UPDATE: Mattress Firm Wakes Up Competitors with 4th Industry Buyout
Deal to Acquire American Mattress Stores Will Grow Portfolio to 511 Stores in 40 Markets
Mattress Firm, the Houston-based specialty-bedding retailer, continues to roll up competitors in its bid to become the largest mattress retailer in the country. The company has been engaged in a buying free-for-all and its latest acquisition seems the most brazen. Mattress Firm will acquire all of the leases of American Mattress, a young retail mattress company started by one of Mattress Firm's own founders, Paul Stork. Last August, Stork bought the Houston stores of the American Mattress chain with a pledge to rival Mattress Firm and poured $500,000 into revamping the stores. At that time, Stork was quoted as saying, "I wish I hadn't done such a good job building up The Mattress Firm....They have momentum going for them and that's tough to compete against." Apparently, Stork was right. The deal is currently in due diligence and terms were not disclosed. In march, CoStar reported that Mattress Firm had struck a deal to acquire Mattress Discounters of Upper Marlboro, MD, which grew its portfolio by more than 140 stores and opened the door to six new markets in MD, VA, MA, RI, NH and DC. That announcement followed closely on the heels of two previous acquisitions by the company: Phoenix, AZ-based Metropolitan Mattress and Las Vegas, NV-based Bedtime Mattress Co. The addition of American Mattress stores will bring Mattress Firm's portfolio to at least 511 stores in 40 markets across the U.S., when the deal closes. Mattress Firm traded hands earlier this year when Boston-based private equity firm J.W. Childs Associates acquired the retailer from Sun Capital Partners. The following timeline illustrates Mattress Firm's growth over the past five years: October 2002 - Boca Raton, FL’s Sun Capital acquires Mattress Firm from Bain Capital. At the time, the retailer had 175 company-owned and 125 franchised stores in 39 markets across the U.S. June 2006 - Mattress Firm acquires Metropolitan Mattress. The transaction involved 26 locations in the Phoenix area. Combined with Mattress Firm's 14 existing Phoenix locations, it brings the retailer’s U.S. store count to 340 locations in 32 markets across 19 states. All Metropolitan Mattress stores are remodeled with Mattress Firm signage, store format, and products. January 2007 - Mattress Firm is acquired by J.W. Childs Associates and becomes Mattress Holding Corp. The company has grown to 350 stores in 32 markets in 19 states. Mattress Firm’s CEO, Gary Fazio said of J.W.’s acquisition in a press release, "Their track record with other leading retail and consumer brands, coupled with our deep bench of talent throughout our organization, are the ingredients we need to accelerate our efforts to open new stores and new markets. This ownership structure gives us capital for growth and the ability to continue the momentum we've established over the past several years." February 2007 - Mattress Firm announces agreement to acquire Bedtime Mattress, Inc., which owns and operates 15 stores in the Las Vegas area under Bedtime Mattress and Mattress Direct brand names. The deal will bring Mattress Firm’s store count to nearly 370 stores in 33 markets across 20 states. March 2007 - Mattress Firm announces an agreement to acquire Mattress Discounters, which has more than 140 stores across the Northeast. May 2007 - Mattress Firm announces agreement to acquire leases of 13 American Mattress stores in the Houston area. Mattress Firm, ranked 25th in Furniture Today's Top 100 retailers, has not announced plans to close any acquired stores. Expect to see 30 to 40 new stores added each year; typical store sizes range 3,000 to 4,000 square feet, and match well with discount retail tenants. for more information see:
www. houstonrealtyadvisors.net call Ed Ayres now 713 782-0260
or www.houstonrealtyadvisor.com
Wednesday, May 23, 2007
Monday, May 21, 2007
Matrix of successful restaurant leasing
"All too often developers look to the perceived success of existing centers and believe in the me too simplicity of merchandising in lieu of a sound judgment decision based on analysis. Therefore, they leap over the data analysis that could have helped ensure merchandising and economic success or at the very least hedged their chances of failure.
Basic Building Blocks
Merchandise the restaurant tenant mix to the prospective demographics.
The lead indicator in demographics is, as always, population density both day and night, income and age. But the vast majority of restaurant sales is driven by two meals per day; therefore, the proximity, identity and specifics of the adjacencies make the daytime population a critical factor to a restaurant tenant's decision. The demographics used for retail tenants are not necessarily the same for the restaurant tenant, which requires a denser population within a smaller radius usually 1, 3 and 5 miles. As such, the development's marketing package should contain a separate restaurant data supplement that speaks to this specific required criteria, as well as the particulars of the daytime demographics, as well as that of the adjacencies to the development.
Take advantage of psychographics, which study how the demographic spends its money in correlation to its income.
Another consideration is the restaurant competition to the proposed tenant's cuisine within the radius to determine if a certain cuisine is over-restauranted in the developer's trade market.
Retail and entertainment tenants want to know that the restaurant mix will complement their customers, as they consider restaurants being their marketing partner to the public. Research the restaurant tenants within centers where they are currently most successful and compare the demographics to the specific development's demographics. Conversely, the vast majority of restaurant tenants want compatible retail tenants and, more importantly, a theater for the large number of bodies it brings to the center. A matrix of various cuisines and brands should be complementary — not competitive — thereby contributing significantly to sales, bringing potential customers to the front door.
This expands mealtime hours, and therefore the tenant can increase his pro forma sales, which will make tenants more apt to pay greater rent and take less tenant allowance.
Focus on the anchor restaurant tenant first. As in retail, restaurant tenants follow the most successful companies. Do not shotgun the restaurant tenant market, or there is a risk of having the tenant initially turn down the site, only to make it a more difficult task to sell that same tenant after the lease is signed with the anchor restaurant, as they would believe they would be at a disadvantage in negotiations. As there are relatively few national anchor restaurant tenants, developers look to multi-unit regional and local restaurants.
