Commercial Property Herald

Luxury Theater was a Good Idea, I Think

Remember about a month ago, I wrote a blog post entitled, "Replacing Closed Theaters," in which I discussed my ideas on replacing closed down, older multi-screen movie theaters, using as an examptle the recently closed Edwards/Regal Theater in the small bedroom community of Rancho Santa Margarita.  My only, I thought, good idea was to put one of those new luxury theaters into the former space.  They are different enough from the "standard" multi-cinema experiences and probably enough so to justify the smaller population and higher prices, I opined. The truth is that, being in the theater, I really liked the idea of a live theater, but it didn't make a lot of sense to me.

Well it looks like someone actually read my post and took my advice.  Okay, it was probably that someone else had the same idea but didn't get it from me.  The Orange County Register has reported this Sunday that Cinepolis Luxury Cinema will be filing the space in Rancho Santa Margarita.  I think it is a great idea and I am looking forward to seeing movies there.  It should also serve as a boon for the local shops and restaurants. 

Now for more of the unusual ideas.  Since it is going to be located opposite the city hall and pretty much in the heart of the city/community, maybe they should reserve one theater as a movie/live theater that can host live theatrical events.  I suspect that a state of the art removable screen could be designed and removed, (perhaps raised), for a full stage that can accommodate sets.  A live theater would give the city some additional identity.

 

Commercial Foreclosure Basics in California - Part 1

I originally wrote this post in 2008 as I saw, for quite some time, the coming commercial foreclosures.  It is now almost spring of 2012, nearly 4 years after the original post and we are still dealing with a huge amount of commercial foreclosures and I do not see any significant and sustained abatement for at least another 12 months or more.  The following is the text from my post in 2008, without changes.

As the current economic recession deepens, commercial landlord's are beginning to feel the pinch from defaulting tenants.  This will likely cause a ripple down effect, likely putting many commercial landlords at risk of default with their lenders and possible further lender/bank failures.  Prudent landlords should take a pro-active approach and educate themselves on the many intricacies of commercial foreclosure practice and law.  This will be the first in a series of short articles/posts regarding commercial foreclosure law in California.  While there may be many similarities between California law and that of other states, these articles and posts are only intended to educate on California law.

• DISTINCTION BETWEEN COMMERCIAL AND RESIDENTIAL FORECLOSURES IN CALIFORNIA

The vast majority of the foreclosures in California are conducted by "Private Sale," also referred to as "Non-Judicial Foreclosures" or "NJF".  An NJF is a legal procedure specifically provided for in the loan and trust deed documentation signed by and agreed to by the borrower.  In rare instances, the loan documentation may not include a lenders right to proceed by NJF, in which case, if the loan goes into default, the only option that a lender has to foreclose on its security is by a "Judicial Foreclosure" action.  There are benefits and detriments to each process. For reasons explained in a later post, the vast majority of foreclosures in California are done, non-judicially.

Because commercial property has a main purpose and potential attribute of producing income, commercial real estate lenders seek to secure their loan, not only from the market value of the property, but from the income produced by the property, (rents).  Accordingly, nearly all commercial loan documentation contain provisions for the assignment of the rents produced by the property to the lender.  Therein lies the key distinction between commercial foreclosures and residential foreclosures.  Commercial foreclosures usually include an additional process whereby the landlord can, through the judicial appointment of an independant receiver, take charge of the property, manage it and collect the rents produced by the property.  They typical process includes both an NJF and a judicial foreclosure. The lender will typically file a "Notice of Default," or "NOD", commencing the NJF process and then quickly file a lawsuit commencing the judicial foreclosure process and immediatly file a motion with the court to have a receiver appointed to manage the property and collect the rents, pending the sale of the property by the NJF process.

Future posts will include:

• Benefits of non-judicial foreclosure versus judicial foreclosure
• Anti-deficiency statuts
• Personal guarantees and carve out provisions
• Borrower Fraud Liability
• Receivers
• Bankruptcy

 

The Awardable Value of Teamwork in Commercial Real Estate

Last night I had the pleasure of attending the 1st annual Spire Awards sponsored by the Orange County Chapter of CREW, (Commercial Real Estate Women) at the Pacific Club in Newport Beach.  There were 7 awards presented, one of which was awarded posthumously. These awards were presented in various categories reflecting excellence related to commercial real estate and were not limited to women.

