but proposing alternative terms, constitutes a rejection of an offer. But there is authority that the offer remains effective and can be accepted by later action of the tenant, absent estoppel (such as the landlord reletting in reliance upon an apparent rejection). That is apparently the approach taken by the court here. This strikes the editor as a common sense resolution of a tricky technical problem.
Nevertheless, it should be noted that notion that a holdover automatically can bind the tenant to an extended renewal term exposes the tenant to a gotcha."
For more information see: www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
Thursday, November 8, 2007
Large Houston Lease signed yesterday
Shorenstein Properties LLC acquired a 356,750-square-foot office building at 2000 W. Loop S in the Galleria submarket of Houston, TX. This is Shorenstein’s third purchase for its $1.3 billion investment fund, Shorenstein Realty Investors Nine LP. A group of tenant-in-common investors represented by US Advisors LLC and Means Knaus Partners LP of Houston sold the Class A asset. The purchase price was not disclosed. For more information see: www.houstonrealtyadvisors.com
Tri-Supply Inks 92,000-SF Lease in Houston
Transwestern recently signed Tri-Supply to a 92,000-square-foot deal at 7100 Business Park Drive in Houston, TX. Tri-Supply provides homebuilders in the Texas region with products such as doors, molding, lighting and appliances. The building is a multitenant distribution facility in the West Outer Loop Industrial submarket. It is roughly 216,000 square feet. Jude Filippone of Transwestern represented the owner, and Alexander Reilly and Bo Pettit of Boyd Commercial represented the tenant. For more information see: www.houstonrealtyadvisors.com
Tuesday, November 6, 2007
Industrial park planned for Hobby Airport area
Houston Business Journal
PinPoint Commercial is planning what the company believes is the largest industrial park developed inside Beltway 8 in more than 10 years.
The Houston development partnership said it purchased the land for the 350-acre Hobby Business Center, a logistics and industrial park near Hobby Airport, in March.
Companies committed to the area include Southeastern Freight Lines and FedEx Ground, according to the company. Houston Airport System also has purchased land within the park.
The site features build-to-suit and design-build options and is expected to be open by the beginning of 2008.
For more information see: www.houstonrealtyadvisors.com
PinPoint Commercial is planning what the company believes is the largest industrial park developed inside Beltway 8 in more than 10 years.
The Houston development partnership said it purchased the land for the 350-acre Hobby Business Center, a logistics and industrial park near Hobby Airport, in March.
Companies committed to the area include Southeastern Freight Lines and FedEx Ground, according to the company. Houston Airport System also has purchased land within the park.
The site features build-to-suit and design-build options and is expected to be open by the beginning of 2008.
For more information see: www.houstonrealtyadvisors.com
Thursday, October 25, 2007
Quality Infusion Inks Southwest Center Sale-Leaseback
NHP Houston MOB LLC acquired an eight-story medical building at 6671 S. U.S. Highway 59 from Quality Infusion Care Inc. The property is believed to have sold for more than $22.9 million, or between $150 and $175 per square foot, according to reports. Built in 1984 and renovated in 2006, the building is on a 2.14-acre lot, immediately south of the intersection of U.S. 59 and Hillcroft. This building includes a four-story attached garage in the rear of the property. Reportedly, at closing of the sale, the seller executed a master lease for the entire property leasing back the property for 10 to 15 years, absolute triple net. Plans are under way to convert the building into a multi-tenanted medical office building. Upon completion, the building will include tenants such as Day Surgeon Center, Sleep Center, Infusion Center and physician offices. David Greenberg of Greenberg & Co. represented the seller. Preston Shatto and Monte Lowery of Marcus & Millichap represented the buyer. Please refer to CoStar COMPS #1380192 for more information on this transaction. For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Monday, October 22, 2007
Restaurant, movie complex make way for office buildings
DEAL of the Month
A contract is in the works for real estate developer Simmons Vedder & Co. to purchase Willie G's Seafood & Steak House and the Cinemark Tinseltown Westchase.
The sites of both the restaurant at 1605 Post Oak, and theater complex at the Beltway and Richmond, will be cleared for construction of office buildings.
Willie G's, owned by Landry's Restaurants Inc., will upon termination of its lease move to another location and continue operating, according to Landry's executive vice president Steve Scheinthal.
Simmons Vedder is expected to redevelop the 1.9-acre tract into a 320,000-square-foot office building.
Cinemark Westchase will continue operating until the final curtain call at the end of the year. Demolition is scheduled for the first quarter of 2008. The 21-acre site is expected to be redeveloped into a project called Westchase Park, two six-story, 275,000-square-foot office buildings schedule for completion in the second quarter of 2009.
Jeff Hayes of NewQuest Properties is representing Cinemark in the sale and Steve Mahood of Moody Rambin Interests Inc. is representing Simmons Vedder.
The acquisitions are in response to high occupancy in Houston office buildings overall. At the end of the second quarter, the occupancy rate for Class A office space was 92 percent, according to research by O'Connor & Associates. For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Call Ed A. Ayres 731-782-0260
A contract is in the works for real estate developer Simmons Vedder & Co. to purchase Willie G's Seafood & Steak House and the Cinemark Tinseltown Westchase.
The sites of both the restaurant at 1605 Post Oak, and theater complex at the Beltway and Richmond, will be cleared for construction of office buildings.
Willie G's, owned by Landry's Restaurants Inc., will upon termination of its lease move to another location and continue operating, according to Landry's executive vice president Steve Scheinthal.
Simmons Vedder is expected to redevelop the 1.9-acre tract into a 320,000-square-foot office building.
Cinemark Westchase will continue operating until the final curtain call at the end of the year. Demolition is scheduled for the first quarter of 2008. The 21-acre site is expected to be redeveloped into a project called Westchase Park, two six-story, 275,000-square-foot office buildings schedule for completion in the second quarter of 2009.
Jeff Hayes of NewQuest Properties is representing Cinemark in the sale and Steve Mahood of Moody Rambin Interests Inc. is representing Simmons Vedder.
The acquisitions are in response to high occupancy in Houston office buildings overall. At the end of the second quarter, the occupancy rate for Class A office space was 92 percent, according to research by O'Connor & Associates. For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Call Ed A. Ayres 731-782-0260
Class conscious: Is it worth the cost to be in a Class A building?
Deciding where to lease office space can be a confounding process, whether a company is a mom-and-pop operation looking to move out of the family garage or an established business nearing the end of its lease.
It's also one of the most important decisions its owners and managers can make because it can affect not only the company's financial health, but its employees' and customers' satisfaction.
"Obviously, one of the key factors in choosing where to lease space is the rent," says Scott MacIntosh, senior economist with the National Association of Realtors. However, the amount paid each month should be weighed against a variety of other factors that contribute to the value of the space, he adds.
"If a business is in a Class A building, the operating costs -- such as the municipal taxes, the salary of the property manager, maintaining the common areas -- will be higher, and that all is charged back to the tenant," he says.
Higher-priced offices -- generally located in city centers -- do have distinct advantages compared to suburban spaces, he says, but each has its merits.
"If I'm a big law firm and my clients expect me to be in a Class A building, that's where I need to be. For other tenants, it's important to be where their clients are, and that might be in the suburbs.
"Some companies, particularly high-tech companies, look at the needs of their employees" when deciding where office space should be, he adds. Often, they'll do a survey of where employees live, and what sort of commute they'd have if the office is downtown, compared to a suburban location.
"In the suburbs, you get free parking. You don't get that downtown. But you might have public transportation available, and more facilities nearby that your employees would appreciate, such as restaurants," he says.
Signing a lease, especially one that obligates the tenant for several years, should be done with full knowledge of what the lease entails, says James Cantrell, a past president of the Institute of Real Estate Management and partner in the San Francisco-based real estate consulting firm Cantrell, Harris & Associates.
But not everyone does, he acknowledges. A common mistake is when the tenant fails to notice who pays for repairs, such as if a rock is tossed through a front window or if the heat goes out. Not everyone needs a conventional office space, says Michael Moore, president of Office Business Center Association International, a trade association based in Mt. Laurel, N.J.
So-called "shared office space" offers the advantage of relatively short -- in some cases, month-to-month -- leases, compared to conventional office space, which typically requires a several-year commitment, he says.
"If you compare costs on a square-footage basis," Moore says, "a shared office space is more expensive. But when you compare it to setting up on your own, they're more economical, because you don't have to go out and buy furniture and copiers" and set up high-speed Internet services, for example.
Shared office space is ideal for businesses testing a new market, and small companies not ready to commit to a long lease, he adds.
NAR's MacIntosh says finding a broker to help is a good idea, but isn't always easy to do.
"They all say they have the best information," he says. However, it may be possible to seek advice from other tenants "to see who used whom for a particular transaction. Talk to various associations, such as the local branch of the Building Owners and Managers Association. See if they can recommend anybody."
Companies should be prepared to pay slightly more for a shorter lease, all else being equal, as landlords prefer to have tenants who will be occupying the space for a longer time, MacIntosh says.
"Construction costs are high these days, so there aren't a lot of new office buildings going up. Our National Association of Realtors forecast calls for vacancy rates to decline, which makes it more of a landlord's market. In a landlord's market, rents go up, so it becomes very useful to have a broker working on the tenant's side so the tenant can be aware of each new space that becomes available."
DANIELLE STARKEY is a freelance writer for the Sacramento Business Journal, an affiliated publication. For more inforamtion see; www.houstonrealtyadvisors.com
It's also one of the most important decisions its owners and managers can make because it can affect not only the company's financial health, but its employees' and customers' satisfaction.
"Obviously, one of the key factors in choosing where to lease space is the rent," says Scott MacIntosh, senior economist with the National Association of Realtors. However, the amount paid each month should be weighed against a variety of other factors that contribute to the value of the space, he adds.
"If a business is in a Class A building, the operating costs -- such as the municipal taxes, the salary of the property manager, maintaining the common areas -- will be higher, and that all is charged back to the tenant," he says.
Higher-priced offices -- generally located in city centers -- do have distinct advantages compared to suburban spaces, he says, but each has its merits.
"If I'm a big law firm and my clients expect me to be in a Class A building, that's where I need to be. For other tenants, it's important to be where their clients are, and that might be in the suburbs.
"Some companies, particularly high-tech companies, look at the needs of their employees" when deciding where office space should be, he adds. Often, they'll do a survey of where employees live, and what sort of commute they'd have if the office is downtown, compared to a suburban location.
"In the suburbs, you get free parking. You don't get that downtown. But you might have public transportation available, and more facilities nearby that your employees would appreciate, such as restaurants," he says.
Signing a lease, especially one that obligates the tenant for several years, should be done with full knowledge of what the lease entails, says James Cantrell, a past president of the Institute of Real Estate Management and partner in the San Francisco-based real estate consulting firm Cantrell, Harris & Associates.
But not everyone does, he acknowledges. A common mistake is when the tenant fails to notice who pays for repairs, such as if a rock is tossed through a front window or if the heat goes out. Not everyone needs a conventional office space, says Michael Moore, president of Office Business Center Association International, a trade association based in Mt. Laurel, N.J.
So-called "shared office space" offers the advantage of relatively short -- in some cases, month-to-month -- leases, compared to conventional office space, which typically requires a several-year commitment, he says.