Be careful to investigate the tenant's ability to expand operationally.
Although the development and economics offered by the developer could be quite appealing to a restaurant tenant, if it is not organizationally staffed for expansion, it probably will not be capable of maintaining its quality in food and service, especially if the site is located outside the tenant's sphere of control geographically. Chances are, the tenant will fail. At which point there is a vacancy in the center that will cost additional tenant allowance dollars in addition to those already expensed to the initial tenant.
Review tenants' sales trends for at least the last 3 years. If a restaurant is open less than 2 to 3 years, the sustainability of the sales and concept is hard to determine, but nonetheless, it is a solid indicator of whether the tenant's restaurant is answering to the center's demographic.
Merchandise 3 tenants for each site and cuisine, as it is more prevalent in the restaurant business than in the retail business for a number of the tenants not to go forward due to insufficient capital and/or lack of adequate management.
An evolving trend has been high-end restaurants that have created polished casual cafés as well as multi-concept growth restaurant companies that are non-chains. These are eclectic restaurants that extend beyond the brand of well-known successful operations. They are able to grow without leaving the current or adjacent trade markets while still taking advantage of the brand and its proximity to existing operational management.
Lease Economics
There seems to be a disconnect between a developer's expectation of restaurant lease economics and the reality of the restaurant's financial ability and experience. All too often the developer will prepare a pro forma and budget prior to merchandising the restaurants and/or assume that the economics of the deal, especially the rent, would be consistent with that of retail tenants or prior experience with other restaurant tenants. Due to the cost differences between restaurant and retail development expenses, the disparaging difference in usage of the gross leasable area and the percentage of sales threshold for rent, the economics of a restaurant lease must be determined based on its own industry and individual data. With proper analysis, the developer will be less likely to have protracted negotiations, will properly gage the tenant allowance and rental income and therefore will make the best possible deal with the most desirable tenant in the shortest amount of time.
The pro forma economics of rent, tenant allowance, landlord shell work and bankability of each restaurant tenant will vary by the brand, the size of the company, the type of cuisine, the historical cost to build, sales per unit, sales per square foot and net revenues as a percentage of sales, as well as food and labor costs. This due diligence and analysis will help the landlord to estimate the tenant's threshold for rent and thereby assist in qualifying a restaurant as a potential tenant.
Does the tenant have the equity to develop the restaurant above the landlord's tenant allowance? If not, a lease is being signed with an out provision for the tenant if he cannot raise the required dollars. Does the tenant have the financial capacity (bankability) to guarantee the lease? Small restaurant companies most often do not have the financial statements that would be considered bankable. Don't expect personal guarantees or cross-collateralization because small operators are understandably risk-adverse. The landlord should be prepared to take the financial risk if she wants the advantageous emerging restaurant concept that would set her center apart from others and bring the most traffic.
Before the lease economics are negotiated, establish the previous comparable center experience of the tenant. If the restaurant has not been in a center previously, and is not represented by highly experienced and trusted consultants, attorneys or brokers, the issues of gross rent vs. triple-net leases, percentage rent, and lease assignment and subletting — amongst many others — will become difficult barriers to completing a deal.
Today, restaurants have become an anchor. They help to
define and differentiate one development from another."
FOR MORE INFORMATION SEE: www.houstonrealtyadvisors.net
or www.houstonrealtyadvisor.com
Basic Building Blocks
Merchandise the restaurant tenant mix to the prospective demographics.
The lead indicator in demographics is, as always, population density both day and night, income and age. But the vast majority of restaurant sales is driven by two meals per day; therefore, the proximity, identity and specifics of the adjacencies make the daytime population a critical factor to a restaurant tenant's decision. The demographics used for retail tenants are not necessarily the same for the restaurant tenant, which requires a denser population within a smaller radius usually 1, 3 and 5 miles. As such, the development's marketing package should contain a separate restaurant data supplement that speaks to this specific required criteria, as well as the particulars of the daytime demographics, as well as that of the adjacencies to the development.
Take advantage of psychographics, which study how the demographic spends its money in correlation to its income.
Another consideration is the restaurant competition to the proposed tenant's cuisine within the radius to determine if a certain cuisine is over-restauranted in the developer's trade market.
Retail and entertainment tenants want to know that the restaurant mix will complement their customers, as they consider restaurants being their marketing partner to the public. Research the restaurant tenants within centers where they are currently most successful and compare the demographics to the specific development's demographics. Conversely, the vast majority of restaurant tenants want compatible retail tenants and, more importantly, a theater for the large number of bodies it brings to the center. A matrix of various cuisines and brands should be complementary — not competitive — thereby contributing significantly to sales, bringing potential customers to the front door.
This expands mealtime hours, and therefore the tenant can increase his pro forma sales, which will make tenants more apt to pay greater rent and take less tenant allowance.
Focus on the anchor restaurant tenant first. As in retail, restaurant tenants follow the most successful companies. Do not shotgun the restaurant tenant market, or there is a risk of having the tenant initially turn down the site, only to make it a more difficult task to sell that same tenant after the lease is signed with the anchor restaurant, as they would believe they would be at a disadvantage in negotiations. As there are relatively few national anchor restaurant tenants, developers look to multi-unit regional and local restaurants.
Be careful to investigate the tenant's ability to expand operationally.
Although the development and economics offered by the developer could be quite appealing to a restaurant tenant, if it is not organizationally staffed for expansion, it probably will not be capable of maintaining its quality in food and service, especially if the site is located outside the tenant's sphere of control geographically. Chances are, the tenant will fail. At which point there is a vacancy in the center that will cost additional tenant allowance dollars in addition to those already expensed to the initial tenant.
