Commercial Landlords In California Facing Potential Large Property Tax Increases

California commercial landlords, owners of office, medical, retail, warehouse/industrial spaces and more, are in for a shock if the current proposition on the ballot passes.

In a recent Bisnow article, Rex Hime states: 

“If this comes into effect, they [small businesses] are gone,” Hime said to Bisnow after his presentation during the ICSC Southern California Idea Exchange event Thursday at the Long Beach Convention Center. “The second issue is, you have these large corporate property owners with many, many tenants, and since most are under triple net leases, they are going to pass that tax along to their tenants, and some of them will not be able to survive.”

But what Hime doesn’t state is that this will not just adversely affect retail landlords but all commercial landlords who own commercial properties of any type.  It’s not just retail leases that pass through the cost of property tax increases.  Office and industrial leases usually do it also even though they are modified gross leases and not triple net.

Also, how will these potential tax increases affect commercial real estate prices?  I think it will cause sales prices to drop.

The commercial real estate market in California, and also nationwide across the US, has been doing very well for the past decade with prices at all-time highs with no real end in sight as of now. But if this initiative passes in CA and it causes prices to drop and vacancies to increase as predicted, California is in for some serious financial pain.

And those owners/landlords who bought at high prices in the past decade won’t like it much if this initiative causes prices to fall and vacancies to increase. This will probably also lead to more bankruptcies and foreclosures because of loan defaults.

If you want help with leasing, buying or selling your commercial real estate, whether office, medical, dental, retail or warehouse/industrial space, contact David Massie of DJM Commercial Real Estate at david@djmcre.com or 805-217-0791.  

More Medical Tenants Leasing At Retail Locations.

In 2017, I had written a blog predicting that medical leasing in a retail center would be beneficial, and more prevalent in the future. This prediction has recently come true, as there is, in fact, a shortage of medical space available.

Bisnow article on the matter states:

“In the last three years, we [retail brokers] have done more medical deals in retail spaces than I have ever done previously in my career,” Franks said. “Additionally, we have done more specialty retail uses in traditional retail space than we ever have done before.”

From my previous blog on the topic, I stated that it would not only be good for a landlord to capture medical tenants and bring in potential new business for the other retail tenants in the center but also that it may bring in new patients for the medical tenants as well.

However, the main problem for medical tenants leasing at retail centers, particularly nice ones where they probably want to be most, is that the rent is usually higher than a nice medical building. Retail landlords don’t typically pay for the medical improvements needed for leased space as a medical building landlord would. Because of this, the medical tenant usually takes the cheaper way out and leases at a medical building. But what if leasing at the more expensive retail center brought in more income because of the retail exposure? If it more than covered the extra costs for rent and improvements, it should make it worth doing.

If you want help with leasing, buying or selling your commercial real estate, whether office, medical, dental, retail or warehouse/industrial space, contact David Massie of DJM Commercial Real Estate at david@djmcre.com or 805-217-0791.

DANGER: USE AND EXCLUSIVE USE CLAUSES IN COMMERCIAL REAL ESTATE LEASES

Pay attention to how your use clause is written in your lease.  If you don’t, it could come back to haunt you and cost you in many ways. 

Although all tenants need to pay attention to this and make sure the use clause is written correctly, retail tenants need to do this the most.  Imagine you are a retail tenant and you sell a food item, for instance, coffee, as part of your menu.  How do you make sure you always have the right to sell coffee under the terms of your lease?  It’s not as simple as it sounds.  And what if you don’t want other tenants to have the right to sell coffee?  This is where the exclusive use clause comes in.

It is my opinion that a tenant should have a broad use clause.  Example:  “Tenant shall have the right to sell food products”.  That way, the tenant has the right to pretty much sell any type of food product.  But for a landlord, it would be better to limit the use clause to something like “ Tenant shall only have the right to sell coffee and coffee-related drinks”.   In practice, savvy landlords and tenants end up writing the use clause somewhere in between the aforementioned two options.

The exclusive use clause is different than the usual use clause and adds to it in that it should prohibit or severely limit another tenant from selling your main product.  But again, how the exclusive clause is written is of paramount importance.  Example:  “Tenant shall have the exclusive right to sell coffee at the Project” and it might add “except for up to 10% of another’s tenant’s gross income” or something like that with more details for clarification.