One of the recipients, Rod Hamett the project manager for the construction of two phases of construction of the University of Irvine, Medical Center was honored for completing both phases of the construction on time and on budget, and in one case, early.  Can you imagine that; early and within budget; unheard of.  Now that is a rare feat and one worth recognition.

But, it is not Rod's diligence and frugalness that I am writing about in this post.  I was most impressed with his humble and his immediate and sincere recognition of the contribution of his team when accepting the award.

So much of what we do in commercial real estate and, for that matter, life, is dependent upon the contribution of others.  Being responsible for the management of other people in business, I am all too familiar with the value of good team work.

My hats off of my bald head to Rod and his team as well as OC Crew for putting together a valuable event and bringing together commercial real estate professionals in Orange County, doing so as a team.

 This is the first in a series of post in which I will be writing about the signficance of the Spire award recipients all leading up to a radio show.

Should retailers pay more attention to Aggregate Income rather than Household or Per Capita Income in choosing a retail site?

A little over a week ago, I attended the ICSC Hispanic Retail Marketplace Program in Los Angeles.  For the most part it was very informative.

A couple of key points that caught my attention at the conference:

With rare exception, the speakers noticeably avoided any reference to the Hispanic Market as a traditionally lower income market and preferred to point out that Hispanic shoppers do spend money on, other than lower priced retail items. Another key concept discussed was the Aggregate Income of Hispanic communities.

So what does Aggregate Income mean and what is the significance of this concept to retailers and developers?  I haven’t confirmed any of the numbers that I heard at the program, but it seems to me that there may be a very significant opportunity for shopping center developers, owners and retailers in Hispanic communities.  At the risk of inadequately describing what was said at the conference, let me explain, my understanding of the concept of Aggregate Income and its significance to retailers, developers and landlords.

Aggregate Income, for the purpose of this discussion is the total income generated by a populous within a given radius.  As it relates to the Hispanic market, we should consider census data and statistics, including the following:

1. Hispanic households include approximately 3.5 people per household as compared to 2.5 people per non-Hispanic households;
2. Hispanic communities tend to be much denser, containing more households per given radius than non-Hispanic households

As a result of the above data that I have grossly simplified for the purpose of this post, it would seem that although the average income per capita in the Hispanic market tends to be lower than many other non-Hispanic communities, the total spending power of a given Hispanic community is likely to be as great if not greater than higher income, per capita or households in non-Hispanic communities.  Stated another way, while the average income per person in East La. may be less than that of the average person in Newport Beach, Ca., there may be significantly more money available, in the aggregate, to spend by the Hispanic community in East La.

This is not to suggest that all products will sell well and all retailers will succeed in Hispanic communities.  However, those that understand their customers well and in particular those buyers in the Hispanic community should flourish very well.  Good thought and strategy should work well in this often-overlooked market.  For further thoughts on the Hispanic market, listen to http://creradio.com/2012/hispanic-retail-marketplace-in-los-angeles-prequel/ on CRE Radio at www.creradio.com.

 

More Updates From Around the Nation on Taxing Internet Sales and Brick & Mortar Sales Tax Moratorium

The following updates have been brought to my attention by the ICSC Global Public Policy Newsletter.

Amazon, which obviously opposes any kind of tax on internet sales, as it should for its own interests, has announced that it will open a new warehouse in Delaware, as opposed to New Jersey, purportedly in response despite a well-publicized effort in New Jersey to attract a distribution center for Amazon.com Inc.. As reported by ICSC, in January, State Senator Raymond Lesniak co-sponsored a bill that would require online companies like Amazon to collect sales taxes in New Jersey if they maintain a distribution center, office or other corporate physical presence in the state. It should come as no surprise that such a bill would discourage internet warehouses and distribution centers in New Jersey. This bill was introduced in an effort to level the playing field between Internet sellers and the state's brick-and-mortar stores after it was discovered that Amazon is seeking a 22-month sales tax holiday before investing $65 million to build a fulfillment center in the state.