Review tenants' sales trends for at least the last 3 years. If a restaurant is open less than 2 to 3 years, the sustainability of the sales and concept is hard to determine, but nonetheless, it is a solid indicator of whether the tenant's restaurant is answering to the center's demographic.
Merchandise 3 tenants for each site and cuisine, as it is more prevalent in the restaurant business than in the retail business for a number of the tenants not to go forward due to insufficient capital and/or lack of adequate management.
An evolving trend has been high-end restaurants that have created polished casual cafés as well as multi-concept growth restaurant companies that are non-chains. These are eclectic restaurants that extend beyond the brand of well-known successful operations. They are able to grow without leaving the current or adjacent trade markets while still taking advantage of the brand and its proximity to existing operational management.
Lease Economics
There seems to be a disconnect between a developer's expectation of restaurant lease economics and the reality of the restaurant's financial ability and experience. All too often the developer will prepare a pro forma and budget prior to merchandising the restaurants and/or assume that the economics of the deal, especially the rent, would be consistent with that of retail tenants or prior experience with other restaurant tenants. Due to the cost differences between restaurant and retail development expenses, the disparaging difference in usage of the gross leasable area and the percentage of sales threshold for rent, the economics of a restaurant lease must be determined based on its own industry and individual data. With proper analysis, the developer will be less likely to have protracted negotiations, will properly gage the tenant allowance and rental income and therefore will make the best possible deal with the most desirable tenant in the shortest amount of time.
The pro forma economics of rent, tenant allowance, landlord shell work and bankability of each restaurant tenant will vary by the brand, the size of the company, the type of cuisine, the historical cost to build, sales per unit, sales per square foot and net revenues as a percentage of sales, as well as food and labor costs. This due diligence and analysis will help the landlord to estimate the tenant's threshold for rent and thereby assist in qualifying a restaurant as a potential tenant.
Does the tenant have the equity to develop the restaurant above the landlord's tenant allowance? If not, a lease is being signed with an out provision for the tenant if he cannot raise the required dollars. Does the tenant have the financial capacity (bankability) to guarantee the lease? Small restaurant companies most often do not have the financial statements that would be considered bankable. Don't expect personal guarantees or cross-collateralization because small operators are understandably risk-adverse. The landlord should be prepared to take the financial risk if she wants the advantageous emerging restaurant concept that would set her center apart from others and bring the most traffic.
Before the lease economics are negotiated, establish the previous comparable center experience of the tenant. If the restaurant has not been in a center previously, and is not represented by highly experienced and trusted consultants, attorneys or brokers, the issues of gross rent vs. triple-net leases, percentage rent, and lease assignment and subletting — amongst many others — will become difficult barriers to completing a deal.
Today, restaurants have become an anchor. They help to
define and differentiate one development from another."
FOR MORE INFORMATION SEE: www.houstonrealtyadvisors.net
or www.houstonrealtyadvisor.com
DONT WAIT AROUND EXPECTING
Message for office tenants:
This article related to Northern California, but may be relevant to your market also.
from Real Estate Forum :
"Do a deal as soon as possible, or you may lose the space you want.
And be prepared to pay higher rents. Tenants are about to experience `sticker shock' in the coming months. Construction costs are at all-time highs and to replicate the assets that we have is very expensive. Rental rates are not going to stay static; they are on the move and they are going to move dramatically. Tenants must move quickly or they are going to lose the opportunity."
from OfficeTimes.com July 31, 2006
"…remember this was spoken by a landlord, but many of us representing Northern California office tenants fear this same trend is coming our way. However, we have seen some landlords much too aggressive in their pricing, raising asking rents too high too soon, while at the same time, there are tenants out there overly ambitious in their lease concession requests. It is often up to the astute brokers on each side to bring market reality into the picture."
This article related to Northern California, but may be relevant to your market also.
from Real Estate Forum :
"Do a deal as soon as possible, or you may lose the space you want.
And be prepared to pay higher rents. Tenants are about to experience `sticker shock' in the coming months. Construction costs are at all-time highs and to replicate the assets that we have is very expensive. Rental rates are not going to stay static; they are on the move and they are going to move dramatically. Tenants must move quickly or they are going to lose the opportunity."
from OfficeTimes.com July 31, 2006
"…remember this was spoken by a landlord, but many of us representing Northern California office tenants fear this same trend is coming our way. However, we have seen some landlords much too aggressive in their pricing, raising asking rents too high too soon, while at the same time, there are tenants out there overly ambitious in their lease concession requests. It is often up to the astute brokers on each side to bring market reality into the picture."
Wednesday, May 16, 2007
HOLDOVER ON COMMERCIAL LEASE
This is a commercial holdover proceeding commenced by landlord by
service of a Three Day Notice of Cancellation of the Lease on Tenant
from New York Law Journal, July 26, 2006
"The parties entered into a commercial space lease for respondent to
conduct a restaurant business for a term of 5 years, with a 5 year
option to renew.
In the lease it was stipulated that the premises were to be used and
occupied as a restaurant and for no other purpose. Respondent was the
successor tenant to a prior tenant who also used the space as a
restaurant. The kitchen area is less than 25% of the total lease space.
On or about December 27, 2005, a fire occurred in the kitchen area in
the subject premises. According to an expert in the field of structural
engineering, the fire was started inside the exhaust duct in the kitchen
due to the over accumulation of grease and oil in the duct. The grease
and oil caught fire, and the heat from the burning grease and oil in the
duct caused the wood beams in the roof and ceiling to catch fire. The
wooden ceiling and roof beams were burned beyond repair. The walls
enclosing the kitchen were superficially charred, but they remained in
good condition with respect to structural strength. The kitchen floor
was superficially damaged from the water used to extinguish the fire.