The above examples are for retail tenants but the same principle holds true for office, industrial or other types of leases also.  If these clauses aren’t written just right you can have a legal battle on your hands and if the clauses weren’t crafted correctly you probably won’t win the battle so I urge great caution.

I have written and studied thousands of use clauses and make it a priority for my clients to do it right.

If you have questions about any of the above topics or have any CRE needs, please contact David Massie at david@djmcre.com or 805-217-0791

How Being An Expert Witness Helps My Commercial Real Estate Clients

I know, and have worked with, many commercial real estate (“CRE”) brokers.  Most of them aren’t expert witnesses for legal matters related to CRE.  Being an expert witness really gives me the ability to help my clients in ways brokers that aren’t expert witnesses can’t.

One primary way being an expert witness helps my clients is when I learn what the court judges will and will not allow even if a lease or other contract states something to the contrary.  Even if the parties to a contract agree on an issue but it’s now allowed by law or by a judge, my understanding on these issues can really help me negotiate better for my clients and help them get out of sticky legal situations.  

Don’t get me wrong; I am not an attorney.  Hiring an attorney at the right time is something I highly recommend.  But I am often able to use this type of experience, or clout, with a landlord (I bring the landlord tenants many times) as a broker to persuade the landlord. This includes the landlord’s property manager, and sometimes even their legal counsel, with me persuading them that they aren’t going to prevail on a certain matter. I can thereafter reach a reasonable settlement at great monetary, time and headache savings to my client.

And knowing what a court judge or applicable law will allow, no matter what is agreed to in a contract, really helps my clients when I negotiate their leases or purchase or sell contracts.   If the opposing party to us doesn’t agree to change a term that isn’t allowed by law, it gives our side the ability to let this landlord get what he wants in exchange for something we want. However, I always recommend my clients run any of these types of matters by a really good experienced  CRE attorney just to make sure before we say “yes” to the landlord on an issue like this. Many times the landlord doesn’t know the issue he is fighting for isn’t even legally enforceable and usually worthless to pursue for a landlord. 

Lately, I have been involved in landlord/tenant or buyer/seller or other types of disputes on average about four times per month.  Many of these disputes settle out of court, but the ones that don’t can go the legal way. With rare exception, most of the ones that head to court eventually settle, and many at the last minute before a court appearance.  A few examples of some of my recent expert witness assignments involve: terminating a lease early for a tenant and requiring the landlord to mitigate the tenant’s damages, commission dispute between a selling broker and their client seller, commission dispute between a seller and party promised a finder’s fee (paid to a nonlicensed broker), and representing a tenant in retail shopping center against a landlord for a NNN and square footage matter that ended up with me having to testify in court.  I would say the two biggest disputes that I am involved with as an expert witness include terminating a lease early (and requiring a landlord to reasonably mitigate a tenant’s lease damages as prescribed by applicable law) and NNN (tenant’s share of expenses usually for all retail and large industrial CRE) or operating expense increases over a base year (usually office and small industrial leases).

In summary, I learn quite a bit through being an expert witness by being involved in legal cases.  Both judges and very good CRE attorneys have taught me much that can help my clients prevail in difficult disputes related to just about any CRE matter.  And, if necessary and at the right time, I can refer my clients to a really good CRE attorney that has successfully handled their specific type of matter in the past.

If you have questions about any of the above topics or have any CRE needs, including hiring an expert witness, please contact David Massie at david@djmcre.com or 805-217-0791.

Successfully Negotiating the Commercial Real Estate Lease

This is my fourth and final article in a series where I give insight into the world of a California commercial real estate broker. A commercial real estate broker leases/buys/sells commercial real estate (CRE) for the client (tenant/buyer/seller). Commercial real estate is defined for this article as office, retail and industrial spaces.

As reminder from last time, there are four main things a good CRE broker does. They: find suitable locations, negotiate the offer, negotiate the lease itself (the many clauses) and are there when the client needs help thereafter. The first article I wrote was about finding locations; the second about negotiating the major deal points, the third one about negotiating the lease and this one will focus on how I as a broker help my clients after they sign the lease.