"If you compare costs on a square-footage basis," Moore says, "a shared office space is more expensive. But when you compare it to setting up on your own, they're more economical, because you don't have to go out and buy furniture and copiers" and set up high-speed Internet services, for example.
Shared office space is ideal for businesses testing a new market, and small companies not ready to commit to a long lease, he adds.
NAR's MacIntosh says finding a broker to help is a good idea, but isn't always easy to do.
"They all say they have the best information," he says. However, it may be possible to seek advice from other tenants "to see who used whom for a particular transaction. Talk to various associations, such as the local branch of the Building Owners and Managers Association. See if they can recommend anybody."
Companies should be prepared to pay slightly more for a shorter lease, all else being equal, as landlords prefer to have tenants who will be occupying the space for a longer time, MacIntosh says.
"Construction costs are high these days, so there aren't a lot of new office buildings going up. Our National Association of Realtors forecast calls for vacancy rates to decline, which makes it more of a landlord's market. In a landlord's market, rents go up, so it becomes very useful to have a broker working on the tenant's side so the tenant can be aware of each new space that becomes available."
DANIELLE STARKEY is a freelance writer for the Sacramento Business Journal, an affiliated publication. For more inforamtion see; www.houstonrealtyadvisors.com
Letter 's' stands for simple steps in successful office space leasing
Letter 's' stands for simple steps in successful office space leasing
Houston Business Journal - by Thad Pittman
There are many variables involved in finding the right office space as well as negotiating and securing a lease. It's important to take the proper time and conduct the due diligence necessary to avoid potential leasing nightmares. Taking the extra time can help businesses save considerable money and energy.
While there isn't a simple way to find the perfect place to lease there are several considerations to keep in mind during the process -- and they all begin with the letter "s."
Search for the ideal office atmosphere for the business.
Evaluate how the business operates and keep that in mind while reviewing a lease and a location.
If the business is noisy, has a lot of foot traffic or even a large amount of employees, it may not be a good idea to lease in a more quiet conservative office suite. Think of the access to office space, parking and even the comfort of the company's neighbors. These are all important issues to keep in mind while seeking out office space. Also be cautious of provisions in the lease. They may directly apply to the firm's normal work environment.
Survey for a prime business location.
Survey all possible areas within any city or metropolitan area before narrowing in on any office space. Logistics should play a big role in determining where to lease office space. Many small to midsize companies conduct business from the same areas and should factor that in before signing a lease.
It doesn't make sense to lock into a lease in the Galleria area if most of your business is conducted in The Woodlands. This will save a considerable amount of time and money, especially in travel costs, by being area specific when looking for office space. Ease of building access and
parking for both employees and clients should also be key considerations.
Subleasing: Be careful.
Subleasing space can also be one option to successfully cut business costs; however, it can also result in disaster. As with every calculated gamble there are risks, so make sure there are firewalls in place to protect both the business and its owners.
Investigate the financial history of the sublessor. Its past financial hardships could lead to future problems. Ask for some form of security from the sublessor -- a letter of credit, for example. Keep in mind that if a sublessor files for bankruptcy, a sublease is at risk. A bankruptcy can hurt the sublessor's credit and ultimately affect its business.
Be sure that the sublease entered into with a sublessor are the same terms followed by the landlord/general manager.
Make sure the landlord approves and signs the sublease agreement.
Stay patient while negotiating the lease.
It's easy to be in a hurry to close the deal so that work can be started. However, it's important for those negotiating a lease to avoid letting drawn-out negotiations frustrate them into a bad deal. Sometimes this is just part of the process and will ultimately lead to a good conclusion. It's important to recognize this and move on to a better option. Remember, there is always a better deal; it just may require some looking.
Sign a lease that fits the company's business requirements.
Keep in mind the different variables of the business before signing any lease. It's important to account for business scalability. Signing a long-term lease can lock a company into a situation that its business may outgrow or under-use depending on the fluctuation in its respective markets. Most business owners are hesitant of locking into such a lease because of that reason.
Savvy business owners are cautious if they are not certain about their business future. Flexible short-term office options may be the best feasible consideration.
Seek a referral.
Even the most experienced business person can have difficulties when searching for the right office space. An easy and effective way to succeed in this process is to ask around. Seeking the advice of a well-respected friend, colleague or business associate who has already successfully found office space, will save considerable amounts of time and energy.
Get a broker who knows the market call Ed A. Ayres at 713 782-0260 or see ; www.houstonrealtyadvisors.com
THAD PITTMAN is president of Corporate Office Centers (www.corporateofficecenters.com), which operates four business centers in the greater Houston metropolitan area.
Houston Business Journal - by Thad Pittman
There are many variables involved in finding the right office space as well as negotiating and securing a lease. It's important to take the proper time and conduct the due diligence necessary to avoid potential leasing nightmares. Taking the extra time can help businesses save considerable money and energy.
While there isn't a simple way to find the perfect place to lease there are several considerations to keep in mind during the process -- and they all begin with the letter "s."
Search for the ideal office atmosphere for the business.
Evaluate how the business operates and keep that in mind while reviewing a lease and a location.
If the business is noisy, has a lot of foot traffic or even a large amount of employees, it may not be a good idea to lease in a more quiet conservative office suite. Think of the access to office space, parking and even the comfort of the company's neighbors. These are all important issues to keep in mind while seeking out office space. Also be cautious of provisions in the lease. They may directly apply to the firm's normal work environment.
Survey for a prime business location.
Survey all possible areas within any city or metropolitan area before narrowing in on any office space. Logistics should play a big role in determining where to lease office space. Many small to midsize companies conduct business from the same areas and should factor that in before signing a lease.
It doesn't make sense to lock into a lease in the Galleria area if most of your business is conducted in The Woodlands. This will save a considerable amount of time and money, especially in travel costs, by being area specific when looking for office space. Ease of building access and
parking for both employees and clients should also be key considerations.
Subleasing: Be careful.
Subleasing space can also be one option to successfully cut business costs; however, it can also result in disaster. As with every calculated gamble there are risks, so make sure there are firewalls in place to protect both the business and its owners.
Investigate the financial history of the sublessor. Its past financial hardships could lead to future problems. Ask for some form of security from the sublessor -- a letter of credit, for example. Keep in mind that if a sublessor files for bankruptcy, a sublease is at risk. A bankruptcy can hurt the sublessor's credit and ultimately affect its business.
Be sure that the sublease entered into with a sublessor are the same terms followed by the landlord/general manager.
Make sure the landlord approves and signs the sublease agreement.
Stay patient while negotiating the lease.
It's easy to be in a hurry to close the deal so that work can be started. However, it's important for those negotiating a lease to avoid letting drawn-out negotiations frustrate them into a bad deal. Sometimes this is just part of the process and will ultimately lead to a good conclusion. It's important to recognize this and move on to a better option. Remember, there is always a better deal; it just may require some looking.
Sign a lease that fits the company's business requirements.
Keep in mind the different variables of the business before signing any lease. It's important to account for business scalability. Signing a long-term lease can lock a company into a situation that its business may outgrow or under-use depending on the fluctuation in its respective markets. Most business owners are hesitant of locking into such a lease because of that reason.
Savvy business owners are cautious if they are not certain about their business future. Flexible short-term office options may be the best feasible consideration.
Seek a referral.
Even the most experienced business person can have difficulties when searching for the right office space. An easy and effective way to succeed in this process is to ask around. Seeking the advice of a well-respected friend, colleague or business associate who has already successfully found office space, will save considerable amounts of time and energy.
Get a broker who knows the market call Ed A. Ayres at 713 782-0260 or see ; www.houstonrealtyadvisors.com
THAD PITTMAN is president of Corporate Office Centers (www.corporateofficecenters.com), which operates four business centers in the greater Houston metropolitan area.
The Woodlands: Class A office market is booming in the forest Houston Business Journal - by Bret L. Strong
Fewer than 30 miles north of downtown Houston is the giant master-planned community of The Woodlands. Built out of 28,000 acres of forest land by oilman George P. Mitchell, the booming commercial center quietly grows and prospers.
With nearly 8 million square feet of commercial office space located in the area, The Woodlands Development Co. LP, developer of the nearly 35-year-old community, continues to closely plan and control the location, quality and supply of office space. Carefully crafted covenants and use restrictions keep the local Class A market on a tight leash.
Town Center
Town Center, the commercial area of The Woodlands, centered near Interstate 45 and The Woodlands Mall, was bolstered by the legislative creation in 1993 of the Town Center Improvement District. It has become the local economic development engine behind The Woodlands Waterway, Market Street, The Woodlands Mall, Town Green Park, Waterway Square, The Cynthia Woods Mitchell Pavilion and The Woodlands Waterway Marriott and Convention Center.
Town Center offers water taxis and waterway trolleys which operate along and around the entire area, linking the many office buildings to shopping, dining and other businesses. With all these amenities making the area increasingly attractive to employees and, therefore, their employers, the Class A commercial office market continues to be very hot and pricey.
Class A office space
Among all of this commercial development, there currently exists about 2.5 million square feet of Class A commercial office space in The Woodlands, with approximately 500,000 square feet currently under construction.
Of the currently available Class A space, nearly 97 percent is occupied, well above the average occupancy rate in the Houston market of 91 percent for similar space.
In 2006, The Woodlands Development Co. constructed and opened 21 Waterway Plaza, containing approximately 103,000 square feet of office space, after which the developer promptly leased the building to near capacity and then sold to a third-party investor.
The latest Class A commercial project soon to be completed in The Woodlands is the 24 Waterway Avenue building. Containing 268,000 square feet of Class A office space with 40,000 square feet of retail on the lower two levels of the building, it is located at the corner of Lake Robbins Drive and Waterway Avenue.
Positioned adjacent to Waterway Square and The Woodlands Waterway at the heart of the Town Center, the building is set to open early 2008. Approximately 32 percent of the office space is pre-leased and a specialty grocery and bakery is set to anchor the ground level retail.
The Woodlands Development Co. is already discussing plans for follow-up projects in the Class A arena along The Woodlands Waterway, including additional lodging accommodations to serve local businesses. For more information see : www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
With nearly 8 million square feet of commercial office space located in the area, The Woodlands Development Co. LP, developer of the nearly 35-year-old community, continues to closely plan and control the location, quality and supply of office space. Carefully crafted covenants and use restrictions keep the local Class A market on a tight leash.
Town Center
Town Center, the commercial area of The Woodlands, centered near Interstate 45 and The Woodlands Mall, was bolstered by the legislative creation in 1993 of the Town Center Improvement District. It has become the local economic development engine behind The Woodlands Waterway, Market Street, The Woodlands Mall, Town Green Park, Waterway Square, The Cynthia Woods Mitchell Pavilion and The Woodlands Waterway Marriott and Convention Center.
Town Center offers water taxis and waterway trolleys which operate along and around the entire area, linking the many office buildings to shopping, dining and other businesses. With all these amenities making the area increasingly attractive to employees and, therefore, their employers, the Class A commercial office market continues to be very hot and pricey.
Class A office space
Among all of this commercial development, there currently exists about 2.5 million square feet of Class A commercial office space in The Woodlands, with approximately 500,000 square feet currently under construction.
Of the currently available Class A space, nearly 97 percent is occupied, well above the average occupancy rate in the Houston market of 91 percent for similar space.