The portion of the roof immediately surrounding the duct in the kitchen
was burned, but the balance of the roof remained intact. There was no
visible fire damage to the subject premises in the interior dining,
storage, bar and bathrooms areas. There was no visible fire damage to
the exterior of the subject premises or the adjoining storefront
commercial premises. Landlord presented no expert testimony or other
evidence concerning the estimated cost to repair or rebuild, or the fair
market value of the building or subject premises.
Landlord notified tenant in writing that pursuant to the fire clause of
the lease, landlord demanded that tenant vacate the premises and
surrender the lease within three days of receipt of the notice. Tenant
contends that landlord is in violation of the lease because the fire
clause under the lease obligated the landlord:
to repair the fire damage at [its] cost regardless of the fault.
Paragraph "Fourth" is the key provision in the lease concerning the
instant dispute. This paragraph provides:
If the demised premises shall be partially damaged by fire or other
cause without the fault or neglect of Tenant, Tenant's servants,
employees, agents, visitors or licensees, the damages shall be repaired
by and at the expense of Landlord and the rent until such repairs shall
be made shall be apportioned according to the part of the demised
premises which is usable by Tenant. But if such partial damage is due to
the fault or neglect of Tenant, Tenant's servants, employees, agents,
visitors or licensees, without prejudice to any other rights and
remedies of Landlord and without prejudice to the rights of subrogation
of Landlord's insurer, the damages shall be repaired by Landlord but
there shall be no apportionment or abatement of rent. No penalty shall
accrue for reasonable delay which may arise by reason of adjustment of
insurance on the part of Landlord and/or Tenant, and for reasonable
delay on account of labor troubles, or any other cause beyond Landlord's
control. If the demised premises are totally damaged or are rendered
wholly untenantable by fire or other cause, and if Landlord shall decide
not to restore or not to rebuild the same, or if the building shall be
so damaged that Landlord shall decide to demolish it or to rebuild it,
then or in any such events Landlord may, within ninety (90) days after
such fire or other cause, give Tenant a notice in writing of such
decision, which notice shall be given as in Paragraph Twelve hereof
provided, and thereupon the term of this lese shall expire by lapse of
time upon the third day after such notice is given, and Tenant shall
vacate the demised premises and surrender the same to Landlord. If
Tenant shall not be in default under this lease then, upon the
termination of this lease under the conditions provided for in the
sentence immediately preceding, Tenant's liability for rent shall cease
as of the day following the casualty. Tenant hereby expressly waives the
provisions of Section 227 of the Real Property Law and agrees that the
foregoing provisions of this Article shall govern and control in lieu
thereof. If the damage or destruction be due to the fault or neglect of
Tenant the debris shall be removed by, and at the expense of, Tenant.
At the outset it is clear that the fire clause constitutes an express
agreement which excludes the operation of section 227 of the Real
Property Law. The fire clause in the lease also provides that:
(1) if the subject premises should be partially damaged by fire by no
fault of the tenant (they should be repaired by the landlord, and until
such repairs are made the rent shall be abated or shall be apportioned
according to the part of the subject premises which is usable by tenant;
(2) however, if the subject premises should be partially damaged by fire
by the fault or neglect of the tenant they should be repaired by the
landlord, and the tenant shall pay rent without apportionment or
abatement; and
(3) if, however, in the event subject premises should be totally damaged
or rendered wholly untenantable by fire and the landlord decide[s] not
to restore or not to rebuild the [demised premises], or if the building
is so damaged the Landlord decide[s] to demolish it or to rebuild it,
then the landlord may elect to terminate the lease by written notice
sent to the tenant by regular and certified mail.
The fire clause of the lease is divided into two categories of damage to
the demised premises and/or the building: the first category is partial
damage, and the second is total destruction or substantial destruction.
Only the category of total or substantial destruction gives rise to the
landlord's right to terminate the lease.
The specific language in the fire clause in the lease that covers total
and substantial destruction provides:
If the demised premises are totally damaged or are rendered wholly
untenantable by fire or other cause, and if Landlord shall decide not to
restore or not to rebuild the same, or if the building shall be so
damaged that Landlord shall decide to demolish it or to rebuild it, then
or in any such events Landlord may, within ninety (90) days after such
fire or other cause, give Tenant a notice in writing of such decision,
which notice shall be given as in Paragraph Twelve hereof provided, and
thereupon the term of this lese shall expire by lapse of time upon the
third day after such notice is given, and Tenant shall vacate the
demised premises and surrender the same to Landlord.
This language is the choice of the parties and must be construed
accordingly.
This is not a case of total destruction, or substantial destruction, as
has been considered in other cases.
The Landlord concedes that the subject premises was not totally damaged
and that the building was not so damaged that Landlord… decided to
demolish it or to rebuild it. Instead, landlord contends that the fire
rendered the subject premises wholly untenantable.
What did the parties intend to mean when they chose the words wholly
untenantable. A review of Friedman on Leases some guidance in defining
the meaning of untenantable. It provides as follows:
"Premises are not untenantable merely because damage has made them
unsatisfactory for the normal conduct of a tenant's business.
