Commercial Property Herald

Can Being a Perfectionist harm your real estate business

Link Legrand just posted this link to the KW Commercial SA blog site and video posting, with the title "Can Being A Perfectionist Harm Your Real Estate Business?"  Usually, when I post to my own website, I like to comment upon the substance of the original post.  But in this case, I am more inclined to applaud the job done in this post.  The video quality and production is first rate, (even in stereo) and the substance and presentation was surprisingly, well written and first rate.

Now for my now famous, "with that being said," this video should be watched by anyone who tries to be perfect.  There are lessons to be learned from this video and those lessons should not just be lost among those in the real estate business.  This video was so good, that I am going to have my production assistant and paralegal watch it all day today until she gets it right.

Is There Gold in Thar Hills?

I noticed this "ar" aticle  (and no Mike, I did msipell this intentionally), in the Orange County Register about the expansion of Gold Max, a growing retail chain in the business of buying and selling gold.  It seems like a rapidly expanding business with very strong short term prospects, with unemployment and gold as high as they are and the economy as low as it is.

I suspect gold will continue at its lofty hieghts for some time while the economy continues to struggle and people need to dispose of the shrinking family jewels, (no I don't do divorce law) for cash and those with cash are looking for places to put it with, again, an unstable stock market.

But how long will the gold boom last and how long will it be before Gold Max starts seeking additional rent concessions partly caused by their rapid expansion.  I suspect that in about 3-5 years, this business will start having trouble as the economy and employment improve and the gold business start diminishing.  In the meantime, you might as well go for the ride, since it looks like it will be a fun one for the gold people.  And that is ok for today's landlords since by the time that the Gold Max starts having trouble, there will be other tenants to replace them.

 

How Clear and Unambiguous are Your CAM Charges or Pass Throughs

I just responded to a post in the Commercial Law Insider that related to a post by Ann Lisa Braun, ruminating on the clarity of CAM charges provisions and Operating Expense Pass Throughs in commercial leases.  My comment is as follows:

Lisa: My customary response to any CAM provision, when I am representing a tenant is a 3 page canned provision more precisely defining what is and is not included in expenses that can be passed through. It is not unusual that the language that I add is the most hotly contested language for the lease. Whether representing a landlord or tenant in a litigation matter, the CAM charges are the most uncertain of all of the provisions, usually.

From the landlord's perspective, they will want to have their CAM provision written as broad as possible to, as Lisa suggests, pass the kitchen sink through to the tenant.  As a tenant, if you do not take care of the lease language up front and pay attention during the lease, you may find that you are sitting right in that sink.  Be smart and be diligent.  If you are a tenant and you are not sure if you are doing things right, or even if you think you are doing things right, you might want to take a look at the NRTA (National Retail Tenant's Association).  This is an association of tenants educating themselves on CAM charges and Building Operating Expenses and diligently reducing their costs as a result.  Tell them that Howie sent you.

Retail Market Sees Little Change in 2nd Quarter. Where is it Going?

OK, I will admit I am a bit stumped.  As I had predicted almost 3 1/2 years ago when I started evicted furniture stores, mortgage companies and realtors from retail and office, the commercial real estate market was going to take a dive.  While it took a dive, it didn't dive as much as I thought because there were still plenty of mom & pops out there who still wanted to open their own retail business and plenty of foreign money.  While vacancies increased, prices didn't go down as fast and as sharply as I thought, although the credit worthiness of the tenants and the landlord's due diligence became almost non-existent.  Landlord's due diligence is a post for another day for me to write about.

Then it seemed that while the foreclosures increased and the prices of the retail properties came down, the money waiting in the wings came back in, proping up the market and the retail markets.

I have seen a over the last year, an increase in sales activity while the bottom dwellers get back into the market, which may also cause a further reduction in rents but I am not sure I can clearly see where the market is going.  

It seems to me that, as Roger Showley of the San Diego Union Tribune, writes,  the market is not only flat, but probably will remain somewhat flat for the foreseeable future, with some slight gains and dips over the next twelve months.  It just seems that there is just too much uncertainty in the market for anybody to jump back into the market with ferver, including foreign investors.

Lease Language to Make the Tenant Comfortable That The Landlord will Pay the TI Allowance

 

I recently received an email from a listener of CRE Radio that wanted to know what kind of language I would put into an LOI (Letter of Intent) and a Lease to make sure that the landlord actually complies with the landlord's agreement to give the tenant TI (Tenant Improvement Allowance). 

I suppose I should have started out my answer by stating that the tenant should make sure that the requirement to provide the TI allowance is actually put in the lease, but I worked upon the assumption that such language was included.  The following is my response:

As you can imagine, I have to be very careful about giving specific legal advice to people over the internet, if for no other reason than for liability.  I will however, try to answer your question in a general way and I hope that it is helpful.

From the tenant's perspective and for the purpose of the TI allowance, in my experience, it is uncommon to include much detail in an LOI regarding a TI allowance, other than an amount, usually stated in terms of an amount per square foot.

The actual terms of the lease is where the parties can get into the real nitty gritty of the negotiations.  The bottom line is that the tenant can ask for anything to be put in the lease that might give them greater assurance of payment of the TI allowance.  Of course, the landlord may or may not agree to what is requested and that is where the negotiation comes in.  So, yes, you can ask to include language that would specifically provide that the lease can be terminated if the landlord does not timely pay the costs of the TI's to the tenant.  Then again, I have never seen a landlord agree to these terms.  With that being said, even if a such a specific lease termination clause is not included in the lease, the tenant may still be able to terminate the lease if the failure to pay the TI allowance is considered a material breach of the contract by the landlord.  It depends upon the language of the lease and the facts and circumstances of the case.