In 2006, The Woodlands Development Co. constructed and opened 21 Waterway Plaza, containing approximately 103,000 square feet of office space, after which the developer promptly leased the building to near capacity and then sold to a third-party investor.
The latest Class A commercial project soon to be completed in The Woodlands is the 24 Waterway Avenue building. Containing 268,000 square feet of Class A office space with 40,000 square feet of retail on the lower two levels of the building, it is located at the corner of Lake Robbins Drive and Waterway Avenue.
Positioned adjacent to Waterway Square and The Woodlands Waterway at the heart of the Town Center, the building is set to open early 2008. Approximately 32 percent of the office space is pre-leased and a specialty grocery and bakery is set to anchor the ground level retail.
The Woodlands Development Co. is already discussing plans for follow-up projects in the Class A arena along The Woodlands Waterway, including additional lodging accommodations to serve local businesses. For more information see : www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Top floors cost more $$$$$
Tenants take different views in regard to high-rise offices
Houston Business Journal - by Nicole Bradford Houston Business Journal
Offering a dizzying view of the city below on what seems like a microscopic scale, upper floors of Houston's tallest high-rises command premium leasing rates from companies who dream of moving up -- in the physical sense.
At least, that is the case with those who decide firmly beforehand that the prestige of high floors and captivating views is at the top of their want-list, says Dave Hanusa, senior vice president of CB Richard Ellis.
"If tenants have made the initial decision that they want to be in a high-rise, they are likely to put a higher value on upper floors -- so upper floors are generally more marketable," he says. "Also, many times lower floors have obstructed views, which generally hurts the marketability of the space."
CBRE manages the city's second-tallest building, Wells Fargo Plaza. At 71 floors, the building, owned by Met Life, boasts more than 1.72 million square feet of space. CBRE says it expects to get a premium rent for office space on the tower's 70th floor -- the highest currently available in the city with unobstructed views in all directions.
Those who lease such spaces "recognize the value in occupying some of the rarest space in the city," Hanusa says. But not all tenants have the same preferences.
"To some users, direct access is important," he says. "For them, lower floors offer the quickest access. To others, the prestige of high floors and premium views is paramount."
The view from the top is connected with the drama of a tall building, and the drama increases with each level skyward.
"The higher the floor, the better the view, the higher the rental rate," says Mark Preston, senior vice president with Moody Rambin Interests. "The 'wow factor' is closely tied in with the prestige, image and elevation of a building."
There are exceptions, of course. Arena Towers, a 21-story building managed by Boxer Property Management, offers its upper levels to the first to claim them.
"The rent is the same and is based on a first-come, first-served basis for higher floors," says Doug Pack, director of leasing.
Top floor views are indeed a main attraction, says Pack, since those up top don't have to wait for a traffic or weather report. However, he says, parking and convenience remain at the top of most tenants' wish lists.
"If you can walk to a good restaurant, people stay in the buildings much longer due to the convenience of not wasting gas just to have a meal," he says. "Convenient parking, as boring as that sounds, may be one of the most important amenities for an office building."
For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Houston Business Journal - by Nicole Bradford Houston Business Journal
Offering a dizzying view of the city below on what seems like a microscopic scale, upper floors of Houston's tallest high-rises command premium leasing rates from companies who dream of moving up -- in the physical sense.
At least, that is the case with those who decide firmly beforehand that the prestige of high floors and captivating views is at the top of their want-list, says Dave Hanusa, senior vice president of CB Richard Ellis.
"If tenants have made the initial decision that they want to be in a high-rise, they are likely to put a higher value on upper floors -- so upper floors are generally more marketable," he says. "Also, many times lower floors have obstructed views, which generally hurts the marketability of the space."
CBRE manages the city's second-tallest building, Wells Fargo Plaza. At 71 floors, the building, owned by Met Life, boasts more than 1.72 million square feet of space. CBRE says it expects to get a premium rent for office space on the tower's 70th floor -- the highest currently available in the city with unobstructed views in all directions.
Those who lease such spaces "recognize the value in occupying some of the rarest space in the city," Hanusa says. But not all tenants have the same preferences.
"To some users, direct access is important," he says. "For them, lower floors offer the quickest access. To others, the prestige of high floors and premium views is paramount."
The view from the top is connected with the drama of a tall building, and the drama increases with each level skyward.
"The higher the floor, the better the view, the higher the rental rate," says Mark Preston, senior vice president with Moody Rambin Interests. "The 'wow factor' is closely tied in with the prestige, image and elevation of a building."
There are exceptions, of course. Arena Towers, a 21-story building managed by Boxer Property Management, offers its upper levels to the first to claim them.
"The rent is the same and is based on a first-come, first-served basis for higher floors," says Doug Pack, director of leasing.
Top floor views are indeed a main attraction, says Pack, since those up top don't have to wait for a traffic or weather report. However, he says, parking and convenience remain at the top of most tenants' wish lists.
"If you can walk to a good restaurant, people stay in the buildings much longer due to the convenience of not wasting gas just to have a meal," he says. "Convenient parking, as boring as that sounds, may be one of the most important amenities for an office building."
For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Prime landlord's consent to sublease
he mortgagee should be concerned about, is getting mortgagee protections from the master landlord and sandwich leaseholder - the sublandlord.
from DIRT, September 25, 2006
"The Master Lease should typically control over any subsequent agreements.
The Landlord need not be interested in the terms of the mortgage, only the priority of his interests. If there is a default under the terms of the Master Lease, it is either cured or the Master Lease can be terminated. Who cures is not necessarily a concern. If there is a default under the Sublease, it is for the Lender and the Sublandlord to cure or see their interests terminated. The Landlord should not care who cures or how.
The Sublandlord is in the same situation as the Landlord vis-Ã -vis the Sublease and the Leasehold Mortgage. The Sublandlord does not care who cures the Subtenant's default (either the Subtenant or the Lender) so long as it is cured.
The Leasehold Mortgage covers whatever leasehold has been granted and should not control the term of any superior interests.
Now this scenario changes as the financial interests in the property change. If the Lender's loan is for significant improvements upon the property that have some benefit to the superior interests of the Landlord and/or Sublandlord, then some negotiation of terms and priorities may be appropriate where the viability of the Subtenant is of concern.
In addition, the sub-sub-lessee should be concerned about entering into an attornment and non-disturbance agreement (SNDA) with the sublessor and the master lessor covering the default of the sandwich leaseholder.
If the master lease or the sandwich lease terminate the sub-sub-lessee's position also evaporates since it is not in privity with the master lessor. But if the master lessor and sublessor agree not to disturb the sub-sub-lessee's tenancy and allow it to attorn, the problem is cured.
For more information see : www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
from DIRT, September 25, 2006
"The Master Lease should typically control over any subsequent agreements.
The Landlord need not be interested in the terms of the mortgage, only the priority of his interests. If there is a default under the terms of the Master Lease, it is either cured or the Master Lease can be terminated. Who cures is not necessarily a concern. If there is a default under the Sublease, it is for the Lender and the Sublandlord to cure or see their interests terminated. The Landlord should not care who cures or how.
The Sublandlord is in the same situation as the Landlord vis-Ã -vis the Sublease and the Leasehold Mortgage. The Sublandlord does not care who cures the Subtenant's default (either the Subtenant or the Lender) so long as it is cured.
The Leasehold Mortgage covers whatever leasehold has been granted and should not control the term of any superior interests.
Now this scenario changes as the financial interests in the property change. If the Lender's loan is for significant improvements upon the property that have some benefit to the superior interests of the Landlord and/or Sublandlord, then some negotiation of terms and priorities may be appropriate where the viability of the Subtenant is of concern.
In addition, the sub-sub-lessee should be concerned about entering into an attornment and non-disturbance agreement (SNDA) with the sublessor and the master lessor covering the default of the sandwich leaseholder.
If the master lease or the sandwich lease terminate the sub-sub-lessee's position also evaporates since it is not in privity with the master lessor. But if the master lessor and sublessor agree not to disturb the sub-sub-lessee's tenancy and allow it to attorn, the problem is cured.
For more information see : www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
Wednesday, October 17, 2007
Automatic Renewal
Where tenant implicitly rejects automatic renewal, as lease permits, but then holds over and pays rent, the automatic renewal takes effect.
from DIRT. September 27, 2006
"The lease provided that it would renew automatically for an additional five years, provided that landlord was obligated to give a thirty day notice to the tenant of the pendency of the renewal and that tenant thereafter had the right to refuse to renew, all more than six months prior to the end of the term.
The landlord sent timely notice. The tenant responded with a notice that stated that
it would be my intent to renew the lease
but asking for a rent reduction because tenant improvements were complete. After the time for rejection of the automatic renewal had passed, the landlord responded with a letter stating that there had been an automatic renewal and stated the rent at an increased amount, apparently according to the cost of living adjustment.
The tenant paid the rent and remained in occupancy for over three years.
Then, when it terminated occupancy, it took the position that there had been no automatic five year renewal because it had implicitly rejected such renewal when it proposed to renew only at a reduced rent.
The trial court granted summary judgment to tenant, but the appeals court reversed, finding that the lease was in effect for the full five year renewal term.
For purposes of reviewing the summary judgment motion, the court assumed that ambiguous notice sent by the tenant gave the tenant no more than an option to renew, and did not bind her to an automatic renewal. And tenant's letter certainly did not constitute the need for a definite and unqualified determination to exercise the option.
The court ruled that when there is a requirement for notice of exercise of an option to renew, and the tenant holds over, the landlord may waive the requirement for notice and deem the lease renewed.
Comments on DIRT:
Note that this case depends on the existence of the renewal clause in the lease. Otherwise, if a tenant holds over, the landlord can send notice proposing a new lease, and hold the tenant to that lease if tenant continues to hold over, but such new lease cannot exceed the period defined by the Statute of Frauds, since the new lease is implied, and not written.
Here, the tenant had signed a lease with a renewal clause. Arguably, it was an automatic renewal, but the court assumed that the tenant had validly rejected the automatic renewal, and that this flipped the renewal clause into an optional renewal
for five years, which the tenant accepted by holding over.
The court admits, however, that if the tenant had unequivocally indicated that her holding over was not an acceptance of the proferred renewal, there would have been no such renewal.
Friedman on Leases, Randolph Edition, at Section 14.2, text accompanying note 172 et seq, states that a tenant's notice claiming to invoke the automatic renewal in a lease, but proposing alternative terms, constitutes a rejection of an offer. But there is authority that the offer remains effective and can be accepted by later action of the tenant, absent estoppel (such as the landlord reletting in reliance upon an apparent rejection). That is apparently the approach taken by the court here. This strikes the editor as a common sense resolution of a tricky technical problem.
Nevertheless, it should be noted that notion that a holdover automatically can bind the tenant to an extended renewal term exposes the tenant to a gotcha." for more information see ; www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
from DIRT. September 27, 2006
"The lease provided that it would renew automatically for an additional five years, provided that landlord was obligated to give a thirty day notice to the tenant of the pendency of the renewal and that tenant thereafter had the right to refuse to renew, all more than six months prior to the end of the term.
The landlord sent timely notice. The tenant responded with a notice that stated that
it would be my intent to renew the lease
but asking for a rent reduction because tenant improvements were complete. After the time for rejection of the automatic renewal had passed, the landlord responded with a letter stating that there had been an automatic renewal and stated the rent at an increased amount, apparently according to the cost of living adjustment.