Untenantability is like destruction in that it means substantial damage
to a structure. Untenantability…has been defined as damage of such
nature that the premises cannot be used for the purpose for which they
were rented and cannot be restored to a fit condition by ordinary
repairs made without unreasonable interruption of the tenant's use…
Thus, the term wholly untenantable contemplates circumstances where the
fire damage was so extensive that it consumed and totally destroys a
substantial part of the building itself, or the subject premises, and
the premises no longer existed as a restaurant for the purpose for which
it was intended by the parties. The word untenantable is preceded by the
qualifying word wholly. By the use of this qualifying adjective, the
parties intended to reinforce the notion that the parties intended that
the damage be substantial and total in nature, and not partial. The
phrase wholly untenantable, is placed in the agreement in that part that
contemplates total or substantial destruction of the premises. By
placing the phrase where it has been placed in the fire clause, for the
purpose of characterizing the extent of damage which was to give rise to
the right to terminate the lease, the parties must have intended it to
mean more than partial damage, and more than the destruction of only a
part of the subject premises, as shown by the evidence here.
Friedman on Leases states:
structural damage is essential to untenantability. Damage that makes use
of leased property unpleasant and inconvenient for the conduct of a
tenant's business is not untenantability. Neither is damage that makes
the premises completely, but briefly, unusable . . . In all the
situations where structural damage is slight and restoration is possible
within perhaps a couple of weeks, . . . claims of untenantability are
denied.
In this case, the structural damage was slight and limited to the
ceiling and roof, and restoration was possible. Although, the fire
damage and smoke may render the use of the subject premises unpleasant
and inconvenient for the conduct of respondent's restaurant business
temporarily until properly repaired, such damage does not render the
premises untenantable. The subject premises was not untenantable merely
because the fire damage made the premises completely, but briefly,
unusable.
Here, the right of the landlord to terminate the lease arises only if
the subject premises is either totally or substantially destroyed such
that in a practical sense it loses its character as a restaurant. The
evidence here does not establish such total or substantial destruction
such that the premises lost its character or identity as a restaurant,
to the degree that it could not readily be restored within a reasonable
time by repair.
Finally, the Court notes that this matter does not turn solely upon the
wishes of the landlord or its apparent financial interest. The interests
of both parties must be considered by the Court. In the five month
period that respondent was in possession of the subject premises, prior
to being forced to close its business due to the fire, there was some
evidence that respondent invested substantial funds into the business,
including expenses such as renovations, and leasehold improvements
(i.e., installation of a HVAC system). The forfeiture of respondent's
long-term leasehold may provide a windfall to the landlord, while at the
same time, cause the respondent to suffer substantial economic loss.
As there is here little or no structural damage, and there is no
evidence of a health or public safety reason for terminating the lease,
the Court finds that the demised premises was only partially damaged by
the fire and that the fire damage was not so severe as to render the
premises wholly untenantable, entitling the landlord to terminate the
lease. Except for the incidental inconvenience and temporary
interruption of the conduct of respondent's business that may be caused
to perform repairs, landlord presented insufficient evidence to show by
a fair preponderance of the evidence that respondent could not continue
in occupancy and use substantially in the manner and extent as it had
occupied and used the subject premises prior to the fire. Therefore,
landlord has failed to establish the factual prerequisites that would
entitle it to terminate the lease pursuant to the lease agreement.
Conclusion: Accordingly, judgment in favor of the respondent and the
petition is dismissed."
for more information see: www.houstonrealtyadvisors.net
or www.houstonrealtyadvisor.com
service of a Three Day Notice of Cancellation of the Lease on Tenant
from New York Law Journal, July 26, 2006
"The parties entered into a commercial space lease for respondent to
conduct a restaurant business for a term of 5 years, with a 5 year
option to renew.
In the lease it was stipulated that the premises were to be used and
occupied as a restaurant and for no other purpose. Respondent was the
successor tenant to a prior tenant who also used the space as a
restaurant. The kitchen area is less than 25% of the total lease space.
On or about December 27, 2005, a fire occurred in the kitchen area in
the subject premises. According to an expert in the field of structural
engineering, the fire was started inside the exhaust duct in the kitchen
due to the over accumulation of grease and oil in the duct. The grease
and oil caught fire, and the heat from the burning grease and oil in the
duct caused the wood beams in the roof and ceiling to catch fire. The
wooden ceiling and roof beams were burned beyond repair. The walls
enclosing the kitchen were superficially charred, but they remained in
good condition with respect to structural strength. The kitchen floor
was superficially damaged from the water used to extinguish the fire.
The portion of the roof immediately surrounding the duct in the kitchen
was burned, but the balance of the roof remained intact. There was no
visible fire damage to the subject premises in the interior dining,
storage, bar and bathrooms areas. There was no visible fire damage to
the exterior of the subject premises or the adjoining storefront
commercial premises. Landlord presented no expert testimony or other
evidence concerning the estimated cost to repair or rebuild, or the fair
market value of the building or subject premises.
Landlord notified tenant in writing that pursuant to the fire clause of
the lease, landlord demanded that tenant vacate the premises and
surrender the lease within three days of receipt of the notice. Tenant
contends that landlord is in violation of the lease because the fire
clause under the lease obligated the landlord:
to repair the fire damage at [its] cost regardless of the fault.