This issue bears repeating.  New Jersey, like most other states, does impose a tax, often referred to as a Use Tax, which imposes the reporting and the payment of the tax on the consumer. The tax is very similar to a sales tax collected by the brick & mortar stores.  The difference is that the sales tax is enforced against the retailer and in the case of the use tax, it is enforced against the consumer.  As a practical matter, a use tax is usually very difficult to enforce unless the item purchased is a type that requires registration in the state, such as an automobile.

Taxing internet sales in the form of a sales tax as compared to a use tax, would give states greater enforceability, presumably allowing each state to enforce its own tax on sales shipped to residents within its jurisdictional border and enforcing the tax on the internet seller, wherever the seller is located.

As further reported by ICSC, the new bill drew attention to the New Jersey's sales tax policies and propelled the fairness issue higher in the conscious of the public and legislators.  As I have stated previously, I think that it is a mistake to promote internet sales tax on the basis of "fairness." Proponents of an internet sales tax need to convince the public and their legislators that the public will benefit much more from such a tax than a state would from the increased employment resulting from a warehouse within the state.  Without a significant overriding benefit to the state and state residents, taxing the internet will not be a popular action.  I suspect that most people would prefer the advantage of buying online and effectively avoiding any sales tax that they would have been obligated to pay if the bought at a local brick & mortar.

Somewhat related to my suggestion of a sales tax moratorium on brick & mortar sales in conjunction with requiring taxation of internet sales, several states are introducing bills in state legislatures for sales tax holidays.

• The Colorado House Finance Committee ,released the "back-to-school" sales tax holiday bill.  This bill would create a sales and use tax holiday for "back-to-school" items for three days in the beginning of August for a period of five years beginning in 2012. 
• In Florida, a school supply sales tax holiday bill, was passed by the full House which would create a sales and use tax holiday for the sale of clothing, wallets, and bags under $75 and school supplies under $15. 
• In Virginia, a sales tax holiday bill for hurricane preparedness equipment and energy efficient products, was reported out of the Senate Finance Committee unanimously. 

In my opinion, these sales tax moratoriums don't go far enough and should be conditioned upon the brick & mortar retailers hiring more employees.  To get fairness, you've got to contribute something and increased employment will be the key to success.

Are Retailers Prohibited from Collecting Zip Codes From Customers?

In a recent case out of the Federal Court in Massachusetts, it was decided that pursuant to (Mass. Gen. L. 93-105(a)) which prohibits retailers from collecting personal identification information during a credit card transaction if the credit card issuer does not require such disclosure, that a retailer cannot collect zip code information.  

Have you ever tried to use your credit card to purchase gas at an automated gas station, which begs the question, when was the last time that you've purchased gas at a non-automated gas station? Don't they require you to input your zip code for security purposes?

Frankly, I think it is a good idea to require your to enter your zip code, which adds that extra level of security and if the gas company is the only one requiring the zip code, the credit card issuers need to get on board and approve this one.

More Discussion on Internet Sales Tax and Coming to a Consensus

It is an amazing thing to be part of an intelligent conversation with intelligent people who have no political agenda.  Lowell Peabody, Bob Canter, Peter Morris and I have been discussing the pros & cons of taxing internet sales.  We all started with differing initial perspectives.  Bob is basically anti-tax, and Lowell is not in favor of taxes but, perhaps, should I say, better appreciates the need for taxes. Through the discussion, it looks like we are coming up with a, seemingly, good compromise, one in which congress should take note of.  The direction of that solution I mention in my previous posts, Sale Tax Moratorium coupled with Employment Tax Credit to Help Brick & Mortar Retailers. The following is more on our conversations on LinkedIn.  To read earlier comments, click on Taxing Internet Sales, Part Deux - Differing Opinions, How about a Moratorium on Sales Tax to Help Brick & Mortar Sales? and Should Internet Sales be Taxed and Will That Save Brick & Mortar?

Lowell argues that......