What happens if you have a dispute with your landlord after you sign the lease?  Common disputes with landlords that I get involved with quite a bit are a tenant needing to terminate a lease early, HVAC too hot or cold, tenant being overcharged for its share of common area expenses, and many other similar disputes like these.  Shouldn’t you just hire an attorney to help you?  My answer is not right away. If I can settle the dispute, it will save you a lot of money by not having to hire an attorney.

Why can I handle these types of dispute when other brokers can’t and why can I resolve them without usually using an attorney?  Because my experience is mainly from the landlord side of the tenant/landlord equation.  After negotiating over 1,000 leases, handling the property management and legal disputes for large landlords – I’m truly equipped to know how to deal with landlords with disputes like those aforementioned.  It is one of my largest value ads as your broker.  And if you are a landlord, I can even help you also to negotiate these matters with a tenant or the tenant’s attorney because it works both ways with my experience.   I am an expert witness on these matters in court and am used frequently and successfully by real estate attorneys for these types of disputes.

Don’t get me wrong; I value good real estate attorneys highly and use and recommend them often, but only when needed.  I have clout with a landlord because I bring tenants to their property; an attorney does not have this clout.  If a landlord upsets or is unfair to one of my clients, and I share this information with a new potential client, there is a good chance my new client won’t want to lease at this landlord’s project.  I don’t know of any other brokers that offer this service to their clients like I do and have such a high track record of negotiating acceptable settlements between the parties for these types of disputes.

Pick a broker that can help you properly in all areas including these types of landlord/tenant disputes and you will sleep much better at night while saving money and time. When searching, you will find that the list of brokers with this type of expertise is very narrow. Picking the right broker is the key to getting your best deal. You can never do as well, or even come close, if you try and negotiate the deal without a good broker.

If you have questions about any of the above topics or have any CRE needs, please contact David Massie at david@djmcre.com or 805-217-0791.

Want to Lease a Prime Location? It Might Be Best to Buy The Business First

Many of my retail clients, especially restaurants and other food types of users, want to lease a great location with lots of visibility and quality foot traffic.  The main problem is that most of these prime locations are already leased.

So, what if your broker found you a prime location where the business owner might be willing to sell at a very inexpensive price?  Many businesses will accept an unsolicited offer to buy them out inexpensively because they simply aren’t doing that well, are tired of the hours, want to retire, are ready to try something else and for many other reasons.   If you bought the business, you would then have the option to either assume the existing lease or, at times, the landlord will agree on entering a new lease with you instead if he likes your business and/or financial strength better than the existing tenant.

As both a business and commercial real estate broker, I have been successful in doing the above for my clients.  For as little as $20,000, I have been able to secure many prime locations for my clients to lease.  (The price varies for many reasons, such as the worth of the existing improvements in the space, inventory, existing lease terms, perceived value by seller, etc.)

There aren’t many brokers that successfully perform both business sales/buying and commercial real estate leasing/buying/selling like I do, and the combination serves my clients well.  Unless they are very experienced at both, you should never let your leasing broker also represent you on your business sale or your business broker represent you for your lease. They might be good at their main expertise, but won’t be good at the part they don’t do much of; and it won’t end well for you if you do.

If you want to find out more about how to lease a prime location, buy/sell a business or commercial real estate, please contact me at 805-217-0791 or david@djmcre.com or visit our business brokering page.

Retail Spaces Offer a Fix to the Medical Space Shortage in Southern California

Recently, I wrote about the shortage of medical space and an increase in retail vacancies in Southern California right now. My suggestion was to have medical tenants lease space in retail centers as compared to an office or medical building that they traditionally leased space in. This may seem like an unusual suggestion to solve the problem, but recent news suggests that this issue is beginning to grow.

According to CoStar Group, the gaining US population is expected to drive demand for medical space with more than 200 million square feet of medical office space needed in the next decade:

Driven by an aging U.S. population, within 10 years the amount of medical office space needed is projected to be 16 percent more than today, based on current trends. That’s greater than the combined medical office space in New York, Los Angeles, Chicago, and Dallas–Fort Worth, the nation’s four largest medical office markets. This undeniable demographic trend in the U.S. is both a headwind for traditional office demand and an incredible tailwind for medical office demand in the coming years.