Paragraph "Fourth" is the key provision in the lease concerning the
instant dispute. This paragraph provides:
If the demised premises shall be partially damaged by fire or other
cause without the fault or neglect of Tenant, Tenant's servants,
employees, agents, visitors or licensees, the damages shall be repaired
by and at the expense of Landlord and the rent until such repairs shall
be made shall be apportioned according to the part of the demised
premises which is usable by Tenant. But if such partial damage is due to
the fault or neglect of Tenant, Tenant's servants, employees, agents,
visitors or licensees, without prejudice to any other rights and
remedies of Landlord and without prejudice to the rights of subrogation
of Landlord's insurer, the damages shall be repaired by Landlord but
there shall be no apportionment or abatement of rent. No penalty shall
accrue for reasonable delay which may arise by reason of adjustment of
insurance on the part of Landlord and/or Tenant, and for reasonable
delay on account of labor troubles, or any other cause beyond Landlord's
control. If the demised premises are totally damaged or are rendered
wholly untenantable by fire or other cause, and if Landlord shall decide
not to restore or not to rebuild the same, or if the building shall be
so damaged that Landlord shall decide to demolish it or to rebuild it,
then or in any such events Landlord may, within ninety (90) days after
such fire or other cause, give Tenant a notice in writing of such
decision, which notice shall be given as in Paragraph Twelve hereof
provided, and thereupon the term of this lese shall expire by lapse of
time upon the third day after such notice is given, and Tenant shall
vacate the demised premises and surrender the same to Landlord. If
Tenant shall not be in default under this lease then, upon the
termination of this lease under the conditions provided for in the
sentence immediately preceding, Tenant's liability for rent shall cease
as of the day following the casualty. Tenant hereby expressly waives the
provisions of Section 227 of the Real Property Law and agrees that the
foregoing provisions of this Article shall govern and control in lieu
thereof. If the damage or destruction be due to the fault or neglect of
Tenant the debris shall be removed by, and at the expense of, Tenant.
At the outset it is clear that the fire clause constitutes an express
agreement which excludes the operation of section 227 of the Real
Property Law. The fire clause in the lease also provides that:
(1) if the subject premises should be partially damaged by fire by no
fault of the tenant (they should be repaired by the landlord, and until
such repairs are made the rent shall be abated or shall be apportioned
according to the part of the subject premises which is usable by tenant;
(2) however, if the subject premises should be partially damaged by fire
by the fault or neglect of the tenant they should be repaired by the
landlord, and the tenant shall pay rent without apportionment or
abatement; and
(3) if, however, in the event subject premises should be totally damaged
or rendered wholly untenantable by fire and the landlord decide[s] not
to restore or not to rebuild the [demised premises], or if the building
is so damaged the Landlord decide[s] to demolish it or to rebuild it,
then the landlord may elect to terminate the lease by written notice
sent to the tenant by regular and certified mail.
The fire clause of the lease is divided into two categories of damage to
the demised premises and/or the building: the first category is partial
damage, and the second is total destruction or substantial destruction.
Only the category of total or substantial destruction gives rise to the
landlord's right to terminate the lease.
The specific language in the fire clause in the lease that covers total
and substantial destruction provides:
If the demised premises are totally damaged or are rendered wholly
untenantable by fire or other cause, and if Landlord shall decide not to
restore or not to rebuild the same, or if the building shall be so
damaged that Landlord shall decide to demolish it or to rebuild it, then
or in any such events Landlord may, within ninety (90) days after such
fire or other cause, give Tenant a notice in writing of such decision,
which notice shall be given as in Paragraph Twelve hereof provided, and
thereupon the term of this lese shall expire by lapse of time upon the
third day after such notice is given, and Tenant shall vacate the
demised premises and surrender the same to Landlord.
This language is the choice of the parties and must be construed
accordingly.
This is not a case of total destruction, or substantial destruction, as
has been considered in other cases.
The Landlord concedes that the subject premises was not totally damaged
and that the building was not so damaged that Landlord… decided to
demolish it or to rebuild it. Instead, landlord contends that the fire
rendered the subject premises wholly untenantable.
What did the parties intend to mean when they chose the words wholly
untenantable. A review of Friedman on Leases some guidance in defining
the meaning of untenantable. It provides as follows:
"Premises are not untenantable merely because damage has made them
unsatisfactory for the normal conduct of a tenant's business.
Untenantability is like destruction in that it means substantial damage
to a structure. Untenantability…has been defined as damage of such
nature that the premises cannot be used for the purpose for which they
were rented and cannot be restored to a fit condition by ordinary
repairs made without unreasonable interruption of the tenant's use…
Thus, the term wholly untenantable contemplates circumstances where the
fire damage was so extensive that it consumed and totally destroys a
substantial part of the building itself, or the subject premises, and
the premises no longer existed as a restaurant for the purpose for which
it was intended by the parties. The word untenantable is preceded by the
qualifying word wholly. By the use of this qualifying adjective, the
parties intended to reinforce the notion that the parties intended that
the damage be substantial and total in nature, and not partial. The
phrase wholly untenantable, is placed in the agreement in that part that
contemplates total or substantial destruction of the premises. By
placing the phrase where it has been placed in the fire clause, for the
purpose of characterizing the extent of damage which was to give rise to
the right to terminate the lease, the parties must have intended it to
mean more than partial damage, and more than the destruction of only a
part of the subject premises, as shown by the evidence here.
Friedman on Leases states:
structural damage is essential to untenantability. Damage that makes use
of leased property unpleasant and inconvenient for the conduct of a
tenant's business is not untenantability. Neither is damage that makes
the premises completely, but briefly, unusable . . . In all the
situations where structural damage is slight and restoration is possible
within perhaps a couple of weeks, . . . claims of untenantability are
denied.
In this case, the structural damage was slight and limited to the
ceiling and roof, and restoration was possible. Although, the fire
damage and smoke may render the use of the subject premises unpleasant
and inconvenient for the conduct of respondent's restaurant business
temporarily until properly repaired, such damage does not render the
premises untenantable. The subject premises was not untenantable merely
because the fire damage made the premises completely, but briefly,
unusable.
Here, the right of the landlord to terminate the lease arises only if
the subject premises is either totally or substantially destroyed such
that in a practical sense it loses its character as a restaurant. The
evidence here does not establish such total or substantial destruction
such that the premises lost its character or identity as a restaurant,
to the degree that it could not readily be restored within a reasonable
time by repair.