The tenant paid the rent and remained in occupancy for over three years.
Then, when it terminated occupancy, it took the position that there had been no automatic five year renewal because it had implicitly rejected such renewal when it proposed to renew only at a reduced rent.
The trial court granted summary judgment to tenant, but the appeals court reversed, finding that the lease was in effect for the full five year renewal term.
For purposes of reviewing the summary judgment motion, the court assumed that ambiguous notice sent by the tenant gave the tenant no more than an option to renew, and did not bind her to an automatic renewal. And tenant's letter certainly did not constitute the need for a definite and unqualified determination to exercise the option.
The court ruled that when there is a requirement for notice of exercise of an option to renew, and the tenant holds over, the landlord may waive the requirement for notice and deem the lease renewed.
Comments on DIRT:
Note that this case depends on the existence of the renewal clause in the lease. Otherwise, if a tenant holds over, the landlord can send notice proposing a new lease, and hold the tenant to that lease if tenant continues to hold over, but such new lease cannot exceed the period defined by the Statute of Frauds, since the new lease is implied, and not written.
Here, the tenant had signed a lease with a renewal clause. Arguably, it was an automatic renewal, but the court assumed that the tenant had validly rejected the automatic renewal, and that this flipped the renewal clause into an optional renewal
for five years, which the tenant accepted by holding over.
The court admits, however, that if the tenant had unequivocally indicated that her holding over was not an acceptance of the proferred renewal, there would have been no such renewal.
Friedman on Leases, Randolph Edition, at Section 14.2, text accompanying note 172 et seq, states that a tenant's notice claiming to invoke the automatic renewal in a lease, but proposing alternative terms, constitutes a rejection of an offer. But there is authority that the offer remains effective and can be accepted by later action of the tenant, absent estoppel (such as the landlord reletting in reliance upon an apparent rejection). That is apparently the approach taken by the court here. This strikes the editor as a common sense resolution of a tricky technical problem.
Nevertheless, it should be noted that notion that a holdover automatically can bind the tenant to an extended renewal term exposes the tenant to a gotcha." for more information see ; www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Tuesday, October 16, 2007
New Trends
The Realcomm/BOMA Technology Survey was broken down into two main categories.
from Realcomm Advisory, September 20, 2006
"Solutions for your Company/Business
When asked which technologies respondents found indispensable and which they found counter-productive, the responses were quite contradictory.
Many said that e-mail was indispensable, while others reported that the volume of e-mail was out of control and that it decreases productivity.
Many rated their Blackberry as critical to their business while others reported them as distracting and providing information overload. These responses are indicative of the conflicting feelings commercial real estate professional have towards technologies that have the ability to make our lives both more efficient and more complicated.
Some of the results were not surprising. Wireless is hot! Cell phones continue to be an essential business tool, with 67% of respondents saying they expect cell phone use to increase over the next two years, and 36% listing cell phones as an indispensable technology. Although from what we have seen in the industry, most commercial office buildings are not yet equipped to support wireless communications indoors.
Landline phone use is decreasing, with only 7% expecting to use them more and 24% expecting to use them less. These results clearly support the global trend of increased dependency on mobile, wireless technologies and less on fixed hardwire communications.
What are the biggest challenges faced in saving time and working efficiently?
(1) Time management
(2) Document management
(3) Internal administrative processes
Various software and technology solutions respondents would use more if they knew more about them:
39% Document Management
34% Space Management
29% Lease Automation
In terms of business solutions for commercial real estate, the most used software and technology applications include:
87% Accounts Receivable/Payable
70% Work Order Processing
61% Property Management Software
55% Lease Administration
These results show that real estate companies are integrating technology in the areas that traditionally have broad applications among many different industries, such as accounting and work order processing -- and that they are also beginning to adopt newer solutions specifically designed for commercial real estate applications, such as property management and leasing software.
In terms of general business solutions, Intranet sites (75%) and contact management software (44%) were listed as primary solutions by respondents, while instant messenger services (20%), video conferencing
(17%) and Internet chat rooms (2%) were listed as business solutions with little or no usage.
Solutions for your Building
Not surprisingly, 86% reported having Internet connectivity of T1 or higher, clearly supporting the increased dependency on high-speed broadband over the last 5-10 years. Perhaps the most astonishing statistic in the entire survey, however, was that 52% of respondents said their building does not have a web site. Most businesses today cannot operate - that is, market, sell, manage, or maintain clients - without a robust web site. Perhaps this indicates that there is a very real need for more education on web-based marketing and business solutions for commercial properties. In other building technology, only 16% said they have interactive touch-screen directories, and a mere 4% have digital signage.
The implementation of technologies for buildings seemed to lag behind internal technologies for business - however, 41% of respondents listed don't know what solutions are available, and 26% listed don't understand the solutions that are available as key challenges in implementing new technologies for their buildings.
But it seems that the number one hurdle in implementing new technologies has little to do with tech know-how, knowledge of available products, or time constraints. 72% of respondents listed funding constraints as the biggest challenge in implementing new technologies. While technology is supposed to help decrease operating expenses and increase productivity, sometimes that initial investment is still getting bumped off the budget. Well-defined ROI models and successful case studies of technology improvements within the commercial real estate industry are needed to overcome the apparent financial obstacles.
One interesting revelation regarding budgeting and purchasing was that the Chief Information Officer or Chief Technology Officer was the second highest response in terms of who is responsible for making decisions on purchasing new technologies, at 20%. Building owners still ranked at the top at 24%, with Property Managers ranking third at 19%. But this clearly supports the growing trend of the decision-making triangle between the owner, property manager, and now the IT department in using technology to help operate and manage our buildings." for more informaion see ; www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
or www.houstonrealtyadvisor.com
from Realcomm Advisory, September 20, 2006
"Solutions for your Company/Business
When asked which technologies respondents found indispensable and which they found counter-productive, the responses were quite contradictory.
Many said that e-mail was indispensable, while others reported that the volume of e-mail was out of control and that it decreases productivity.
Many rated their Blackberry as critical to their business while others reported them as distracting and providing information overload. These responses are indicative of the conflicting feelings commercial real estate professional have towards technologies that have the ability to make our lives both more efficient and more complicated.
Some of the results were not surprising. Wireless is hot! Cell phones continue to be an essential business tool, with 67% of respondents saying they expect cell phone use to increase over the next two years, and 36% listing cell phones as an indispensable technology. Although from what we have seen in the industry, most commercial office buildings are not yet equipped to support wireless communications indoors.
Landline phone use is decreasing, with only 7% expecting to use them more and 24% expecting to use them less. These results clearly support the global trend of increased dependency on mobile, wireless technologies and less on fixed hardwire communications.
What are the biggest challenges faced in saving time and working efficiently?
(1) Time management
(2) Document management
(3) Internal administrative processes
Various software and technology solutions respondents would use more if they knew more about them:
39% Document Management
34% Space Management
29% Lease Automation
In terms of business solutions for commercial real estate, the most used software and technology applications include:
87% Accounts Receivable/Payable
70% Work Order Processing
61% Property Management Software
55% Lease Administration
These results show that real estate companies are integrating technology in the areas that traditionally have broad applications among many different industries, such as accounting and work order processing -- and that they are also beginning to adopt newer solutions specifically designed for commercial real estate applications, such as property management and leasing software.
In terms of general business solutions, Intranet sites (75%) and contact management software (44%) were listed as primary solutions by respondents, while instant messenger services (20%), video conferencing
(17%) and Internet chat rooms (2%) were listed as business solutions with little or no usage.
Solutions for your Building
Not surprisingly, 86% reported having Internet connectivity of T1 or higher, clearly supporting the increased dependency on high-speed broadband over the last 5-10 years. Perhaps the most astonishing statistic in the entire survey, however, was that 52% of respondents said their building does not have a web site. Most businesses today cannot operate - that is, market, sell, manage, or maintain clients - without a robust web site. Perhaps this indicates that there is a very real need for more education on web-based marketing and business solutions for commercial properties. In other building technology, only 16% said they have interactive touch-screen directories, and a mere 4% have digital signage.
The implementation of technologies for buildings seemed to lag behind internal technologies for business - however, 41% of respondents listed don't know what solutions are available, and 26% listed don't understand the solutions that are available as key challenges in implementing new technologies for their buildings.
But it seems that the number one hurdle in implementing new technologies has little to do with tech know-how, knowledge of available products, or time constraints. 72% of respondents listed funding constraints as the biggest challenge in implementing new technologies. While technology is supposed to help decrease operating expenses and increase productivity, sometimes that initial investment is still getting bumped off the budget. Well-defined ROI models and successful case studies of technology improvements within the commercial real estate industry are needed to overcome the apparent financial obstacles.
One interesting revelation regarding budgeting and purchasing was that the Chief Information Officer or Chief Technology Officer was the second highest response in terms of who is responsible for making decisions on purchasing new technologies, at 20%. Building owners still ranked at the top at 24%, with Property Managers ranking third at 19%. But this clearly supports the growing trend of the decision-making triangle between the owner, property manager, and now the IT department in using technology to help operate and manage our buildings." for more informaion see ; www.houstonrealtyadvisors.com
or www.houstonrealtyadvisors.net
or www.houstonrealtyadvisor.com
Monday, October 15, 2007
Real Estate Domain Names For Sale?
- The online realm for buying, selling and leasing commercial space holds tremendous potential, says John Suryan, president of Seattle-based property listing service OfficeSpace.com.
“Most current commercial Web sites list content for the benefit of the real estate community, the supply side of the business. Very little is geared toward tenants, the demand side of the business — unlike residential, where it is reversed,” Suryan says. “Commercial has always lagged residential when it comes to using the Internet to market properties for sale and particularly for lease.”
About three-fourths of all residential property sales last year were initiated by an Internet search. Steve Condrey, vice president of sales and marketing at office leasing and sales site BuildingSearch.com, believes commercial real estate will follow suit. BuildingSearch.com has been building its database for about a year. The domain name was registered 10 years ago. But the commercial sector is slowly firming up its position on the Web as competition increases for domain names oriented toward that business. OfficeSpace.com is among the pioneers in e-commerce for the commercial real estate business. Launched in 1996, OfficeSpace.com is a free-of-charge listing service for more than 1 billion sq. ft. of property in seven U.S. markets and São Paulo, Brazil.
OfficeSpace.com makes money primarily by highlighting certain listings, offering memberships to real estate agents and selling market intelligence like pending corporate relocations. The site receives about 1.5 million hits a month and is set to grow next year to accommodate listings from anywhere in the U.S.
BuildingSearch.com, a competitor of OfficeSpace.com, currently features about 30,000 listings in California and will raise venture capital in the next four months to fuel a nationwide expansion, Condrey says. Advisers and investors include three former or current executives from Colliers International Inc. The Morgan Hill, Calif.-based outfit charges $25 a month to search its site, and $45 a month to highlight certain property listings as well as to rallow searches. For now, two publicly traded companies — CoStar Group Inc. (NYSE: GSCP) and LoopNet Inc. (NYSE: LOOP) — are the behemoths of Web-based commercial property listings. And more newcomers in the vein of BuildingSearch.com appear to be on the Web horizon.
Nonetheless, CoStar is unfazed. Andrew Florance, president and CEO of CoStar, recently told financial analysts that no emerging competitors have shown up on the company’s radar screen.