"With the advent of on-line shopping we are nor adding another tax we are simply putting back the tax revenue we would have otherwise had. The internet simply cross circuited the tax we would have paid had we gone to the bricks and mortar store and made a purchase. There is nothing different save for the convenience of shopping from home and having a product delivered. I totally agree that government programs need to be cut however arguing that no sales tax is appropriate for on-line purchases moves the discussion in another direction. The intent of the sales tax was to collect an amount for goods purchased. That people buy more on line simply means at this point sales tax revenues are falling. No one is making a new tax we are avoiding the tax and we know it.. To apply a tax for on-line purchases is not a new tax or idea, it is like the change getting music for free which was never right versus having to pay for it now..which the majority of people seem to accept.

There is no reason for artificially bolstering bricks and mortar developments housing retailers who are starting to make more on the internet than in their stores and not collect taxes.. We cannot tax and then suggest we want to support real estate investors. Those tax funds were always intended for State and local financial support. If the real estate industry shifts in accordance with consumer desires and retailer realities, so be it. That is why those who develop are so smart to adapt and reshape themselves to new conditions. That’s how they make the big bucks!!"

To Which Bob Canter responds:

"Very compelling argument, and I understand what you are saying. 
I totally agree the sales tax is meant for state and local governments not to reduce Federal deficits as the gentlemen from Canada suggested. 

Although you make a valid point that there is no new tax being introduced per se, it is changing the way products are taxed in respect to jurisdictional boundaries. 

I have no sympathy for companies whereby the paradigm shift passed them by. 
Look at Kodak…they had to know film was going to be a thing of past.  Should digital cameras be taxed because so few use film any longer.  Same for many camera stores, you can buy digital cameras on-line or blame the Best Buys ,should they be taxed because of a change in the way people purchase products. I know that would be creating a "new" tax. But so is this Tax on internet sales a "new" tax. 

The argument has been to create "Fairness” because the poor ole retailer has to charge sales tax and has overhead as in a retail store while the on-line retailer doesn’t and that gives them a competitive advantage. 

We are talking about 15% of all retail sales have been on-line and the B&M retailers are going nuts along with their trade association ICSC which is really for the developers. 

If they used Lowell’s argument I would find that more acceptable than trying to pretend that sales taxes are the only reason B&M retailers are losing business. 

B&M retailers are not getting it for the most part, it is foreign to them. 
Yet traditional retail is far from being dead.  There are so many types of retail that one must go to and will continue to go to. I won’t go through the list here for the sake of tedium. 

The online retailer also has expenses or overhead, like large IT departments, call centers, fulfillment centers, office space, and shipping costs to their warehouses or to their customers for the most part. 
They have payroll taxes, sales taxes on supplies they purchase, etc. 

Many online retailers ship for free, should they do away with doing that because it’s not fair to the brick & mortar retailer as well.  Substitute shipping as the equalizer to the on-line retailer not charging sales taxes. B&M retailers don’t have to ship 90% of the time to their customers. And on-line merchants have to ship 100% of the time w/out exception, even if you are picking it at one of the B&M stores as Howard pointed out on his Blog. 

Have you looked at your phone bills lately. My office phone is 20% worth of assorted taxes. Our cell phones also have a load of taxes. Look at your cable bill, how many local, state, federal taxes are on that. And we use our cable to access the internet, therefore we are paying a tax indirectly when ordering online. 

Here in Montgomery County they instituted a plastic bag/paper bag fee of 5 cents per bag using environmental issues as their reasoning. It began Jan 1st 2012. 

Bull pardon me, if it was for environmental reasons they would allow for paper, it’s just a revenue enhancer. Should the on-line retailer now have to charge a bag fee for the boxes or containers they ship their goods in to people here in Montgomery County MD? 

The problem as I see it, what all this sales tax discussion is centered around is to prop up the brick & mortar retailers and their landlords under the heading of "Fairness” 
To me it is no different than the bank bailouts. Some Industry is getting hurt and it is up to society to fix a problem which does not need fixing. It’s a natural evolution. Leave well enough alone and if that means the retail landscape changes then so be it. 