So, what are medical tenants to do with this shortage? Lease space in retail centers.  When you lease in a quality retail center, your business has good parking, signage, and retail visibility from shoppers at the retail center.  The main criteria for any business is usually the bottom line so, if being in a retail center increases your net income, wouldn’t you want to be there?  This is rule #1.

Retail space in southern California is undergoing a change.  The smaller to medium sized retail centers in particular are starting to become more restaurant/food and service focused as opposed to other types of retail uses.  Customers at retail centers want to enjoy their experience and be able to do as much as they can at one location.  So, with the foregoing in mind, wouldn’t many medical tenants fit in with this new retail trend of a retail landlord leasing to service providers like doctors and providing a better experience for the retail customer?  I think so.

Read more on this fix for Medical Space Shortage & Retail Vacancies in Southern California.

David Massie specializes in buying, selling and leasing office, medical/dental, retail and industrial buildings -especially off market ones that are hard to find in Southern California that only his clients are made aware of first.  Contact David now if you have interest in finding one for you:  david@djmcre.com or 805-217-0791.

DJMCRE Closes Escrow in 30 Days on a Medical/Dental Property in Oxnard at Premium Price

David Massie of DJM Commercial Real Estate recently closed escrow on a medical/dental property in Oxnard, CA at 1600 W Gonzales Rd. This was a building in need of work that David was able to sell at a premium price for the seller he represented. In addition, the escrow was only 30 days compared to the normal 4 months or more. This is a prime example of why a seller or buyer should hire an experienced broker like David to successfully sell or buy a commercial building.

Remember, because of David’s experience directing some of the largest real estate companies in the US, he can help both tenants and landlords with any of their commercial real estate needs for any type of commercial real estate for leasing, buying, selling and acting as a legal expert witness.

So, why should a seller hire a broker and pay him a commission when a seller can do it on their own?

  • Simply put, the seller will not be able to get the maximum price that a good broker can. Many brokers have clients waiting in the wings to buy a property and these clients will pay top dollar if they are allowed to make the offer first.  Also, the price a broker is able to sell a property for more than pays for their commission.
  • Sellers don’t have the same marketing ability as a broker. The world has become international and your reach has to be international.  The dollars are flowing into the US from other countries right now and international buyers are willing to pay more many times.  Brokers also know what is needed in terms of a marketing package to interest buyers. It’s complicated, expensive, and time consuming to put this package together properly.
  • The timing of when to put the property up for sale is critical. When is the market peaking?  Is there a lot of competition on the market for sale now?  Good brokers will usually know what is for sale on the market as well as off market, but sellers won’t.
  • The repairs that you need to make to the property before you put it on the market are also important. Some are worth making and some aren’t.  A good broker usually knows what to recommend.
  • What should the asking price of the property for sale be? What if there are no comparable prices for the sales price because the sales price is higher and the property won’t appraise for the sales price and therefore might not sell for this price and waste everyone’s time?
  • There are many other factors in selling a commercial real estate property; but, in our opinion, it starts first and foremost with the right broker. Doing it on your own is always a mistake.  If you don’t hire the right broker or if you do it yourself, it will cost you.  We have seen it many times.

If you want to learn more about leasing, buying and/or selling any and all types of commercial spaces in California or if you have questions about any subject related to commercial real estate, please contact David Massie of DJM Commercial Real Estate at david@djmcre.com or 805-217-0791.

Most Important Factors to Consider When Buying Commercial Real Estate

If you’re like most commercial real estate (CRE) investors, you probably receive deal packages from brokers with CRE properties (defined here generally as multi-family, office, retail and industrial) for sale. Often, these packages contain executive summaries that position the deals as excellent investment opportunities. This should come as no surprise, as the job of the real estate broker is to present their property in the best light.

In many cases, sellers exaggerate the potential opportunity and don’t usually reveal the bad stuff. Instead, they’re just giving you the good points of their property. The due diligence is up to you, the investor, to determine whether what they’re telling you is accurate. The key, of course, is to know how to perform the due diligence so you have a true and accurate reading on what’s being offered. It’s important to understand the key metrics to always look for in any real estate investment and I am always surprised at the most obvious metrics that I see the majority of investors miss.