For its part, LoopNet keeps chugging along, consistently registering year-over-year growth of about 30%. To bolster its growth, LoopNet in August bought New York-based online commercial real estate listing service CityFeet.com for $18 million. LoopNet says it may snap up other small players like venture capital-backed CityFeet.com.
New York-based SmallBizRealty Inc. is fueling the growth of some of the small players. The company recently marketed for sale more than 160 generic domain names aimed at commercial real estate brokers, developers, owners, REITs and related businesses. Jeffrey A. Landers, founder and president, says his company has been buying the names since 1998 to ward off potential rivals. SmallBizRealty operates Offices2share.com, an online marketplace for office space.
As of early October, three names in SmallBizRealty’s domain portfolio had been sold: Subleases.com, OfficeSpaceForLease.com and RentAnOffice.com. Still up for grabs are names like FindAnOffice.com, MedicalOfficeSpace.com and OfficeSpaceListings.com.
“Purchasing these domain names is similar to making a real estate deal,” Lander says. “There is an initial investment, but if the domain names bring in new clients, there will be a significant return on that investment.”
Andrew Allemann, editor of the Domain Name Wire news site, says a desirable domain name typically costs a few hundred to a few thousand dollars. Larger sums are being paid for generic names with .com extensions, as Web users are more apt to type in .com than .net, .biz or other, less customary extensions.
Recently, realestateinvestor.com fetched $500, while real-estateinvestor.com went for nearly $500 and realestateinvestmentsolutions.com sold for $100, reports domain name broker Sedo.com LLC. Six- and seven-figure domain name deals are rare for any industry on the Web.
“If you had the exact term that defines a whole category — like OfficeLeasing.com — that could easily be a six-figure sale,” says Ron Jackson, editor of trade magazine Domain Name Journal. “If you had one of the thousands of variations on the office leasing theme, it would be worth much less.”
Landers says he sees a “land grab” taking place for generic commercial real estate domain names like the ones in his portfolio — those not tied to a particular company or brand.
“I’m looking at these names as real estate themselves,” Landers says. “I consider these names unique and hard to replicate. These names are valuable.” - For more information contact www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com
Friday, October 5, 2007
New Business Rent or Own?
Two of the most common problems commercial real estate professionals experience when dealing with small businesses are:
(1) An unrealistic time frames, and
(2) Lack of capital.
from Commercial Investment Real Estate, March-April 2006
"In 2004, 99.9% of approximately 24.7 million U.S. businesses had fewer than 500 employees, qualifying as small businesses, according to estimates from the Small Business Administration's Office of Advocacy.
This growing sector presents numerous new business opportunities.
Small-business owners only face decisions about space needs once every 3 to 10 years. This lack of experience and market knowledge means that small-business owners need as much guidance as possible from commercial real estate professionals when making their property decisions.
Making Decisions
One of the most important decisions the small-business owner will make:
whether to rent or own property. While full-scale lease-or-buy analyses are complicated and detailed, there are some preliminary steps commercial real estate professionals can take with clients. The decision to lease or own cannot be made until the business stage of development is determined. Strategy is driven mostly by whether the tenant is in a growth phase, characterized by expansion options and/or a relatively short-term lease, or a mature phase, characterized by a long-term lease and possible candidacy for owning. Buying too big of a building or leasing too much space for too long of a term has been the death of many small businesses.
While condominiums are a good option for some small companies, others might find that building their own property seems like the best choice.
Some small businesses] tend to want to leave a legacy. They want to construct a facility that will perhaps turn into an investment for a son, daughter, or grandchild. Sometimes it's not much of a choice, if a tenant cannot get financing to buy its own property.
Negotiating Leases
While buying or building potentially can provide future security for a small business, leasing has advantages as well. Renting rather than owning a property allows small businesses more flexibility as they grow.
Small-business owners are entrepreneurs who always have visions of growth. The challenge is finding space, negotiating a lease, and finding a building that has expansion capabilities and that can accommodate their vision.
When the right rental space has been located, more choices need to be made regarding the lease type and terms. More often than in the case of larger companies, small-business owners want endless expansion, renewal, and relocation rights. Many start-up companies are fairly conservative with leasing space. This is due to a certain degree of financial uncertainty and growth plans. This means it is important to negotiate for expansion options and contraction clauses in the leases."
Another option, which can be espe-cially beneficial for start-up businesses, are step-up leases. The tenant pays a lower amount of rent in the first portion of the lease with the rent increasing over the latter portion of the lease. This helps keep the initial costs low, helping with potential cash flow issues.
It is important to consider small businesses' long-term goals as well.
Sometimes rental rates rise above what tenants can afford to pay and companies that once had been thriving are forced to close down." for more information see www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com
(1) An unrealistic time frames, and
(2) Lack of capital.
from Commercial Investment Real Estate, March-April 2006
"In 2004, 99.9% of approximately 24.7 million U.S. businesses had fewer than 500 employees, qualifying as small businesses, according to estimates from the Small Business Administration's Office of Advocacy.
This growing sector presents numerous new business opportunities.
Small-business owners only face decisions about space needs once every 3 to 10 years. This lack of experience and market knowledge means that small-business owners need as much guidance as possible from commercial real estate professionals when making their property decisions.
Making Decisions
One of the most important decisions the small-business owner will make:
whether to rent or own property. While full-scale lease-or-buy analyses are complicated and detailed, there are some preliminary steps commercial real estate professionals can take with clients. The decision to lease or own cannot be made until the business stage of development is determined. Strategy is driven mostly by whether the tenant is in a growth phase, characterized by expansion options and/or a relatively short-term lease, or a mature phase, characterized by a long-term lease and possible candidacy for owning. Buying too big of a building or leasing too much space for too long of a term has been the death of many small businesses.
While condominiums are a good option for some small companies, others might find that building their own property seems like the best choice.
Some small businesses] tend to want to leave a legacy. They want to construct a facility that will perhaps turn into an investment for a son, daughter, or grandchild. Sometimes it's not much of a choice, if a tenant cannot get financing to buy its own property.
Negotiating Leases
While buying or building potentially can provide future security for a small business, leasing has advantages as well. Renting rather than owning a property allows small businesses more flexibility as they grow.
Small-business owners are entrepreneurs who always have visions of growth. The challenge is finding space, negotiating a lease, and finding a building that has expansion capabilities and that can accommodate their vision.
When the right rental space has been located, more choices need to be made regarding the lease type and terms. More often than in the case of larger companies, small-business owners want endless expansion, renewal, and relocation rights. Many start-up companies are fairly conservative with leasing space. This is due to a certain degree of financial uncertainty and growth plans. This means it is important to negotiate for expansion options and contraction clauses in the leases."
Another option, which can be espe-cially beneficial for start-up businesses, are step-up leases. The tenant pays a lower amount of rent in the first portion of the lease with the rent increasing over the latter portion of the lease. This helps keep the initial costs low, helping with potential cash flow issues.
It is important to consider small businesses' long-term goals as well.
Sometimes rental rates rise above what tenants can afford to pay and companies that once had been thriving are forced to close down." for more information see www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com
Ground Leases
Owners and developers unearth opportunities through creative land leases.
from Commercial Investment Real Estate, May-June 2006
"Commercial real estate developers and investors often favor total fee ownership of income property. The propensity to own - and the emotions attached to it - sometimes can result in misguided decisions and strategies and lost opportunities. Relinquishing ownership of income property is really a question of when, not if.
Once developers move beyond the notion of ownership as an investment goal, new opportunities that may not have been visible before, such as ground leases, become apparent. In its most basic form, a ground lease, or land lease, separates the ownership of land from the ownership of the improvements on the land, such as an office building or a shopping center. The landowner leases the land to the developer of the improvements, who pays rent for use of the land. Typically ground leases are long term and include set rent escalations, foreclosure rights should the lessee default, and a reversionary right, which means improvements on the property revert to the landowner at the end of the lease term. While such lease terms do not particularly favor developers, ground leases offer some distinct advantages.
The two most prevalent types of ground leases are subordinated and unsubordinated. Each provides benefits that can enhance the developer's yield and turn dismal or modest returns into more attractive and risk-mitigated ventures. They also give developers the opportunity to involve multiple partners without a formal partnership agreement.
Ground leases transfer control - not ownership - of a property and for the landowners are considered one of the most secure forms of real estate investment. But landowners are still investors and may be open to developers who offer them a stake in the improvements erected on their land.
Lease Structures
In a subordinated ground lease, the landowner offers the land as collateral for the developer's mortgage, giving the landowner a significant stake in the development risk. The subordinated ground lessor is considered a secondary lender with junior rights set behind the primary lender, usually a bank or other financial institution.
Normally the ground lessor has a future claim on the improvements, as most ground leases require improvements to the land to revert to landowners at the end of the lease. As such, ground lessors consider the downstream value of the improvements in establishing a rental rate. On the other hand, a ground lease that provides for the removal of any improvements at the end of the lease, such as relocatable metal buildings, modulars, portable plants, or parking lot appurtenances, would factor that eventuality into the rate as well.
The subordinated ground lease rental rate usually is a few percentage points above long-term permanent loan rates applied to the land value, which would correctly calibrate the risk-reward equation, including the risk of foreclosure, for the ground lessor.
The unsubordinated ground lease offers the landowner a more desirable role, comparable to that of the primary lender. This makes long-term permanent conventional financing more challenging for the developer, since the lender must assume the risk of lease termination and default.
However, due to the senior position of the unsubordinated ground lessor, the ground lease rate can be lower and therefore much more attractive for the developer. The permanent lender recognizes the ground lease payments as an annual expense that will be factored into its loan underwriting. In total, the cash required in the deal by the developer is reduced while his yield is increased.
In both cases, the developer's requirement for cash in the deal is reduced because of the value that the landowner brings to the deal. The reduction in cash usually required causes the investment yield to increase when the income stream is extended into the future. The value of the future cash stream will be determined by a threshold discount rate, resource availability, and underlying assumptions - the same general market and economic model assumptions that apply to fee-simple land ownership deals.
Other considerations include the length of the remaining lease term, reversion covenants, and extension and renewal rights and options.
Occasionally the ground lessor will participate in the cash flows by applying a lease rate as a percentage of the income that the rental property produces. This strategy can have the positive effect of averting a monetary default in the event of a dark project. It also has the positive effect of mitigating the risk that a first mortgage lender perceives if the lease is unsubordinated. For example, if prevailing long-term interest rates are 6%, a comparable subordinated ground rental rate might be 8%, whereas an unsubordinated lease might be priced at par or 6%.
Ground Lease Benefits
The potential to form a joint venture with a building developer can be attractive to the primary ground lessor. The yield values are enhanced by the security of the future improvements. Provisions against wasting the property, requirements to maintain the improvements, cure and notice rights, certain reasonable approval conditions, and the ubiquitous hazardous materials covenants are standard.
Clearly, an unsubordinated lease presents possibilities that offer an alternative investment vehicle that provides security to patient investors and can be traded, sold, or transferred in creative ways. For example, tax-deferred 1031 strategies are possible by trading into an income investment as a sandwich ground lessee-ground sublessor. The usual threshold is that the lease term be greater than 25 years. Since these instruments can take on the color of a security, real estate professionals who enter into these deals should carefully document all aspects of the transaction and seek advice from qualified securities professionals.
