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
Thursday, December 13, 2007
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
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