When representing a tenant and assuming that the tenant is in a substantial bargaining position, I would add all kinds of provisions that would give my client as many options to terminate the lease as well as the tenant's lease obligations.  These provisions might include a % of vacancy in the center, anchor's vacating, etc. I might also request a "go dark" provision or rent reduction rather than termination.  The variations are endless.

Let me add, that the amount of lease changes and additions that I may request are typically tempered by the tenant that I represent, including the financial abilities of the tenant and the size of the space.  The cost of representing a single, 1,500 square foot tenant may not warrant 20-30 hours worth of work and toe-to-toe negotiations, not may the tenant wish it.

 

Are Discount Retailers Making Good Lease Deals in Today's Market and What Will Happen When the Economy Improves?

When the recession/depression started a few years back, I predicted that there would be a significant increase in business for discount retailers and club stores such as Costco and 99 Cent Stores.  Really didn't take a genius to figure that out.  As many of us already know that over the last few years, Dollar Tree and 99 Cent Stores now have access to shopping centers that would not have considered them years earlier.  My question is, how long are these leases and what will happen when the economy improve?

For the discounters picking up leases in more desirable locations and centers in today's market, my assumption is that they are signing leases at a highly discounted lease rate and a long enough term to secure the location for the foreseable future, (10 years or more).  Certainly, as the retailer, I would be locking in today's rate for as long as I could and if the market changed such that the store no longer generated the desirable revenue, you could always turn it back to the landlord, or, if adequatly negotiated, sublease or assign it.  In today's market, it is a no-lose situation for these retailers.  It's a lot like doubling down when your dealt a 5 & 6 and the dealer is showing a 6!

California Appeals Court Rules Oral Promises Are Binding

A recent California appeals court ruling found that an oral promise by a lender to modify a loan is enforceable, by the borrower.
California Appeals Court Rules Oral Promises Are Binding.

To an experienced lawyer, a recent court ruling in California finding that an oral promise to modify a loan can be enforceable even when the loan documents require a writing to modify the loan, is not new or surprising law and is nothing more than what we learned in law school.  What us lawyers would refer to as "Hornbook Law." We know this defense as "Promissory Estoppe and can be raised as a defense in almost any contract dispute, not just loans. The defense arises when one party reasonably relies upon, to their own prejudice or harm, the person making the promise may be bound by their oral promise. 

There are some difficulties in the defense, not the least of which is proving that the promise was actually made, that the promisee reasonably relied upon the promise and that the promise relied upon the promise to their prejudice.

When does No, mean Yes in a commercial Lease?

A local court recently rules that a landlord impliedly waived the tenant's obligation to pay rent by not insisting that rent be paid on time.  While there were many more facts, the salient facts were as follows:

• The lease had language provided, "No waiver of any default of either party hereunder shall be implied from any acceptance by Landlord or delivery by Tenant (as the case may be) of any rent or other payments due hereunder or any omission by the non-defaulting party to take any action on account of such default:
• Although the lease did not require it, the landlord agreed to do some ADA improvements in the common area and as required by the plans for the tenant improvements approved by the city;
• The lease provided for early possession of the premises by the tenant to do its own tenant improvements.  Landlord was to do no work.
• The Lease provided for a date certain for the commencement of the payment of rent, whether the tenant completed its T.I.'s or not.
• Tenant never completed its T.I., and about 14 months after lease and rent commencement (landlord applied about 6 months T.I. allowance to rents and 1st months rents, 1/2 months rent paid after T.I. allowance was applied and approximately one months rent paid after month 12), landlord commenced suit to collect rents;
• Lease provides that any amendment must be in writing;
• There was no testimony or any evidence that there was any agreement to waive rents;
• Defendant testified that he thought that he did not have to pay rents until he moved into the premises although he did admit that he didn't read the lease at the time that he signed it.
• The parties stipulated that the city would not give the tenant an occupancy permit unless the ADA improvements were completed;
  

The court found that, the landlord waived rents and the tenant's other Lease obligations, notwithstanding the language of the lease and the fact that there was no evidence of an explicit waiver or any agreement to waive rents. The court considered the landlord's failure to pursue rents sooner was a waiver.

The Vitamin Shoppe - Positive News

Here is some positive news for the commercial brokers and landlords.  The Vitamin Shoppe raised $155 million by selling 7.7 million shares in the first retail chain IPO since November 2007 as reported by Shopping Centers Today, a publication of the International Council of Shopping Centers, (ICSC).  If I were a commercial real estate broker, (which I am but not actively pursuing deals because I am too busy as a lawyer), I would be contacting them about opening a shop in my center.  Get on the phone!!!!

Capmark Bankruptcy to be in Better Shape?

Interesting article in Shopping Centers Today Week publication of October 30, 2009, Vol. 14 No. 43.  In that they discuss the possible overall effects of the bankruptcy on the overall market, suggesting that since the bankruptcy is intended to be a restructuring rather than a liquidation, the effect on the overall market is expected to be minimal. What the positive looking analysis overlooks however is that only about 5% of the chapter 11 reorganization bankruptcies make it to plan confirmation. However, those that are well planed before they file their bankruptcy petition have a much greater chance of emerging out of chapter 11 with a confirmed plan.  Capmark is led by a pretty heavy weight group of investors that you would have to believe have the best bankruptcy lawyers available; you would think.