In addition, opportunities exist in some municipal ground lease situations wherein under certain conditions, property taxes are completely or virtually eliminated. Likewise other tax benefits accrue to these sanctuaries because of the reversionary character of building improvements and the incentive-rewarding jobs creation. These areas of investment can offer a spectacular advantage over neighboring competing properties in pricing and yield.
Lease term and length influence the acceptability of ground lease deals.
The current climate is cautionary because of the parochial need to own; however, institutional managers realize that it is all factored into the risk and yield and accept the challenge with appropriate lease drafting and terms that are favorable to the asset managers' objectives. The environment is changing as the pressure for yield performance and risk mitigation goes begging. The challenge is pioneering in an area where heretofore only the creative and adventurous have explored." For more information see: www.houstonrealtyadvisors.net or
www. houstonrealtyadvisor.com
from Commercial Investment Real Estate, May-June 2006
"Commercial real estate developers and investors often favor total fee ownership of income property. The propensity to own - and the emotions attached to it - sometimes can result in misguided decisions and strategies and lost opportunities. Relinquishing ownership of income property is really a question of when, not if.
Once developers move beyond the notion of ownership as an investment goal, new opportunities that may not have been visible before, such as ground leases, become apparent. In its most basic form, a ground lease, or land lease, separates the ownership of land from the ownership of the improvements on the land, such as an office building or a shopping center. The landowner leases the land to the developer of the improvements, who pays rent for use of the land. Typically ground leases are long term and include set rent escalations, foreclosure rights should the lessee default, and a reversionary right, which means improvements on the property revert to the landowner at the end of the lease term. While such lease terms do not particularly favor developers, ground leases offer some distinct advantages.
The two most prevalent types of ground leases are subordinated and unsubordinated. Each provides benefits that can enhance the developer's yield and turn dismal or modest returns into more attractive and risk-mitigated ventures. They also give developers the opportunity to involve multiple partners without a formal partnership agreement.
Ground leases transfer control - not ownership - of a property and for the landowners are considered one of the most secure forms of real estate investment. But landowners are still investors and may be open to developers who offer them a stake in the improvements erected on their land.
Lease Structures
In a subordinated ground lease, the landowner offers the land as collateral for the developer's mortgage, giving the landowner a significant stake in the development risk. The subordinated ground lessor is considered a secondary lender with junior rights set behind the primary lender, usually a bank or other financial institution.
Normally the ground lessor has a future claim on the improvements, as most ground leases require improvements to the land to revert to landowners at the end of the lease. As such, ground lessors consider the downstream value of the improvements in establishing a rental rate. On the other hand, a ground lease that provides for the removal of any improvements at the end of the lease, such as relocatable metal buildings, modulars, portable plants, or parking lot appurtenances, would factor that eventuality into the rate as well.
The subordinated ground lease rental rate usually is a few percentage points above long-term permanent loan rates applied to the land value, which would correctly calibrate the risk-reward equation, including the risk of foreclosure, for the ground lessor.
The unsubordinated ground lease offers the landowner a more desirable role, comparable to that of the primary lender. This makes long-term permanent conventional financing more challenging for the developer, since the lender must assume the risk of lease termination and default.
However, due to the senior position of the unsubordinated ground lessor, the ground lease rate can be lower and therefore much more attractive for the developer. The permanent lender recognizes the ground lease payments as an annual expense that will be factored into its loan underwriting. In total, the cash required in the deal by the developer is reduced while his yield is increased.
In both cases, the developer's requirement for cash in the deal is reduced because of the value that the landowner brings to the deal. The reduction in cash usually required causes the investment yield to increase when the income stream is extended into the future. The value of the future cash stream will be determined by a threshold discount rate, resource availability, and underlying assumptions - the same general market and economic model assumptions that apply to fee-simple land ownership deals.
Other considerations include the length of the remaining lease term, reversion covenants, and extension and renewal rights and options.
Occasionally the ground lessor will participate in the cash flows by applying a lease rate as a percentage of the income that the rental property produces. This strategy can have the positive effect of averting a monetary default in the event of a dark project. It also has the positive effect of mitigating the risk that a first mortgage lender perceives if the lease is unsubordinated. For example, if prevailing long-term interest rates are 6%, a comparable subordinated ground rental rate might be 8%, whereas an unsubordinated lease might be priced at par or 6%.
Ground Lease Benefits
The potential to form a joint venture with a building developer can be attractive to the primary ground lessor. The yield values are enhanced by the security of the future improvements. Provisions against wasting the property, requirements to maintain the improvements, cure and notice rights, certain reasonable approval conditions, and the ubiquitous hazardous materials covenants are standard.
Clearly, an unsubordinated lease presents possibilities that offer an alternative investment vehicle that provides security to patient investors and can be traded, sold, or transferred in creative ways. For example, tax-deferred 1031 strategies are possible by trading into an income investment as a sandwich ground lessee-ground sublessor. The usual threshold is that the lease term be greater than 25 years. Since these instruments can take on the color of a security, real estate professionals who enter into these deals should carefully document all aspects of the transaction and seek advice from qualified securities professionals.
In addition, opportunities exist in some municipal ground lease situations wherein under certain conditions, property taxes are completely or virtually eliminated. Likewise other tax benefits accrue to these sanctuaries because of the reversionary character of building improvements and the incentive-rewarding jobs creation. These areas of investment can offer a spectacular advantage over neighboring competing properties in pricing and yield.
Lease term and length influence the acceptability of ground lease deals.
The current climate is cautionary because of the parochial need to own; however, institutional managers realize that it is all factored into the risk and yield and accept the challenge with appropriate lease drafting and terms that are favorable to the asset managers' objectives. The environment is changing as the pressure for yield performance and risk mitigation goes begging. The challenge is pioneering in an area where heretofore only the creative and adventurous have explored." For more information see: www.houstonrealtyadvisors.net or
www. houstonrealtyadvisor.com
Thursday, October 4, 2007
Intelligent Buildings?
A rating system aims to provide an IQ score for facilities.
from Building Operating Management, September 2006
"Gains in technology have improved functionality and reduced costs for building intelligence.
It has been roughly a quarter of a century since the notion of the intelligent building first appeared on the facility-management horizon.
Back then, the term was used broadly:
An intelligent building was one with high-tech bells and whistles that elevated it above the ranks of the common building. Beneath the surface, however, intelligent building didn't mean anything specific, and often it didn't mean much at all.
More recently — within the past 15 years or so — the notion of building intelligence evolved as some once-futuristic technologies moved into the real world. The term intelligent building began to be applied more narrowly, referring, in general, to a building with automation features that offered better control over various building systems.
Now, building automation systems of all stripes are commonplace, and the notion of the intelligent building has undergone yet another transformation. Discussions about building intelligence extend well beyond building automation to issues such as security, communication, and environmental monitoring and control, and focus as much on how facilities use their technology as whether they possess it. The intelligent building of today not only boasts systems automation and control, but is also able to generate data and share it among systems to enhance the efficiency and effectiveness of the whole facility.
The intelligent building of today is taking those standalone systems and integrating them.
In an intelligent building as we defined it 15 years ago, you would never see sharing of data between a fire system and a security system.
You might have seen an HVAC building automation system, but it didn't give you the opportunity to turn the HVAC on and off in small sections of the building based on occupancy. Now all of these essential functions can communicate with one another and operate based on information received from a sensor in a room.
Advances in technology have, to a large extent, driven this evolution.
In the past, many buildings operated on closed or proprietary systems that could not communicate with one another. As a result, say experts, building systems are becoming more interoperable and are allowing more facilities to reach the next level of building intelligence. Tremendous amounts of data can be pulled and shared, and communications devices allow sharing between systems and even between buildings.
The reality of building intelligence today is very different from what it was in the past. Now we've got technology that is much better, at costs that have been reduced substantially. And we're looking at quantum leaps forward in the functionality of the systems and in opportunities for linking them together to improve the performance of a building as a whole.
Intelligence matters
Building-intelligence experts have a lot to say about the benefits an intelligent building offers — benefits that contribute to the bottom line.
The benefits are in terms of several different issues:
· Efficiency aspect,
· Cost aspect,
· Environmental aspect,
· Health aspect and
· Security aspect.
From an energy perspective, the efficiency benefits of building intelligence are familiar to many facility executives. To cite one common application, a building that knows when and where it is occupied can limit its own energy use by confining the operation of power-hungry HVAC and lighting systems to the hours and areas of the building they are needed. Sensors that provide occupancy data to HVAC and lighting systems are seeing increasing use for exactly this reason.
Cutting energy use is one environmental benefit of intelligent buildings. In addition, they can improve indoor air quality through continual ventilation adjustments and air-quality monitoring, or maximize day lighting by automating shading systems.
Intelligent security
Experts draw links between building intelligence and security.
A lot of the 9-11 type concerns have fueled discussion about intelligent buildings. Now you have surveillance cameras everywhere, but in intelligent buildings security activities are linked closely with other building functions in ways that enable you to have a much better understanding of whether there may be someone in your building who should not be.
In addition, intelligent buildings' security operation can be more cost-effective — one security guard may be able to keep an eye on security functions, see who is where in the building, lock and unlock doors, and monitor the fire system from a single location, eliminating the need for a group of security personnel making rounds.
In the most intelligent facilities, the moment an employee enters during off-hours, the access control system informs the building management system who has arrived. By accessing tenant data, the building management system can adjust temperature and lighting for the area of the building where that individual works. To further reduce energy consumption and enhance comfort, it can also increase outdoor airflow to that area, or open window shades that had been closed to minimize heat gain. Doors to the area where the employee works can be unlocked automatically while other doors remain locked and elevator security configurations can be changed to allow access to certain floors.
Security cameras can be cued if necessary. And when the employee leaves, the area can return to its secure, low-energy, off-hours state.
What's more, intelligent buildings are more attractive to prospective tenants, and that translates to higher retention rates, higher rental rates and higher occupant satisfaction.
Despite these and other purported benefits, experts say that many facility executives have not yet begun to take full advantage of the opportunities intelligent buildings present. In some cases, that is because existing systems in older buildings do not permit interoperability, and retrofits are not in the budget. When it comes to building intelligence, however, experts say a little bit can go a long way.
A building that has even two of its systems brought together — say access control and HVAC — could be considered intelligent. Does that make it rate a 100 on a scale of 100? No, but it may be very appropriate given that specific building's needs.
A facility's intelligence level can be increased by a series of baby steps — not necessarily a major one-time investment. The move to access control — a card system instead of keys — is one many people are comfortable with, so they can take that step first and then down the road they may take the next step to real energy management. A lot of people don't have confidence in this idea yet or an understanding of how it can help them.
Help is on the way
Facility executives interested in taking steps — be they large or small — toward intelligent building status will soon have access to an important resource. CABA is the Continental Automated Building Association, a not-for-profit industry organization that seeks to encourage the development and understanding off building automation.
CABA commissioned development of a Building Intelligence Quotient (BIQ) — an online rating tool that will enable facility executives at existing facilities, or engineers involved with new construction, to gauge a building's intelligence and identify ways to increase it.
The BIQ is a way to determine how well a specific facility is achieving the goals of an intelligent building. CABA launched the development of BIQ roughly two years ago.