You want to level the playing field as I said go with a National VAT and kill all sales taxes as they are probably more discriminatory than income taxes and kill more economic growth."

Man, can that Bob talk.write.  You would think he was an attorney.  I then threw out the idea of combining a Brick & Mortar Sales Tax Moratorium into the discussion and this is how Lowell and Bob responded:

"Howard, not sure if we will see that happen as on-line purchases are not yet equal to the volume of of sales at B&M stores, so overall tax revenue would likely decline. Not sure of how many states and municipalities can afford that. It is a great idea though!"

Bob, in his, not so brief but brilliant style commented:

"..........Thegovernment looks around every corner and crevice to find revenue. Never looks to cut spending. I know a broad and perhaps off topic statement. Indeed as our Country's population grows so do certain aspects of government need to grow along with it to support the population growth. That being said, and I know Lowell will say we are punching at pillows, and he's not really wrong, government/politicians can never calculate a negative. Meaning for example, when this current President was shown empirical evidence that cutting capital gains rates, the revenue on capital gains sky rocketed. His reply was yeah I know but it isn't fair. This comes under the same heading of implementing a tax be it new or not under the heading of fairness. And as I also said their (ICSC) approach is so transparent that it is laughable. Why do I care about Landlords who go out of their way in each and every case to screw small tenants. I know that is the market, they should care more about helping their tenants than picking on internet sales. By not taxing internet sales I say it puts more pressure on the major retailers and landlords to be more customer centric. Helping local and state governments get more money, I would say good less money to force their hands to cut their spending. 

Maybe a compromise would be to give sales tax relief to small B&M merchants who generate a top line revenue of $X. This isn't so radical since many localities have sales tax holidays usually around the beginning of the school year. That has proven to drive sales, gee what a surprise. If that were a compromise than I would definitely back the internet tax, but give something in return to the small merchant who is most affected and who is getting utterly hammered in this economy. It would also spur jobs by small business which has been the biggest creator of jobs over the last 20 years. If ICSC would back such a plan then they would prove something. Look at what DDR just starting doing retail incubators. What a great idea. But if you notice the little helped that is offered to small business is 'Oh we'll give you a tax credit if you hire" That does absolutely NOTHING. If you are NOT generating revenue as a business it doesn't matter how many people you hire since you can't afford to hire them in the first place. How stupid can these politicians be. If we can give certain countries favorable trade status why not give small merchants "a favorable sales tax status" Again the one size fits all doesn't work."

Sale Tax Moratorium coupled with Employment Tax Credit to Help Brick & Mortar Retailers

My involvement in the discussions over taxing Internet sales has been picking up steam and garnering more and more of my attention.  I have been interacting online with Lowell Peabody, Peter Morris and Bob Cantor on some of the LinkedIn Groups and they have been giving me conflicting, but valuable insight, helping me formulate my ideas.  It's a wonderful thing interacting with intelligent people with differing viewpoints.

I have taken the position that an Internet sales tax should have an overall positive affect on the economy and local employment. I make that statement with the full understanding that Internet companies like Amazon do provide employment opportunities that should not be overlooked or understated.  I have also stated that taxing Internet sales will not be the final solution for Brick & Mortar retailers and they need to consider ways to embrace and take advantage of the Internet to further their Brick & Mortar Business and otherwise refine their business model.  Peter Morris suggests that Internet Retailers should consider Brick & Mortar as a way of promoting their Internet sales.

My focus now is on proposing solutions that will effectively benefit society, by increasing employment in the United States and as I have previously stated, I do not think that taxing internet sales, alone,is the solution to the conundrum faced by Brick & Mortar retailers.

First, I am working upon the assumption that a healthy Brick & Mortar, with full employment, is a good thing for everyone.  I don't know what a "healthy Brick & Mortar" is but I believe that should be our general direction.  Perhaps some expert will help me define "healthy Brick & Mortar".

Second, increasing employment is also a good thing and that I assume that employment, even at the lowest income levels helps everyone.