When you look at the potential of a CRE property, you’re really looking at how much income or profit it is generating for its owners. What should you be evaluating to determine that? Start with all the basic purchase information. This includes the price and any additional costs involved in renovating or repairs that need to be done.

You should also look at factors that might make you pass on the deal like: the condition of the area in general, crime, surrounding job market, property and other governmental taxes (Example:  High business tax is a big one in the City of Los Angeles that can cause a tenant not want to lease in this city) and the age of the property. These are often deal-breakers if they reveal too much potential risk.

The loan is another key metric: What type of loan will you have to finance the property? This will spell out the loan totals, down payment, interest rate, closing costs and other fees. Make sure you are comfortable with the loan structure (fixed versus floating rate, long-term versus short-term, etc.). You should also receive a detailed expense report on the property including: property taxes, insurance, maintenance costs, property management costs and others.

To buy a property correctly, I always recommend you have proper representation.  This first and foremost means using an experienced CRE broker and a good CRE attorney.  Most CRE brokers can refer you to a good CRE attorney because they have to use them all the time.  But a good CRE broker can also usually find better properties that are better values. They can also negotiate better than you can and your broker is paid by the seller. So really, it’s a no brainer to use a good CRE broker.

If you have any further questions about buying CRE or just want to make sure you do it right, contact David Massie at david@djmcre.com or 805-217-0791 or look us up at www.djmcre.com.

How a Broker Successfully Negotiates the Commercial Real Estate Lease

This is my third article in a series where I give insight into the world of a California commercial real estate broker. A commercial real estate broker leases/buys/sells commercial real estate (CRE) for the client (tenant/buyer/seller). Commercial real estate is defined for this article as office, retail and industrial spaces.

As reminder from last time, there are four main things a good CRE broker does. They: find suitable locations, negotiate the offer, negotiate the lease itself (the many clauses) and are there when the client needs help thereafter. The first article I wrote was about finding locations; the second about negotiating the major deal points and this third one will discuss negotiating the lease.

Most brokers and even many attorneys don’t negotiate the lease properly.  Why?  For brokers, many of them simply don’t know what most of the clauses mean and/or simply don’t have the experience to negotiate them properly.  For attorneys, it usually has to do with them not specializing in lease contracts and, again, not having enough experience and knowledge to do it properly.   Both brokers and attorneys many times specialize in only one area, like office or retail or industrial leases, but not all of them so it’s best to get one that specializes in the lease you are negotiating.

The main problem with using a broker or attorney that isn’t experienced and knowledgeable enough at negotiating a lease is that it will usually cost the tenant money and/or problems later on.  There are many clauses in leases that can bankrupt a tenant even when their rent is low like only $1,000 per month. These include insurance clauses, indemnification clauses, operating expense share clauses, maintenance provisions and more.  Therefore, it’s not the size of the deal that matters, it’s what was agreed to in the lease that matters.  A tenant should tread carefully here. I recommend using both an experienced broker and a specific commercial real estate attorney for a lease. In cases like this, two sets of experienced eyes are better than one.  I have saved my clients a lot of money by doing the lease review first and then sending it to their attorney to review thereafter.

After negotiating over 1,000 leases, and over 100 leases per year for many years, I have the experience to really help a tenant in this area.  It’s not something most brokers can do.  Pick a broker that can help you  properly in this area and you will sleep much better at night. When searching, you will find that the list of brokers with this type of expertise is very narrow.  Landlords  usually have a good real estate attorney create their lease and the bigger ones have their attorneys negotiate the lease clauses. Because of this, you really need to even the odds and have someone that specializes in lease negotiating on your side.

Picking the right broker is the key to getting your best deal. You can never do as well, or even come close, if you try and negotiate the deal without a good broker.

Next time, in the final article in this series, we will discuss how a broker can help their client after a lease is signed for items like construction, moving, landlord disputes, terminating a lease early, etc.  Most brokers, unfortunately, cannot do much here as they simply lack the experience and/or knowledge to do so.

If you have questions about any of the above topics or have any CRE needs, please contact David Massie at david@djmcre.com or 805-217-0791.