Process of development
BIQ will provide facility executives with a numeric score for a facility based on an analysis of a series of data points related to the building's use, location, size and features. The questionnaire that guides the data-entry process is in the final stages of development; however, it will encompass a long list of issues, including:
* Demographics related to the facility's location, occupancy and use.
* Specifics about building systems, including training and maintenance practices and the extent to which systems are automated and integrated.
* The ease with which new tenants can move in and set up.
* Data-sharing characteristics.
* Information about communications systems like the Internet and intranets.
* Capabilities for tracking and adjusting the indoor environment, including IAQ.
* Capabilities for using technology in emergency procedures.
* Specifics of the elevators and other components.
* Emergency power resources.
Using all this information, the BIQ generates an online report that not only assigns the rating, but also provides recommendations about ways to improve the score.
It is certainly not a replacement for an engineering study, but it is a way to make you aware of issues you may want to address and help you get started addressing them.
The process of evaluating a facility using the BIQ is fairly simple and does not require extensive homework in advance; a sound knowledge of a facility's components and characteristics is all it demands." for more information see www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com
from Building Operating Management, September 2006
"Gains in technology have improved functionality and reduced costs for building intelligence.
It has been roughly a quarter of a century since the notion of the intelligent building first appeared on the facility-management horizon.
Back then, the term was used broadly:
An intelligent building was one with high-tech bells and whistles that elevated it above the ranks of the common building. Beneath the surface, however, intelligent building didn't mean anything specific, and often it didn't mean much at all.
More recently — within the past 15 years or so — the notion of building intelligence evolved as some once-futuristic technologies moved into the real world. The term intelligent building began to be applied more narrowly, referring, in general, to a building with automation features that offered better control over various building systems.
Now, building automation systems of all stripes are commonplace, and the notion of the intelligent building has undergone yet another transformation. Discussions about building intelligence extend well beyond building automation to issues such as security, communication, and environmental monitoring and control, and focus as much on how facilities use their technology as whether they possess it. The intelligent building of today not only boasts systems automation and control, but is also able to generate data and share it among systems to enhance the efficiency and effectiveness of the whole facility.
The intelligent building of today is taking those standalone systems and integrating them.
In an intelligent building as we defined it 15 years ago, you would never see sharing of data between a fire system and a security system.
You might have seen an HVAC building automation system, but it didn't give you the opportunity to turn the HVAC on and off in small sections of the building based on occupancy. Now all of these essential functions can communicate with one another and operate based on information received from a sensor in a room.
Advances in technology have, to a large extent, driven this evolution.
In the past, many buildings operated on closed or proprietary systems that could not communicate with one another. As a result, say experts, building systems are becoming more interoperable and are allowing more facilities to reach the next level of building intelligence. Tremendous amounts of data can be pulled and shared, and communications devices allow sharing between systems and even between buildings.
The reality of building intelligence today is very different from what it was in the past. Now we've got technology that is much better, at costs that have been reduced substantially. And we're looking at quantum leaps forward in the functionality of the systems and in opportunities for linking them together to improve the performance of a building as a whole.
Intelligence matters
Building-intelligence experts have a lot to say about the benefits an intelligent building offers — benefits that contribute to the bottom line.
The benefits are in terms of several different issues:
· Efficiency aspect,
· Cost aspect,
· Environmental aspect,
· Health aspect and
· Security aspect.
From an energy perspective, the efficiency benefits of building intelligence are familiar to many facility executives. To cite one common application, a building that knows when and where it is occupied can limit its own energy use by confining the operation of power-hungry HVAC and lighting systems to the hours and areas of the building they are needed. Sensors that provide occupancy data to HVAC and lighting systems are seeing increasing use for exactly this reason.
Cutting energy use is one environmental benefit of intelligent buildings. In addition, they can improve indoor air quality through continual ventilation adjustments and air-quality monitoring, or maximize day lighting by automating shading systems.
Intelligent security
Experts draw links between building intelligence and security.
A lot of the 9-11 type concerns have fueled discussion about intelligent buildings. Now you have surveillance cameras everywhere, but in intelligent buildings security activities are linked closely with other building functions in ways that enable you to have a much better understanding of whether there may be someone in your building who should not be.
In addition, intelligent buildings' security operation can be more cost-effective — one security guard may be able to keep an eye on security functions, see who is where in the building, lock and unlock doors, and monitor the fire system from a single location, eliminating the need for a group of security personnel making rounds.
In the most intelligent facilities, the moment an employee enters during off-hours, the access control system informs the building management system who has arrived. By accessing tenant data, the building management system can adjust temperature and lighting for the area of the building where that individual works. To further reduce energy consumption and enhance comfort, it can also increase outdoor airflow to that area, or open window shades that had been closed to minimize heat gain. Doors to the area where the employee works can be unlocked automatically while other doors remain locked and elevator security configurations can be changed to allow access to certain floors.
Security cameras can be cued if necessary. And when the employee leaves, the area can return to its secure, low-energy, off-hours state.
What's more, intelligent buildings are more attractive to prospective tenants, and that translates to higher retention rates, higher rental rates and higher occupant satisfaction.
Despite these and other purported benefits, experts say that many facility executives have not yet begun to take full advantage of the opportunities intelligent buildings present. In some cases, that is because existing systems in older buildings do not permit interoperability, and retrofits are not in the budget. When it comes to building intelligence, however, experts say a little bit can go a long way.
A building that has even two of its systems brought together — say access control and HVAC — could be considered intelligent. Does that make it rate a 100 on a scale of 100? No, but it may be very appropriate given that specific building's needs.
A facility's intelligence level can be increased by a series of baby steps — not necessarily a major one-time investment. The move to access control — a card system instead of keys — is one many people are comfortable with, so they can take that step first and then down the road they may take the next step to real energy management. A lot of people don't have confidence in this idea yet or an understanding of how it can help them.
Help is on the way
Facility executives interested in taking steps — be they large or small — toward intelligent building status will soon have access to an important resource. CABA is the Continental Automated Building Association, a not-for-profit industry organization that seeks to encourage the development and understanding off building automation.
CABA commissioned development of a Building Intelligence Quotient (BIQ) — an online rating tool that will enable facility executives at existing facilities, or engineers involved with new construction, to gauge a building's intelligence and identify ways to increase it.
The BIQ is a way to determine how well a specific facility is achieving the goals of an intelligent building. CABA launched the development of BIQ roughly two years ago.
Process of development
BIQ will provide facility executives with a numeric score for a facility based on an analysis of a series of data points related to the building's use, location, size and features. The questionnaire that guides the data-entry process is in the final stages of development; however, it will encompass a long list of issues, including:
* Demographics related to the facility's location, occupancy and use.
* Specifics about building systems, including training and maintenance practices and the extent to which systems are automated and integrated.
* The ease with which new tenants can move in and set up.
* Data-sharing characteristics.
* Information about communications systems like the Internet and intranets.
* Capabilities for tracking and adjusting the indoor environment, including IAQ.
* Capabilities for using technology in emergency procedures.
* Specifics of the elevators and other components.
* Emergency power resources.
Using all this information, the BIQ generates an online report that not only assigns the rating, but also provides recommendations about ways to improve the score.
It is certainly not a replacement for an engineering study, but it is a way to make you aware of issues you may want to address and help you get started addressing them.
The process of evaluating a facility using the BIQ is fairly simple and does not require extensive homework in advance; a sound knowledge of a facility's components and characteristics is all it demands." for more information see www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com
Floteck Industries takes space
Flotek Industries Relocates HQ to 2930 W. Sam Houston
Tenant Takes 15,000 SF at Recently Built Class A Office Building
The Flotek Industries Inc. headquarters will relocate from 7030 Empire Central Drive to 2930 W. Sam Houston Parkway. Flotek leased 15,000 square feet of office space at the 2930 Beltway 8 Center, with plans to move in on December 15, 2007, with a signed five-year lease term. Recently built in 2006, the three-story Class A building totals 45,000 square feet in Houston. Flotek will occupy the entire third floor in which the building is now 100% leased. Flotek is a leading pioneer in marketing of innovative and specialty chemicals, down hole drilling and production equipment, and management of automated bulk material handling, loading and blending facilities. Flotek serves major and independent companies domestically and internationally in the oilfield service industry. Reggie Beavan of Jackson & Cooksey represented the tenant. John Green of MetroNational represented the landlord in-house. For more information see: www.houstonrewaltyadvisors.net or www.houstonrealtyadvisor.com
Tenant Takes 15,000 SF at Recently Built Class A Office Building
The Flotek Industries Inc. headquarters will relocate from 7030 Empire Central Drive to 2930 W. Sam Houston Parkway. Flotek leased 15,000 square feet of office space at the 2930 Beltway 8 Center, with plans to move in on December 15, 2007, with a signed five-year lease term. Recently built in 2006, the three-story Class A building totals 45,000 square feet in Houston. Flotek will occupy the entire third floor in which the building is now 100% leased. Flotek is a leading pioneer in marketing of innovative and specialty chemicals, down hole drilling and production equipment, and management of automated bulk material handling, loading and blending facilities. Flotek serves major and independent companies domestically and internationally in the oilfield service industry. Reggie Beavan of Jackson & Cooksey represented the tenant. John Green of MetroNational represented the landlord in-house. For more information see: www.houstonrewaltyadvisors.net or www.houstonrealtyadvisor.com
Monday, October 1, 2007
Big Sale in Houston's Energy Corridor
Younan Takes Two Westlake Park
Firm Adds Another 377,077-SF Office Property to Houston Portfolio
Younan Properties Inc. completed its acquisition of Two Westlake Park office building at 580 Westlake Park Blvd. in Houston, which brings its Houston's office portfolio to approximately 1.7 million square feet of space. The firm is on track to become a dominant office landlord in Houston. Built in 1982, the 17-story office building totals 377,077 square feet on 5.37 acres and is 11 miles northwest of the Galleria and 16 miles west of downtown Houston. Although the current sales price is undisclosed, the Class A property sold for $43 million back in 2000. Ken Page of Cushman & Wakefield of Houston represented the seller, CMD Realty Investors. Younan Properties represented itself. For more information see www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com
Firm Adds Another 377,077-SF Office Property to Houston Portfolio
Younan Properties Inc. completed its acquisition of Two Westlake Park office building at 580 Westlake Park Blvd. in Houston, which brings its Houston's office portfolio to approximately 1.7 million square feet of space. The firm is on track to become a dominant office landlord in Houston. Built in 1982, the 17-story office building totals 377,077 square feet on 5.37 acres and is 11 miles northwest of the Galleria and 16 miles west of downtown Houston. Although the current sales price is undisclosed, the Class A property sold for $43 million back in 2000. Ken Page of Cushman & Wakefield of Houston represented the seller, CMD Realty Investors. Younan Properties represented itself. For more information see www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com
Wednesday, September 12, 2007
Get renewal upfront in first lease
"A tenant is negotiating with a landlord to lease office space. The term of the potential lease is 5 years, but the tenant also wants the right to extend the lease for an additional 5 years. This situation is increasingly common in today's market. Office tenants often bargain for the right to extend the terms of their leases, since without renewal clauses, they may have to relocate at the end of their lease, incurring significant executive down-time, out-of-pocket expenses, and business interruption. In addition, without an express renewal right, the landlord could require the tenant to pay above market rent during the renewal term. To prevent this, tenants should attempt to negotiate renewal options at the fair-market rent for the space.