Now that I have, perhaps, inartfully established my first two assumptions, let me throw out this idea for intellectual fermentation and perhaps action:

1.  Tax internet sales, coupled with:

2.  A brick & mortar sales tax moratorium of some sort, conditioned upon

3.  Some measurable increase in employment by the Brick & Mortar retailers.

As a consumer, I know that if I have a choice of paying no sales tax at my local store vs. paying sales tax on Internet sales, I certainly am going to be more motivated to buy local.  Assuming that I am not too different from other consumers, that alone should increase Brick & Mortar employment. However, if you condition a Brick & Mortar's ability to take advantage of some measurable increase in employment, I suspect that you will see a definite benefit to the economy.

Now, the only real question remaining, (OK, I am sure that there will be more than just one question), is the above combination of taxes and tax moratorium going to benefit the public more than it will cost?  I will need help with that answer.

Finally, CRE Radio has committed to airing a show on this topic on March 20th or thereabouts, one week in advance of the ICSC Strategic Leadership Summit in Washington D.C. where ICSC members have an opportunity to have face-to-face meetings with Members of Congress or their staff where you can articulate your views on matters of importance to your company and the shopping center industry. I also encourage everyone to participate in this conversation by leaving comments here or at 21st Century Retail blog or go to the ICSC Sales Tax Fairness page, online.

Replacing Closed Theaters

An Edwards theater, part of the Regal chain, recently closed in a regional center in the Southern California community of Rancho Santa Margarita.  The loss of this theater will, in my humble opinion, significantly affect the other retailers in the regional shopping center of which it was a part of as well as the other retailers in the immediate vicinity of the theater.  The picture to the left is from an iPic Theater in Pasadena.

The theater was a little older than the more recent 21 screen multiplexes that we have seen popping up over the last 10 - 15 years and my family and I have favored a larger theater in the community of Potolla Hills, a few miles, further away.  I think this theater only had 6 screens.

Notwithstanding the fact that we only occassionally patroned this theater, my family and I reacted with dissappointment and sorrow, almost as if we witnessed the passing of a dear friend.

This got me thinking about what the owner of the property could replace the theater with, not that I would naturally think about how to replace a dear friend as soon as they passed.  What a morbid thought!  But I digress.

I began to seek ideas for a replacement without much satisfaction.  I oringally thought of some of those new, high end theaters that serve wine and more of a private theater experience and despite some other creative but not very satisfactory solutions, I kept coming back to my original high end theater experience.  I think it is a really good idea.  There is only one such high end theater in the relative vicinity, a Regency Theater in San Juan Capistrano.  Too far away to attract movie goers that a similar venue would attract in Rancho Santa Margarita and I think a 6 screen theater is just about the right size.  The concept is to reduce the amount of seats, signifcantly improve the watching experience with a cafe bar, food services to the seats including meals other than nachos with yellow gooey sauce and you increase the price accordingly.

I haven't yet visited the Regency in San Juan, but I am going to go out of my way to experience it and determine if the additional cost is worth the experience.

I also noticed an iPic Theater is in Pasadena, (way to far for me to visit) that follows the same high end concept.  The pictures in this post is courtesy of the iPic website.

I think people will pay for it.

Who Stepped on that Crazy Boat and How do I get a Ticket

I just read an interesting post written by Michael Schrage in the Harvard Business Review, entitled, Managing the "Crazy Ideas" Conundrum. Really good article and the timing of  the post was great for me.  

My producer and I meet every morning on a Skype video call to talk business. Often, we discuss business and sometimes we brainstorm and sometimes we talk about sports, weather or whatever. The brainstorming usually comes from just talking.  This morning we were experiencing one of those moments when a seemingly innocuous comment by Mike starting me thinking about some of our strategies that we needed to put in place.  From nothing came something significant and now we are meeting in person this afternoon and evening to put these new ideas in place.

 

The funny thing, and as it relates to Michael Schrage's post, is that as our ideas evolved, we started laughing about how often, what we first react to as a crazy idea, later becomes the wise move.

Specifically, the way that he described it as:

"Sometimes when someone tells you something you feel like asking them, what crazy boat did you step on and a week later you are calling them up asking how you can get a ticket on that very boat."  

A very wise man.