Finally, the Court notes that this matter does not turn solely upon the
wishes of the landlord or its apparent financial interest. The interests
of both parties must be considered by the Court. In the five month
period that respondent was in possession of the subject premises, prior
to being forced to close its business due to the fire, there was some
evidence that respondent invested substantial funds into the business,
including expenses such as renovations, and leasehold improvements
(i.e., installation of a HVAC system). The forfeiture of respondent's
long-term leasehold may provide a windfall to the landlord, while at the
same time, cause the respondent to suffer substantial economic loss.
As there is here little or no structural damage, and there is no
evidence of a health or public safety reason for terminating the lease,
the Court finds that the demised premises was only partially damaged by
the fire and that the fire damage was not so severe as to render the
premises wholly untenantable, entitling the landlord to terminate the
lease. Except for the incidental inconvenience and temporary
interruption of the conduct of respondent's business that may be caused
to perform repairs, landlord presented insufficient evidence to show by
a fair preponderance of the evidence that respondent could not continue
in occupancy and use substantially in the manner and extent as it had
occupied and used the subject premises prior to the fire. Therefore,
landlord has failed to establish the factual prerequisites that would
entitle it to terminate the lease pursuant to the lease agreement.
Conclusion: Accordingly, judgment in favor of the respondent and the
petition is dismissed."
for more information see: www.houstonrealtyadvisors.net
or www.houstonrealtyadvisor.com
Thursday, May 10, 2007
HINES TEES UP ANOTHER OFFERING
Hines Tees Up Another Houston Offering
The Houston office investment sales market is getting impossibly crowded. Local player Hines is shopping another Houston office property, the 542,458-square-foot office tower at 919 Milam St. downtown that it owns through a venture with California Public Employees' Retirement System (CalPERS). The venture, known as National Office Partners LP, tapped Holliday Fenoglio Fowler LP to market the property for sale. HFF is also shopping the 1.2 million-square-foot Bank of America Center at 700 Louisiana St. for Hines. The Hines/CalPERS venture paid $42.6 million, or around $78.49 per square foot, to acquire the property at 919 Milam in 2005. This time, it should fetch more than double that amount. The property reportedly could trade for about $200 per square foot, which would put a sale price in the neighborhood of roughly $108 million. HFF did not immediately return calls for comment. The property is currently 77.9% leased with rents averaging $17 per square foot, according to CoStar Group information. The building, which occupies a full city block bounded by Travis, Walker, Milam and McKinney streets, was developed in 1956 and renovated in 2006. It has a new four-level parking garage for 300 cars at the base. The offering will face a lot of competition. In addition to the Bank of America Center -- which is expected to fetch more than $400 million -- there are at least a dozen office properties on the market in Houston right now. Local players chalk the supercharged sales activity up to several factors, from the city's strong ties with the oil industry, a recent investor attraction, to the unprecedented amount of capital looking for real estate investments in secondary markets. For more information see : www.houstonrealtyadvisors.net or
www. houstonrealtyadvisor.com
The Houston office investment sales market is getting impossibly crowded. Local player Hines is shopping another Houston office property, the 542,458-square-foot office tower at 919 Milam St. downtown that it owns through a venture with California Public Employees' Retirement System (CalPERS). The venture, known as National Office Partners LP, tapped Holliday Fenoglio Fowler LP to market the property for sale. HFF is also shopping the 1.2 million-square-foot Bank of America Center at 700 Louisiana St. for Hines. The Hines/CalPERS venture paid $42.6 million, or around $78.49 per square foot, to acquire the property at 919 Milam in 2005. This time, it should fetch more than double that amount. The property reportedly could trade for about $200 per square foot, which would put a sale price in the neighborhood of roughly $108 million. HFF did not immediately return calls for comment. The property is currently 77.9% leased with rents averaging $17 per square foot, according to CoStar Group information. The building, which occupies a full city block bounded by Travis, Walker, Milam and McKinney streets, was developed in 1956 and renovated in 2006. It has a new four-level parking garage for 300 cars at the base. The offering will face a lot of competition. In addition to the Bank of America Center -- which is expected to fetch more than $400 million -- there are at least a dozen office properties on the market in Houston right now. Local players chalk the supercharged sales activity up to several factors, from the city's strong ties with the oil industry, a recent investor attraction, to the unprecedented amount of capital looking for real estate investments in secondary markets. For more information see : www.houstonrealtyadvisors.net or
www. houstonrealtyadvisor.com
Thursday, May 3, 2007
Wilson Industries signs 450,000 sq ft lease
Wilson Industries Inc., a leading manufacturer of drilling and pipeline supplies, signed a lease for 450,000 square feet at Underwood I distribution facility at 359 Old Underwood Road in LaPorte. It intends to move into the facility in August. The 900,000-square-foot distribution facility was completed last year. It features 32-foot clear height and a Union Pacific Rail Line. Gary Mabray of Colliers International represented Wilson Industries Inc. Robert and Albert Clay of Clay Development represented the landlord in-house. for more information see ; www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com
Class A buildings
ffice tenants seek Class A office space for many reasons, including upgrading or maintaining their firm's image, providing clients and employees with a better amenities, or to justify rents at an existing location.
from The Business Journal of Phoenix, July 28, 2006
"Many business owners would like to believe their office buildings are Class A, but determining whether a building is Class A is almost as logical as choosing Taylor over Kathryn on American Idol.
Commercial real estate firms continually research building classifications to understand what determines top of the market and rate office buildings using several criteria. As new properties are developed and the market changes, classifications can be a moving target.
Most experts agree Class A space typically makes up the top 10 percent of the market. What experts cannot agree on is what factors are used to determine that top 10 percent.