Formulating the Renewal
Renewal clauses focus on the actual formula used to calculate a fair-market renewal rental rate and the method used to determine the rate. Between these issues, the process used to determine the rate is at least as important as the formula itself. As fair-market rents almost never are based on a set rental rate or a set inflation index, such as the Consumer Price Index, a process for determining the fair-market rate must be agreed upon and set forth in the lease. Throughout the arbitration process several significant issues must be addressed.
Exercise Date.
The deadline by which a tenant must exercise a renewal option is dependent upon several factors. First, the landlord should be informed well in advance if the tenant intends to exercise a renewal option. This allows the landlord time to find a third party to lease the space to if the tenant fails to exercise its option. The timeline depends upon the size, type, and location of the space.
The general rule of thumb is the larger the space, the more notice landlords require. For example, typical standards dictate spaces between 5,000 square feet and 20,000 sf require nine months to 12 months prior notice; spaces between 20,000 sf and 60,000 sf require 12 months to 15 months prior notice; and spaces greater than 60,000 sf need 15 months to
18 months. If the tenant fails to notify the landlord in a timely manner, the renewal right terminates and the landlord can lease the space to another tenant.
Negotiation Period.
If the tenant exercises its renewal option within the set time period, the landlord and tenant should meet to discuss and attempt to agree upon the fair-market rental rate for the space. Issues to consider include whether or not the tenant must irrevocably exercise its renewal option before the landlord is obligated to discuss fair-market rental rates, if the landlord is required to discuss fair-market rental rates with the tenant at any time, if the landlord is obligated to provide back-up documentation of the fair-market rental rate determination, and the process to be followed if the landlord and tenant are not able to agree upon the fair-market rental rate.
Landlords often agree to discuss fair-market rents before tenants irrevocably have exercised their renewal option, provided a tenant exercises the renewal option before the landlord is obligated to proceed with any type of dispute resolution. With respect to back-up documentation, landlords generally consider the economic terms of other leases in the building to be confidential and are reluctant to turn over such information to the tenant. As a result, tenants are expected to rely upon their own sources to determine fair-market rental rates.
Finally, if the parties are unable to agree upon the fair-market rental rate within a set time period, such as 30 days, the lease must provide some mechanism for resolving the dispute.
Dispute Resolution.
Landlords do not want to incur the time and costs of dispute resolution only to have tenants decide they are unhappy with the result and rescind the renewal option. Therefore, landlords almost always require tenants to irrevocably exercise renewal options before proceeding to any type of dispute resolution. The most common method of resolving a fair-market rental rate dispute is for each party to submit a final, binding fair-market rental rate determination to arbitration.
To arbitrate the fair-market rental rate, the landlord and tenant first must agree upon an arbitrator. This generally is done by each selecting their own advocate arbitrator, who usually is required to be a real estate broker, appraiser, or attorney with no less than five years of experience in the applicable space's real estate sector. Once the two advocate arbitrators have been selected, they meet and mutually select a third, neutral arbitrator who is responsible for determining the actual fair-market rental rate.
Type of Arbitration.
During arbitration, the neutral arbitrator must select either the landlord's or the tenant's fair-market rental rate, but should not be allowed to select an alternative determination. Commonly known as baseball arbitration, this method was developed originally to resolve salary disputes between professional baseball players and owners. This approach is preferred over others because it tends to cause landlords and tenants to be more flexible in compromising. Each party knows that if its submitted rental rate is not closer to the rental rate that the neutral arbitrator believes to be the actual rental rate, then the neutral arbitrator will select the other party's submitted rental rate.
As a result, baseball arbitration causes both parties to submit more realistic rental rates, and the process often results in the parties agreeing upon the fair-market rate without having to resort to arbitration, which saves both parties considerable time and money.
In today's marketplace, tenants often negotiate for and receive valuable renewal rights at the fair-market rental rate for the premises. To make such rights easily understood by both parties, landlords and tenants should ensure that a very precise process for determining the fair-market rental rate is set forth in the lease." for more information see www.houstonrealtyadvisors.net
and www.houstonrealtyadvisor.com
from Commercial Investment Real Estate, May-June 2006
Formulating the Renewal
Renewal clauses focus on the actual formula used to calculate a fair-market renewal rental rate and the method used to determine the rate. Between these issues, the process used to determine the rate is at least as important as the formula itself. As fair-market rents almost never are based on a set rental rate or a set inflation index, such as the Consumer Price Index, a process for determining the fair-market rate must be agreed upon and set forth in the lease. Throughout the arbitration process several significant issues must be addressed.
Exercise Date.
The deadline by which a tenant must exercise a renewal option is dependent upon several factors. First, the landlord should be informed well in advance if the tenant intends to exercise a renewal option. This allows the landlord time to find a third party to lease the space to if the tenant fails to exercise its option. The timeline depends upon the size, type, and location of the space.
The general rule of thumb is the larger the space, the more notice landlords require. For example, typical standards dictate spaces between 5,000 square feet and 20,000 sf require nine months to 12 months prior notice; spaces between 20,000 sf and 60,000 sf require 12 months to 15 months prior notice; and spaces greater than 60,000 sf need 15 months to
18 months. If the tenant fails to notify the landlord in a timely manner, the renewal right terminates and the landlord can lease the space to another tenant.
Negotiation Period.
If the tenant exercises its renewal option within the set time period, the landlord and tenant should meet to discuss and attempt to agree upon the fair-market rental rate for the space. Issues to consider include whether or not the tenant must irrevocably exercise its renewal option before the landlord is obligated to discuss fair-market rental rates, if the landlord is required to discuss fair-market rental rates with the tenant at any time, if the landlord is obligated to provide back-up documentation of the fair-market rental rate determination, and the process to be followed if the landlord and tenant are not able to agree upon the fair-market rental rate.
Landlords often agree to discuss fair-market rents before tenants irrevocably have exercised their renewal option, provided a tenant exercises the renewal option before the landlord is obligated to proceed with any type of dispute resolution. With respect to back-up documentation, landlords generally consider the economic terms of other leases in the building to be confidential and are reluctant to turn over such information to the tenant. As a result, tenants are expected to rely upon their own sources to determine fair-market rental rates.
Finally, if the parties are unable to agree upon the fair-market rental rate within a set time period, such as 30 days, the lease must provide some mechanism for resolving the dispute.
Dispute Resolution.
Landlords do not want to incur the time and costs of dispute resolution only to have tenants decide they are unhappy with the result and rescind the renewal option. Therefore, landlords almost always require tenants to irrevocably exercise renewal options before proceeding to any type of dispute resolution. The most common method of resolving a fair-market rental rate dispute is for each party to submit a final, binding fair-market rental rate determination to arbitration.
To arbitrate the fair-market rental rate, the landlord and tenant first must agree upon an arbitrator. This generally is done by each selecting their own advocate arbitrator, who usually is required to be a real estate broker, appraiser, or attorney with no less than five years of experience in the applicable space's real estate sector. Once the two advocate arbitrators have been selected, they meet and mutually select a third, neutral arbitrator who is responsible for determining the actual fair-market rental rate.
Type of Arbitration.
During arbitration, the neutral arbitrator must select either the landlord's or the tenant's fair-market rental rate, but should not be allowed to select an alternative determination. Commonly known as baseball arbitration, this method was developed originally to resolve salary disputes between professional baseball players and owners. This approach is preferred over others because it tends to cause landlords and tenants to be more flexible in compromising. Each party knows that if its submitted rental rate is not closer to the rental rate that the neutral arbitrator believes to be the actual rental rate, then the neutral arbitrator will select the other party's submitted rental rate.
As a result, baseball arbitration causes both parties to submit more realistic rental rates, and the process often results in the parties agreeing upon the fair-market rate without having to resort to arbitration, which saves both parties considerable time and money.
In today's marketplace, tenants often negotiate for and receive valuable renewal rights at the fair-market rental rate for the premises. To make such rights easily understood by both parties, landlords and tenants should ensure that a very precise process for determining the fair-market rental rate is set forth in the lease." for more information see www.houstonrealtyadvisors.net
and www.houstonrealtyadvisor.com
from Commercial Investment Real Estate, May-June 2006
Tuesday, September 11, 2007
Broker license portability
For real estate services firms that handle properties in various parts of the country, license portability is of vital concern.
from Commercial Property News, September 1, 2006
"License portability gives a real estate licensee the freedom to provide transactional services in a state other than the one in which he is licensed, provided that the service company individual works in concert with a locally licensed individual in the partner state. For example, if the originating broker is licensed in California, but it working on a property in Ohio, the partner must be licensed in Ohio.
In some states, this law ties the hands of real estate service providers that do not have offices – and thus do not have locally licensed brokers – in the distant market in which they are pursuing a transaction.
In these situations, brokers have to be in compliance with each state's statutes.
Some localities were able to get the law altered during the past few years. The National Association of Realtors continues to categorize 5 states as turf states – those that prevent out-of-state licensees from providing services on transactions, leaving the company no choice but to refer its clients or transactions to local brokers.
5 Turf Territories: Kentucky, Missouri, Nebraska, New Jersey, Pennsylvania.
24 states are deemed cooperative, simply requiring the involvement of a local-partner licensee in the deal: Alabama, Arizona, Colorado, Connecticut, Georgia, Indiana, Kansas, Louisiana, Maryland, Michigan, Mississippi, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Washington, Wyoming.
Regulations in the remaining 21 states and DC – categorized as physical locations – require that the out-of-state licensee be physically located in the state in which it is licensed: Alaska, Arkansas, California, Delaware, District of Columbia, Florida, Hawaii, Idaho, Illinois, Iowa, Maine, Massachusetts, Minnesota, Montana, New York, Oklahoma, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin." for more information see; www.houstonrealtyadvisors.net
or www.houstonrealtyadvisor.com
from Commercial Property News, September 1, 2006
"License portability gives a real estate licensee the freedom to provide transactional services in a state other than the one in which he is licensed, provided that the service company individual works in concert with a locally licensed individual in the partner state. For example, if the originating broker is licensed in California, but it working on a property in Ohio, the partner must be licensed in Ohio.
In some states, this law ties the hands of real estate service providers that do not have offices – and thus do not have locally licensed brokers – in the distant market in which they are pursuing a transaction.
In these situations, brokers have to be in compliance with each state's statutes.
Some localities were able to get the law altered during the past few years. The National Association of Realtors continues to categorize 5 states as turf states – those that prevent out-of-state licensees from providing services on transactions, leaving the company no choice but to refer its clients or transactions to local brokers.
5 Turf Territories: Kentucky, Missouri, Nebraska, New Jersey, Pennsylvania.
24 states are deemed cooperative, simply requiring the involvement of a local-partner licensee in the deal: Alabama, Arizona, Colorado, Connecticut, Georgia, Indiana, Kansas, Louisiana, Maryland, Michigan, Mississippi, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Washington, Wyoming.
Regulations in the remaining 21 states and DC – categorized as physical locations – require that the out-of-state licensee be physically located in the state in which it is licensed: Alaska, Arkansas, California, Delaware, District of Columbia, Florida, Hawaii, Idaho, Illinois, Iowa, Maine, Massachusetts, Minnesota, Montana, New York, Oklahoma, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin." for more information see; www.houstonrealtyadvisors.net
or www.houstonrealtyadvisor.com
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