The benchmark rental rates for any office market are found in the top-performing Class A projects, and those rents set the tone for rates in new Class A projects under development.
To see how your building and others measure up, consider the following
elements:
Location
There typically are one or two key intersections or thoroughfares in every metropolitan area that everyone agrees are Class A locations that consist of "main street and main" -type concentrations of developments.
All real estate decisions typically revolve around location. Is the property highly visible? Is there easy access? Is the neighborhood conducive to a professional office environment? And, the most important locational consideration is whether this is the place where your enterprise will achieve the greatest success.
Design
The industry generally agrees that today's Class "A" office building has large, column-free floor plans that provide 25,000 to 50,000 contiguous square feet per floor. A central lobby readily guides visitors to their destination; and the building complies with governmental regulations, current zoning and the Americans with Disabilities Act.
While various architectural styles and construction methods may be employed, the building design and materials must have an element of timelessness to be considered among the best in the market. It cannot look "old" in five or 10 years. At the same time, a building does not qualify as Class A simply because it is new construction.
Some of the most important physical features of a Class A building include telecommunications and information technology infrastructure necessary to adapt with modern technology, as well as up-to-date electrical, mechanical and plumbing systems.
Building operations and management
Building operations and management may be the most obvious factor in determining if a building fits into the upper echelon of the market. Is there an on-site management and engineering presence? Are common areas and exteriors well-maintained? Most people can sense this by just walking through the building lobby, speaking with tenants or using the washroom.
Class A office buildings should feature an on-site, readily identifiable management staff with daily, ongoing maintenance and cleaning services.
Systems should be in place to quickly and professionally address tenant needs. If the building owner is the person who changes light bulbs and unclogs toilets, the building is probably not Class A.
Amenities
A long list of popular building amenities exist in Class A buildings, and firms have their preferences. Most agree that on-site or proximate food and sundry services are important, but some also want a health club, valet parking, concierge service, child care, shoe shine, upscale retail, auto detailing and repair services.
What is realistic?
Is your ideal environment a trophy office project, a shopping center, or a mixed-use project?
Look closely at your company
Class A amenities have a positive impact on employee productivity and enhance the experience your clients have when visiting your office.
Amenities also should simplify and improve life for you and your company.
There is only one judge -- the tenant.
Create your own definition of Class A and find a building that facilitates the success of your business. Speak with your real estate agent and determine the amenities and features that are essential to attract employees, serve your customers and build your business. The companies who pay rent have the power to define a building's class through their checkbooks and tenancy. You are the judge." for more iinformation see: www.houstonrealtyadvisors.net
from The Business Journal of Phoenix, July 28, 2006
"Many business owners would like to believe their office buildings are Class A, but determining whether a building is Class A is almost as logical as choosing Taylor over Kathryn on American Idol.
Commercial real estate firms continually research building classifications to understand what determines top of the market and rate office buildings using several criteria. As new properties are developed and the market changes, classifications can be a moving target.
Most experts agree Class A space typically makes up the top 10 percent of the market. What experts cannot agree on is what factors are used to determine that top 10 percent.
The benchmark rental rates for any office market are found in the top-performing Class A projects, and those rents set the tone for rates in new Class A projects under development.
To see how your building and others measure up, consider the following
elements:
Location
There typically are one or two key intersections or thoroughfares in every metropolitan area that everyone agrees are Class A locations that consist of "main street and main" -type concentrations of developments.
All real estate decisions typically revolve around location. Is the property highly visible? Is there easy access? Is the neighborhood conducive to a professional office environment? And, the most important locational consideration is whether this is the place where your enterprise will achieve the greatest success.
Design
The industry generally agrees that today's Class "A" office building has large, column-free floor plans that provide 25,000 to 50,000 contiguous square feet per floor. A central lobby readily guides visitors to their destination; and the building complies with governmental regulations, current zoning and the Americans with Disabilities Act.
While various architectural styles and construction methods may be employed, the building design and materials must have an element of timelessness to be considered among the best in the market. It cannot look "old" in five or 10 years. At the same time, a building does not qualify as Class A simply because it is new construction.
Some of the most important physical features of a Class A building include telecommunications and information technology infrastructure necessary to adapt with modern technology, as well as up-to-date electrical, mechanical and plumbing systems.
Building operations and management
Building operations and management may be the most obvious factor in determining if a building fits into the upper echelon of the market. Is there an on-site management and engineering presence? Are common areas and exteriors well-maintained? Most people can sense this by just walking through the building lobby, speaking with tenants or using the washroom.
Class A office buildings should feature an on-site, readily identifiable management staff with daily, ongoing maintenance and cleaning services.
Systems should be in place to quickly and professionally address tenant needs. If the building owner is the person who changes light bulbs and unclogs toilets, the building is probably not Class A.
Amenities
A long list of popular building amenities exist in Class A buildings, and firms have their preferences. Most agree that on-site or proximate food and sundry services are important, but some also want a health club, valet parking, concierge service, child care, shoe shine, upscale retail, auto detailing and repair services.
What is realistic?
Is your ideal environment a trophy office project, a shopping center, or a mixed-use project?
Look closely at your company
Class A amenities have a positive impact on employee productivity and enhance the experience your clients have when visiting your office.
Amenities also should simplify and improve life for you and your company.
There is only one judge -- the tenant.
Create your own definition of Class A and find a building that facilitates the success of your business. Speak with your real estate agent and determine the amenities and features that are essential to attract employees, serve your customers and build your business. The companies who pay rent have the power to define a building's class through their checkbooks and tenancy. You are the judge." for more iinformation see: www.houstonrealtyadvisors.net
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